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Melting Down the Iceberg: A Hungarian Perspective on Europe’s Economic Crisis

Before coming to Washington as Budapest’s official envoy, Hungarian Ambassador György Szapáry worked for many years as an economist in the International Monetary Fund’s DC headquarters.  No stranger to either the highest echelons of politics or economic minutiae–he also served as deputy chairman of Hungary’s Central Bank–-Ambassador Szapáry claims to prefer the latter. “I’m really an economist,” he admitted recently during a lecture given at Indiana University, Bloomington, “although in Washington I tend to speak more about non-economic issues.  But I feel like I’m in my element here, when I can come to a university and speak about economics.”

Ambassador Szapáry had come to Bloomington to mark the annual celebration of Hungary’s 1848 revolution, where he gave a brief historical address.  The day prior, however, he gave a public lecture on the economic crisis currently faced the countries of the EU (including, of course, Hungary), and possible ways out of this conundrum.  And conundrum it is: as Ambassador Szapáry pointed out, this isn’t just a period of economic shrinkage, “this is a triple crisis.  You have a financial crisis, you have a debt crisis, and you have a growth crisis.  This is very, very serious.”

The current crisis, as Ambassador Szapáry went on to explain, is not only a serious matter, but one without an obvious solution.  Working to clarify the economic instruments that had been used by various banks in Europe in the lead up to and during the crisis–and how “governments intervened by either giving loans to the banks, or buying shares, or in some countries, like in the UK, or in Ireland, or Iceland, actually nationalizing the banks”–the Ambassador laid out in plain language the underlying causes of the situation facing countries like Greece today. As the crisis has deepened throughout the European Union, he argued, the lack of liquidity in financial markets has combined with a complete lack of confidence, leading to a situation where various countries “simply can no longer borrow, even at very high interest rates.” Part of the trouble as well, Ambassador Szapáry emphasized, is that each country in the EU arrived at the current economic situation from a different direction, and in its own  way: we can call it one “crisis,” but its conditions differ notably from one locale to another.

At the same time, knowing that the conditions of economic slowdown, debt accumulation, and consumer confidence may be different in different EU countries, Ambassador Szapáry warned, shouldn’t lead us to believe that the solution would be for Greece, Spain, Ireland, or other countries faced with harsh “austerity” measures to simply leave the union.  There can be a temptation, he admitted, to grow frustrated by the seemingly endless discussions and disagreements between the leaders of Europe. He compared them to the “captains of 27 destroyers, each one going in its own direction.”  Yet rather than seeing the solution to the current crisis in allowing each of these ships to sail off on its own, Ambassador Szapáry emphasized, we would be better served in seeking coordinated leadership, as this would far more successfully target the underlying confidence and growth crisis across Europe.

Although Hungary itself was caught less by the current economic downturn than many other European countries, simply because its economy was less connected to international capital flows, it too has a strong interest in working with the rest of the European community and returning to a position of economic vigor. “The crisis caught the world in a very vulnerable situation,” the Ambassador argued throughout his lecture, and the way out will be to collective rebuild stronger and more effective mechanisms of avoiding a return to this vulnerable position.

H.E. György Szapáry, Ambassador Extraordinary and Plenipotentiary of Hungary to the United States, visited Indiana University, Bloomington on March 7-9, 2012.