Analysis-Amid wild swings, some Hungarians are losing faith in forint
In This Article:
By Gergely Szakacs
BUDAPEST (Reuters) - The Hungarian forint's slide following Russia's invasion of Ukraine is leading some Hungarians to embrace the euro instead of the local currency, which has lost more than half of its value since Prime Minister Viktor Orban took power in 2010.
Like fellow European Union members Poland, Czech Republic or Romania, Hungary is nowhere near adopting the single currency, with Orban's government ruling out in the foreseeable future a move it says would amount to a loss of economic policy sovereignty.
But the forint, which has been under pressure from Hungary's twin deficits and a standoff with Brussels over rule of law holding up EU funds, is the region's laggard this year again and some Hungarians are taking matters into their own hands.
An April Eurobarometer survey among countries not yet using the single currency showed support for adopting it was the highest in Hungary and neighbouring Romania, where euro payments have long been the norm in used car sales and home rentals.
Both the forint's 8% slide against the euro so far this year and its volatility highlighted by its nearly 4% move over two days earlier this month, boosted the euro's appeal even further, even though its use is still limited within the broader economy.
Shortly after Russia's invasion of Ukraine in late February, Laszlo Szucs, a lawyer at Reti, Varszegi & Partners Law Firm PwC Legal, started fielding more calls from corporate clients asking how they could compensate workers for the forint's declines.
He said most calls came from financial and business services firms and the manufacturing sector.
While workers and consumers elsewhere in European countries faced similar pressures from runaway energy and food prices, the weakening forint was an additional challenge.
As paying wages in euros outright is, with few exceptions, against the Hungarian law, most companies opted for extraordinary hikes worth 5-10%, while some offered end-of-quarter extra payments linked to the forint's moves, Szucs said.
The IT services sector, where many work as independent contractors and bill foreign clients in euros, switched almost entirely to euro-based contracts for new projects in Hungary over the past three to four months, he said.
The National Bank of Hungary, which has been raising rates to cool prices, moving by another percentage point this week, declined comment.
Available data suggests a shift to euro so far remains limited, but in some sectors businesses are already effectively pegging their prices to euros.