Saturday, June 05, 2010

Hungary proves hazard of monetary union

The great stock market sell-off yesterday was in part the result of a negative interpretation of yesterday's U.S. job numbers, but also because of news that Hungary faces a deepening crisis.

Hungary has had deep problems for several years now, and unlike most other Eastern European countries it never had a boom worth mentioning even before the global financial crisis started.

This again illustrates the hazards of having the euro as currency. If only Hungary had retained its forint then there wouldn't be any problems, that's clearly what Paul Krugman would argue, and we all know Paul Krugman is never wrong. But wait a minute, Hungary has retained the forint as its currency and yet they face deep problems. Hmmm....