Effects of the Global Financial Crisis in Hungary: Housing, Debt Crisis and International Support
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Abstract
Hungary was the worst-hit amongst the Central European EU member-nations by the global financial crisis. Interestingly, its economy was performing quite well initially after the end of the communist rule in 1989. Hungary successfully reduced its debt from 90% of GDP in 1993 to 52% in 2001. But, since 2002, the debt situation in Hungary worsened significantly. In 2008, the global financial crisis led to immediate financial difficulties for Hungary which already had high Government debt and external debt. The lion’s share of Hungary’s government debt was foreign-owned. The household sector also had nearly two-third of its debt in foreign currency. As a result, there was a huge liquidity pressure on the Hungarian banks. The high debt levels of the economy did not leave enough room to absorb the shocks of the global financial crisis. The paper looks at macro management issues of Hungary before, during and after the global financial crisis with special emphasis on the debt issues of the housing sector. It also looks at the policy measures that helped to avoid a major banking crisis and regional contagion, including the support from the International Monetary Fund and the European Central Bank. This paper connects the economic legacy of the post-communist transition, with special emphasis on the housing finance policy, to the impact of the global financial crisis in Hungary.
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