2012 couldn’t have started worse for the Orbán cabinet. Most financial indicators declined sharply in December and this trend continued in the first week of 2012, reaching levels never seen before. Hungary’s credit risk premium (cds) rose to over 700 base points, setting an all-time record high. The 5-year bond yield climbed to double-digit levels, jeopardizing debt sustainability in the long term. The Hungarian Forint also weakened to a historical low of 320.78 against the euro. This renders debt service even harder for highly indebted (mostly in foreign currency) households along with local governments.


While the PM’s Friday speech on January 6 managed to calm markets, later on during the afternoon Fitch announced – subsequent to identical steps by Moody’s and S&P’s last year - the downgrade of Hungary’s credit rating to junk status with a negative outlook. The pressure is high on the government to reach an agreement with the IMF-EU as soon as possible. Even though the cabinet is said to have a plan-B, a bailout from the IMF-EU appears to be the only realistic way out.