Amadeu Altafaj |

Worries over Hungary's debtor help plan

Sándor Laczkó
September 13, 2011

Brussels expressed its concerns over the Hungarian government’s plan to help people with foreign currency-denominated mortgages by allowing debt pay-off well under the market rate. Austria is infuriated and “firmly rejects” the measure.

The European Commission has “some concerns” regarding Hungary's plans to let foreign currency borrowers wind up their outstanding debts at a big discount to market levels, European Commission spokesman Amadeu Altafaj said on Tuesday.

If Parliament passes the proposal, which looks like a sure bet given the ruling coalition’s two-thirds majority, Hungarians with sufficient savings would be able to repay their FX mortgages in full at CHF/HUF 180 and EUR/HUF 250, far below current market exchange rates.

"The Commission has some concerns over the recently announced plans," Altafaj told a regular news briefing. "Although the plan could decrease the exposure of some households it could have a serious negative impact on the Hungarian banking system," he said.

He added the plan may have negative repercussions for the Hungarian economy as such, because it could lead to banks tightening credit to households, affecting the general investment climate. "We’ll have to study if there are problems regarding European law, Treaty compliance for instance [...], the free movement of capital and also state aid," Altafaj said.

He noted that the plans were announced only yesterday and so their assessment on the potential financial, economic and legal risks is "very preliminary". "There is a fluent dialogue with the Hungarian authorities" on this and other issues, but also "discussions have to take place in Hungary itself".

Hungary's plans infuriated neighboring Austria, home to some of emerging Europe's top lenders, such as Raiffeisen and Erste. Austria "firmly rejects" the measure, which may cause "enormous losses" to banks and risks regional financial stability, Austrian Finance Minister Maria Fekter said on Monday.  Michael Spindelegger, Vice-Chancellor and Foreign Minister, said the initiative was "course of action that we can't accept" and called on the European Commission to ask for a temporary injunction at the European Court of Justice.

Sándor Laczkó

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