Forint falls on mortgage relief plan, EU debt threat

Forint falls on mortgage relief plan, EU debt threat

Wednesday, July 2, 2014 3:45 pm

BUDAPEST – The Hungarian forint fell to a three-month low point on Wednesday when investors showed alarm at a radical government plan to ease household debt and a warning from Brussels over rising public debt.

The forint has been falling since details emerged last week about the new debt relief package, dropping to 312 forints to the euro on Wednesday, the lowest rate since late March.

The government’s new plan is meant to help Hungarians, still struggling to repay foreign-currency loans which many took before the 2008 financial crisis, but then faced huge payments when the forint plunged.

Analysts say investors fear that the latest measures could destabilise the Hungarian banking sector, which will foot most of the bill, estimated at several billion euros.

The first part of the package will be put to a parliamentary vote on Friday and is expected to be approved.

It would allow the conversion of foreign-currency loans into forints at below-market rates, and force banks to compensate borrowers for certain practices, including unilateral increases in interest due.

Banks, if challenged by individual debtors, will also have to prove in court that their contracts were fair.

About a million Hungarians took out foreign-currency mortgages — mostly in Swiss francs — before the financial crisis, only to see the forint fall sharply after that, leaving hundreds of thousands with soaring monthly instalments.

Hungarian households now owe about 10 billion euros ($13.5 billion) to the banks.

The new proposal is just the latest in a series of measures introduced in recent years to solve the problem, to no avail. Prime Minister Viktor Orban has meanwhile insisted that the banks — mainly foreign ones — must do more.

The forint’s fall also comes after the European Commission on Tuesday issued a statement threatening to restart an “excessive deficit procedure” against Hungary unless it takes urgent steps to cut its budget deficit and its debt level, which is the highest in central Europe.

Budapest just exited the procedure — which can lead to a freeze on financial aid — in June 2013, in recognition of its efforts to fix its public finances.

Hungary is a member of the European Union but not of the eurozone.

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