“Eurosation”: will the euro replace the forint in the Hungarian economy?

It seems that the process of eurosation, with the euro spontaneously eclipsing the forint in the Hungarian economy, has begun. Although there are significant administrative hurdles to this, there are areas where a possible further weakening of the forint exchange rate represents an unacceptable business risk.

It seems that ‘eurosation’, the process by which the euro pushes Hungary’s own currency into the background, has begun. One of the many administrative obstacles to this is that salaries cannot be paid in euros. However, in some sectors, the continued weakening of the Hungarian currency represents an unacceptable commercial risk, napi.hu reports.

The forint collapses, the euro becomes more attractive

The forint having experienced an unprecedented fall in recent months, some Hungarians prefer the euro. The forint has lost more than half its value since the change of political regime in 2010, Reuters reports. Like its neighbors the Czech Republic, Poland and Romania, Hungary is far from fulfilling the conditions for adopting the euro. Even the Hungarian government explicitly excludes it.

However, the forint is the worst performing currency in the region, partly because of the twin deficits (trade and fiscal) and partly because of disputes with the EU over the rule of law. As a result, some Hungarians are trying to take the monetary problem into their own hands.

Massive attenuation

Interest in the euro is boosted by the fact that the Hungarian currency has weakened 8% against the euro this year alone. In July, the forint lost 4% of its value in two days.

Since salaries cannot be paid in euros under Hungarian law, most companies that wanted to make such a gesture towards their employees gave them an extraordinary salary increase of 5-10%. Others pay compensation at the end of the month depending on the forint exchange rate, according to Reuters citing lawyer László Szűcs.

Szűcs, lawyer at the law firm Réti, Várszegi & Partners PwC Legal, also shared that in the IT sector, where many companies operate independently and there are many orders from abroad, new projects have contracted exclusively in euros over the last three to four years. month.

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Source: napi.hu, Reuters.com

Laura T. Thrasher