Damien McElroy
February 26, 2009

The birthplace of the Rubik’s Cube has provided its government with a multi-sided financial crisis that defies any ingenious solution.

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The forint currency has plummeted and unemployment has ballooned, creating a voracious debt trap that is sucking down banks backed by Western taxpayers, particularly those of Switzerland and Austria.

Laslo Gulyas, a Budapest barman, is one of the lucky few who can still meet his repayments. “In times of trouble people need to keep drinking,” he bleakly noted at the counter of a handsome pub in Habsburg-era building.

“But it is sure now that many people with mortgages that were taken because they were cheaper than local loans, have lost their jobs and can’t generate the money to make the repayments.”

For almost a decade Hungary binged on cheap foreign loans taken out in Swiss francs and euros. It was a regional trendsetter. Foreign banks targetted the newly liberated central and eastern European states hoping to expand rapidly in new markets.

“People’s desire for wealth was not bound by the forint,” said Laslo Czirjak, a Budapest fund manager. “They borrowed in Swiss francs, euros and, even for a time, Japanese yen was available – it was just nuts.”

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