Hungary and Other Emerging EU Countries in the Financial Storm : From Minor Turbulences to a Global Hurricane

This book analyzes the banking crisis and the events surrounding it in Hungary and other emerging EU member countries in 2007-2013. Written by Júlia Király, a former policymaker, and the Deputy Governor of the Hungarian Central Bank at the time of the crisis, it also offers a firsthand account of the processes in and responses to the financial crisis. While there is extensive literature on the crisis, most of it focuses on the US or the Eurozone, sometimes mentioning the “emerging world” in passing. However, Central and Eastern Europe experienced the crisis very differently than other emerging countries. In the pre-crisis years, the region in accession to the EU attracted abundant fresh capital, but the seemingly unconstrained global liquidity fuelled credit bubbles. After the Lehman crisis, capital rapidly fled these countries. In this part of the world, the recession proved to be much worse than elsewhere, with double-digit growth soon turning into a double-digit decline in GDP. Several countries had to turn to the IMF and the EU for stand-by credit. Based on her own inside experience as a top central banker, the author offers a personal yet professional analysis of the causes and consequences of the financial hurricane. Foreword 7 Preface 11 Acknowledgement 13 Contents 14 List of Abbreviations 16 List of Figures 17 List of Table 19 Chapter 1: A Short Postcommunist Economic History of Emerging Europe 20 References 24 Chapter 2: Pre-crisis Central Banking 26 2.1 Inflation Targeting: Successes and Failures 26 2.2 Getting to Know the Central Bank 31 References 35 Chapter 3: Bubbles Everywhere (The 2000s) 37 3.1 Credit Bubbles All Over the World 37 3.2 Foreign Exchange Credit Bubbles in Emerging Europe 40 References 46 Chapter 4: Under the Clouds of the Subprime Crisis (July 2007–September 2008) 49 4.1 The Unfolding Global Financial Crisis 49 4.2 The Phantom Menace 53 References 60 Chapter 5: The Lehman Tsunami (September–October 2008) 63 5.1 The Bankruptcy of the Lehman Brothers 63 5.2 Thursday, the Day of Superstitions (9 October 2008) 68 5.3 The Puzzle Is Finally Pieced Together 70 References 73 Chapter 6: The “Rescue Team” and Rescue Package (October–December 2008) 75 References 83 Chapter 7: Emerging EU Member Countries in the Storm (Spring 2009) 85 7.1 Lack of Solidarity: The Central and Eastern European (CEE) Crisis 85 7.2 After All, There Is Solidarity: The Vienna Initiative 2008–2010 91 References 95 Chapter 8: Recovery from the Deep Recession (March 2009–April 2010) 96 8.1 The Bajnai Government and Fiscal Dilemmas 97 8.2 Monetary Policy Dilemmas 100 8.3 Restore Financial Stability 104 References 107 Chapter 9: Eurozone Crisis in Europe and a Bold U-Turn in Hungary (May–December 2010) 109 9.1 The Overture to the Eurozone Crisis 110 9.2 Playing the Greek Card 113 References 119 Chapter 10: Hungarian Double Dip (2011–2012) 121 10.1 The Hot Summer of 2011 122 10.2 Hungary in Junk 126 10.3 Consolidation 132 References 136 Chapter 11: Farewell to the Central Bank (2013) 138 References 144 Chapter 12: Lessons and Aftermath 145 References 157 Front Matter ....Pages i-xxi A Short Postcommunist Economic History of Emerging Europe (Júlia Király)....Pages 1-6 Pre-crisis Central Banking (Júlia Király)....Pages 7-17 Bubbles Everywhere (The 2000s) (Júlia Király)....Pages 19-30 Under the Clouds of the Subprime Crisis (July 2007–September 2008) (Júlia Király)....Pages 31-44 The Lehman Tsunami (September–October 2008) (Júlia Király)....Pages 45-56 The “Rescue Team” and Rescue Package (October–December 2008) (Júlia Király)....Pages 57-66 Emerging EU Member Countries in the Storm (Spring 2009) (Júlia Király)....Pages 67-77 Recovery from the Deep Recession (March 2009–April 2010) (Júlia Király)....Pages 79-91 Eurozone Crisis in Europe and a Bold U-Turn in Hungary (May–December 2010) (Júlia Király)....Pages 93-104 Hungarian Double Dip (2011–2012) (Júlia Király)....Pages 105-121 Farewell to the Central Bank (2013) (Júlia Király)....Pages 123-129 Lessons and Aftermath (Júlia Király)....Pages 131-145