Leading article: Hungary is the next test for the EU

Share
Related Topics

The international financial whirlpool has sucked in its first member of the European family. Earlier this month, foreign investors began to dump Hungarian assets on a huge scale. This sudden withdrawal of capital had a disastrous effect. The value of the Hungarian forint plunged on international exchanges and the market for government bonds dried up.

Now the International Monetary Fund has stepped in. The rescue package will formally come from the IMF, but a big contribution will be paid for by the European Union. This is as it should be. If the EU is not at the forefront of bailing out its members when financial calamity strikes, it is difficult to see the point of the union.

In fact, this rescue is part of a broader test for the EU. After a hesitant start, its leaders responded to the near breakdown of the international payments system this month with reasonable competence. Recapitalising the private banks and guaranteeing lending between them was the right thing to do. But now the EU must deal with a crisis in confidence in the economies of some of its smaller member states. Hungary could be the first of several nations to face such a crisis. Romanian bonds have been downgraded and the Baltic nations are looking vulnerable.

The IMF will take the lead in devising the terms of any rescue packages, but the EU will have a big role to play too. A boost in fiscal transfers through development budgets and an easing of its budget deficit rules are likely to be necessary. An interest rate cut by the European Central Bank should obviously be considered as well. The central challenge, in the immediate term, is to stop member states going to the wall. But in the longer term, the EU needs to demand that members rebalance their economies and become less reliant on debt to finance growth.

It is encouraging that Europe's leaders are in close contact. Gordon Brown met the French President, Nicolas Sarkozy, yesterday. And Mr Brown will meet Germany's Chancellor, Angela Merkel, tomorrow. EU leaders are also due to meet next Friday at a special summit. But talking is one thing. The real test will be whether they can provide decisive leadership and steer the EU safely through these turbulent waters.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Business Analyst - Surrey - Permanent - Up to £50k DOE

£40000 - £50000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***ASP.NET Developer - Cheshire - £35k - Permanent***

£30000 - £35000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***Solutions Architect*** - Brighton - £40k - Permanent

£35000 - £40000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Senior Research Fellow in Gender, Food and Resilient Communities

£47,334 - £59,058 per annum: Coventry University: The Centre for Agroecology, ...

Day In a Page

Read Next
Today is a bigger Shabbes than usual in the Jewish world because it has been chosen to launch the Shabbos Project  

Shabbes exerts a pull on all Jews, and today is bigger than ever

Howard Jacobson
 

If Renee Zellweger wants to look different, who are we to question it?

Boyd Tonkin
Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker