Stat of the day: Hungary joins list of sovereigns with highest default probability

Hungary has just crashed the sovereign default risk party, taking over the number ten spot of potential sovereign defaulters.

This Month: 04 June 2010


A month ago, it was California’s time in the hot seat, with its CDS at 254 bps and a default risk of 20%.

Last Month: 11 May 2010


While California’s risk had surged by 11 May, overall default risk had subsided somewhat. 

Bad May Numbers: 06 May 2010


Now, risk is rising substantially. With Venezuela’s CDS trading at an eye-popping 1400 bps. Argentina is also over 1000 bps. What stands out for me is that the number ten spot now occupied by Hungary is more risky than ever.  This says the sovereign debt crisis is intensifying.

Hungary’s currency has plunged, making Hungarians’ large debts in other currencies more expensive. Edward Hugh already noticed the comparisons to Greece in January. But Josh Noble at the FT’s blog beyondbrics says "comparisons with Greece – at the moment – look flimsy." He says that if the new Hungarian government takes the right steps, they can restore confidence, despite allegations the previous government fiddled the figures.

But, people are worried about serious contagion. Win Thin says these worries are overblown.

While the outlook for that country remains poor, it does not quite have the potential to roil markets as much as Greece or the other peripheral euro zone members.  We looked at BIS on cross-border banking exposure to Hungary as of Q3 09, and total was $158.1 bln vs. $302.6 bln for Greece, $286.7 bln for Portugal, and $1.15 trln for Spain.  Still, it’s worth noting that 92% of that exposure is held by European banks, with Austria (24% share of total), Germany (21%), Italy (17%), Belgium (12%), and France (8%) accounting for the lion’s share.  Despite having many loans denominated in Swiss francs, Swiss banks themselves hold only 1% of the total cross-border banking exposure to Hungary.  UK and US exposure is negligible.



Yes, there is a lot more exposure to Italy, Ireland and Spain but we know that Thailand was the ultimate source of the Asian Crisis. These things have a way of metastasising – and we have already seen the strains in Spain and Greece. You could really argue that it was Hungary which was infected by a virulent strain of the Spanish Flu – and that contagion has already begun.  I think people are concerned for good reason.

  1. Ashleystc says

    The role Of Neo-Liberalism, in widening the income gap between the rich and the poor.

    June 5, 2010 by

    The role of Neo-Liberalism, in widening the income gap between the rich and the poor.

    “One of the most pronounced effects of Neo liberalism is to create wealth inequality within national borders and between states. Within a decade of adopting free market policies, the class divide in the US and UK became significant.” Professor G. William Domhoff. UC @ Santa Cruz.
    It is just another indictment of Neo liberalism and its multi-faceted destructive policies encumbered upon people of the world. It is very fascinating to note, that the income gap between the poor and the rich has more pronouncedly been evident in the US and UK, the joint creators of Neo liberalism.
    This enormous income gap between the rich and the poor in the US has concentrated more power in the hands of the rich and has created a feeling of helplessness on the majority of American citizens who have been marginalized by Neo liberal policies.
    Consequently, sooner or later, the question will arise, whose country is it anyway? It is obvious that the widening of the income gap in the US is close to the breaking point. It is not if, but when it breaks, no one can forecast how it might end. It is just that the Corporations are blinded by greed, and our representatives are muzzled by big business.
    Writing on the subject of Neo liberalism’s impact on social cohesion, David Coburn, from the University of Toronto writes: “While it has been asserted that neo-liberalism produces a lowered sense of community it might also be argued that the rise of neo-liberalism is itself a signifier of the decline of more widespread feelings of social solidarity. The political rise of neo-liberalism is freighted with a more individualistic view of society and, perhaps, itself reflects a decline in the notion of we are all in the same boat. Not only do neo-liberal policies undermine the social infrastructure underlying social cohesion but neo-liberal movements themselves are partial causes of the decline of a sense of social cohesion.”
    It is absolutely frightening, what Neo liberalism is doing to societies. It is corroding the very fiber that societies are built upon. Neo liberalism is cancerous. It is undermining our Democratic system. When a government becomes a by stander when millions are practically becoming paupers, while the few are amassing billions, then, the people have no protector. Laws, Rules and Regulations are in the books only to protect the interest of the rich.
    In a wonderful article entitled, “Skewed Wealth Distribution and the Roots of the Economic Crisis”, David Barber, a Professor at the University of Tennessee, wrote:

    “And what is true in the United States of the unequal distribution of wealth, and of the consequences of that unequal distribution, is true again on a world scale. This super-poor mass of humanity, from whose soil is ripped vast amounts of mineral and agricultural wealth, and out of whose labor the world’s manufactured goods increasingly come, are almost wholly excluded from participating in the world’s market economy”. So, what is to be done?
    While a number of social scientists have forwarded divergent solutions for anarcho-capitalism to save itself, Professor Michael Rustin at the University of East London suggests the following points are “made necessary by the implosion of the neo-liberal system in the current financial crisis, and are needed to construct a new post-neo-liberal phase of democratic capitalism”.
    The five points he has put forward are the following:

    (1) A more active role for governments in regulating markets, and especially global financial markets

    (2) Constitutional reforms which enhance democratic processes and civil liberties, and create more representative and pluralist systems

    (3) Policies, which reduce inequalities, and give greater weight to social justice and social inclusion.

    (4) The enhancement of the capacities of international institutions, and especially the EU, to maintain economic stability and growth

    (5) Programmes to address the problems of climate change.

    Very sensible, are they not? But Wait!!! We have to see which governments have any backbones left in them to try and regulate the market, and do away with thirty years of destruction of the people that started with Reagan and Thatcher.

    As I am ready to post this article, I hear a news story that stated that “Hungary might default on its debt”. What is the world coming to. Wasn’t Hungary the darling of the West? Didn’t it do everything that it was asked to? It privatized everything. It reduced government employment. It cut welfare as it was told to do by “free Market Reform” advisors. Hungary did everything a good and obedient follower of Neo liberalism is supposed to do. Yet, it is threatening to “default” on its debt in spite of a $24 billion IMF and EU loan few months back. This is the fruit of Neo Liberalism.

    Do you wonder, which devoted and submissive follower of Neo liberalism will bite the dust, next?

    Professor Mekonen Haddis.

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