rozwado
/ 2009-03-10 10:20
/
Tysiącznik na forum
The crisis has hit central and eastern Europeans so disproportionately hard because of two policy errors by their governments. The first was to encourage households to obtain mortgages in foreign currencies. In Hungary, almost every mortgage is a foreign currency mortgage, mostly denominated in Swiss francs. The choice of Swiss francs is plainly ludicrous – testimony to economic illiteracy. I could just about understand foreign currency borrowings in euros, since Hungary will eventually join the eurozone. But Hungary will presumably not join the Swiss Federation. The money that Hungarian households saved on cheap Swiss interest rates has been more than wiped out by the rise in the Swiss franc.
The second policy error is directly related to the first. The new EU members treated eurozone membership as a voluntary policy choice. This is a misinterpretation of their own accession treaties. When they signed up to EU membership, they signed up to the euro as well. Only the UK and Denmark have a legal opt-out. Of course, as newly industrialised economies, they were not under an obligation to join immediately, but they were under an obligation to conduct policies consistent with eventual membership. If they had pursued such policies, they would almost all be members by now. Slovenia and Slovakia have demonstrated that, given the right policies, it was possible to enter the eurozone early on. Both these countries are now safe. For the others, the decision to procrastinate turned out to be a financial stability disaster. If confronted with a crisis such as this, you do not want to be a small open economy, on the fringes of the eurozone, with an irrelevant currency and lots of Swiss franc mortgages.
But the central and eastern Europeans got one thing right. They made sure their banks were owned by foreigners. Austrian banks are among the most active. Their exposure to eastern Europe is about 80 per cent of Austria’s gross domestic product. If Hungarian households default, it is not Hungary that will go down, but Austria. Italy and Sweden are also exposed. A central and east European crisis is therefore a systemic event for the eurozone as well. One should not therefore treat this as someone else’s problem – because it is not.