A few weeks back, a friend who is a professor at a university in the United States wrote me to asking for advice in arranging interviews with Hungarian economic policymakers about the progress of the country’s IMF/EU bailout and recovery. I responded by saying I didn’t really give a hoot what Hungarian economic policymakers said, and suggested that if she wanted to get a useful “official” opinion on the current state of Hungary’s state finances, she should instead check in with the IMF and EU. If only I’d cc’d the rest of the world’s economists and financial journalists on the message…
Seriously. In what must be one of the craziest episodes I’ve witnessed in almost 20 years covering financial markets, a global mini-meltdown has been triggered or at least stoked by people listening to – and taking seriously – the ramblings of a few Hungarian politicians. If you didn’t follow the story, it started on Thursday with an influential mayor (Lajos Kósa of Debrecen, who is a major player in ruling party Fidesz) warning that Hungary would be lucky to escape a Greek-like collapse, and picked up the next day with government spokesman Péter Szijjártó (left, center) refusing to contradict Kósa (above). By late Friday, an avalanche of stories suggesting Hungary’s sudden descent back into the abyss might trigger a major global crisis had triggered a semi-major global crisis, with traders and investors seeing the alleged Magyar meltdown as a green light to dump euros and equities. Even after a weekend of reassurance from budgetary “fact-finder” Mihály Varga (bottom), the IMF, EU and others, Asia was still down earlier today, with Hungary cited as a major reason for the selling.
And all because people foolishly assumed that some Hungarian politicians might be telling the truth!
I’m not joking. If there is a lesson to be learned from this min-crisis, it is that the mechanisms markets use for transmitting information are seriously hobbled by a tendency to take at face value things officials say, and not make it manifestly clear they might be utter bullshit. Sure, it is probably necessary to put on record the pronouncements of officials deemed important, especially if the pronouncements involve important things like the prospect of a sovereign default, or a sudden discovery that a state’s finances are in worse shape than previously assumed. But that doesn’t mean they need to be taken seriously.
In this case there was certainly never any reason to believe that what was being said was believed even by the people saying it. Anyone who knows anything about the current state of affairs in Hungary knows that Fidesz ran on a platform involving promises of fiscal easing, promises that it was plain even Fidesz knew all along they would have to break. Last week’s “OMG just look at the mess those Socialist baddies left behind” moment was as predictable as the party’s return to power – I was writing about it in January – and every analyst and journalist who played a role in transmitting the comments should have known and made clear that the whole thing was just an exercise in managing local expectations.
Equally dismaying is that no one seemed to have figured out that, if the incoming government had really discovered a bunch of awful “skeletons” in the fiscal closet, the IMF and EU – both of which have been monitoring the country’s accounts as part of the bailout agreement – would be as culpable as the outgoing government. Finally, it would be nice if some media organization with guts and deep pockets looked into the now-widespread rumors that the crisis was engineered by some Fidesz-niks hoping to make a quick buck by shorting Hungarian assets. So fail, fail, fail.
Now, all this is not to suggest that Hungary’s fiscal position isn’t a bit worse than previously assumed. On the other hand, if you start from the assumption that the people in charge are all lying dolts unless proven otherwise, that’s hardly news.