A new front has opened in the war to defeat the EU debt crisis and it is not within the Eurozone. Hungary had to abandon a planned bond swap auction when the florint tanked and borrowing costs went through the roof because the markets bet on it becoming the first EU country to default on its debts.
Hungary recently changed its constitutional laws in the face of serious EU concerns over their compatibility with EU law and basic values as it appears to increase executive control over such bodies as the judiciary and central bank as well as the press, which are meant to be independent.
This puts Hungary and the EU at loggerheads further denting already delicate investor confidence, which has already been battered by concerns over the debt position of Eurozone member countries.
The Telegraph reports that Hungary must roll over â‚¬5 billion of its debt this year and is due to start repaying an IMF loan in February inherited from the country’s last financial crisis in 2008.
But Hungary has stumbled at the first fence as its plans to convert old debt into new debt at this auction have become too expensive with bond yields at about 10%.
Borrowing costs in other central European countries also rose in sympathy.
This comes as the Greek Prime Minister said that his country would be forced out of the markets and face an ‘uncontrolled default’ in March unless the unions and employers played ball to support the upcoming â‚¬130 billion bail-out.
Spain also comes under the spotlight as it says it needs to make a further â‚¬50 billion provision for bad property assets as it continues its financial sector reforms.
And while this plays out the Eurozone banks that have been so carefully bailed out are now sitting on a â‚¬453 billion pile of cash safely parked with the European Central Bank as they are very wary of lending it to anyone else.
One beneficiary of all this is sterling. The currency rose to a 15 month high against the Euro.