Hungarian officials are attempting to distance themselves from Friday’s economic statements regarding the “Very Grave Situation” in Hungary. Please consider Hungary Backtracks on Talk About Default.

Hungary’s government on Saturday tried to calm investors and distanced itself from earlier comments by officials claiming that the country was close to defaulting on its debts.

State Secretary Mihaly Varga, a former finance minister, described talk of a default ”exaggerated … and unfortunate,” adding that the new, center-right government of the Fidesz party was committed to the 2010 budget deficit of 3.8 percent of GDP set by the previous administration even if ”immediate and urgent” steps were needed to achieve it.

”Hungary has made serious progress in consolidating its public finances over the last couple of years,” Olli Rehn, Europe’s commissioner for economic and monetary affairs, told reporters after a meeting of the Group of 20 in South Korea on Saturday. Any talk of a risk of default ”is widely exaggerated,” he said.

”The claim that the country is on a brink of sovereign default and risks following the Greek path does not hold up against the facts,” said a report on emerging markets from Goldman Sachs analyst Magdalena Polan. ”Hungary has already faced a crisis and asked for IMF and EU assistance in late 2008. In this context, Hungary is some 18 months ahead of Greece.”

The report also noted that Hungary still had access to unused parts of the rescue package of 20 billion euros ($27 billion) it was granted in 2008 and that the country could ”roll over” or replace its maturing debt with new loans ”without a problem.”

Sounds like to me Hungary is still on life support.

For a look at the comments that rattled the markets on Friday, please see Dollar Soars; Euro, Euro/Swiss, Forint Hit New Low; Hungary’s Prime Minister says Economy in “Very Grave Situation, Default Talk Not an Exaggeration”

Today’s comments that ”immediate and urgent” steps are needed to hit budget targets aren’t exactly reassuring.

Finally, just because Hungary blew up 18 months before Greece does not mean it can’t or won’t do so again.

Europe Headed Back In Recession

Let’s just see what happens to the European economy when Greece, Spain, Italy, France, Portugal, Hungary, and the UK (anyone else?) simultaneously implement various austerity programs while Germany raises taxes.

Europe will be back in recession in no time flat. That’s a needed adjustment, but the politicians and economists will not see it that way, and the economic cheerleaders will not know what hit them.

No Decoupling

Remember the ridiculous decoupling theories in 2007 and 2008 about how Europe and China would decouple from the US market and be unaffected by a recession in the US?

Now we hear the same theory in reverse, that the US economy will not be negatively impacted by a slowdown in Europe and Asia.

All of the economic cheerleaders who got it wrong in 2008 are going to get it wrong again.

Mike “Mish” Shedlock
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