Received wisdom has Portugal, or perhaps Spain, entering the sights of evil sovereign debt speculators once everyone really does get bored with Greece.
But Maya Bhandari of Lombard Street Research reckons we should be looking north of Athens, ratehr than west - to Hungary and its fragile forints.
From a note dispatched to LSR clients late on Thursday:
SUMMARY: Greek banks don’t look fundamentally stretched, but are being severely tested by the markets. Hungarian banks have loans 1.2 times greater than deposits, with around 60% of all mortgage and corporate loans in foreign exchange – but have so far been safe. Greece has owned up to its fiscal situation – Hungary, once the elections are over, will do the same. And once state owned companies are consolidated into Hungary’s budget, the fiscal deficit will not be 4%, but may be 7%. The status quo is unlikely to last.
Bhandari admits that drawing parallels can be dangerous – but she’s gone ahead and drawn then regardless:
Hungary’s banks are hanging on to a cliff. They have been rescued primarily by their European parent banks – Austria, Germany and Italy “own” 24%, 21% and 17% of the Hungarian banking system – and generous international rescue packages. Hungary’s economy meanwhile has been battered, by its export-fuelled economy, IMF constrained policy-making, and a central bank that has, until recently, kept interest rates elevated to avoid a currency sell-off, which would devastate private sector balance sheets. Hungary was amongst the worst struck economies through this crisis – it entered recession in Q2 08, before the crisis took root – and has been amongst the slowest to recover. So far, it has contracted by 8.5% in real terms, more than double Greece’s recession, and is still searching for a bottom, with rising unemployment. And contrary to the received wisdom, it has not reaped the benefits of independent monetary policy and boosted competitiveness: the HUF has depreciated by less than the euro against the US dollar over the last six months.
Crucially, the apparent improvement in Hungary’s fiscal position — from a 2006 deficit of 9.2 per cent of GDP to an estimated 4 per cent last year — excludes the losses of state-owned companies, and those now need to be consolidated . . .
Adds Bhandari:
The central bank estimates a 2.7% “knock” to the budget from this source, and the Fidesz party, which is likely to win the election (the second round ends on April 25th), has pointed to a final figure closer to 7.5%. And all this comes on top of an 80% debt to GDP ratio. Whether contagion passes from Greece to Hungary remains to be seen. Either way, Hungary’s banks and currency are poised for a correction.