The Hungarian forint is collapsing again – here’s why
After a significant strengthening trend, the forint is weakening again. Read on to find out the main reasons why.
Rule of law conditionality mechanism
The European Commission notified Hungary earlier this week that it was activating the rule of law conditionality mechanism against the country. Ursula von der Leyen, President of the European Commission, announced this on Tuesday in the European Parliament. For the first time, this event was an event where MEPs could put questions to the President of the Commission.
The rule of law mechanism is a tool that allows the European Commission to withdraw EU funding from a Member State if it is found to violate the fundamental values of the EU and, above all, at the expense of the EU budget.
However, as we can read in 24.hu’s article, the launch of the mechanism does not mean that no money will now reach Hungary. A long dialogue between Hungary and the EU, which could last for months, will now begin.
The Commission will have to determine where and to what extent fundamental EU values and the budget are breached, and then impose a sanction.
Finally, the members of the European Council will vote on this.
The performance of the forint
After the first two rounds of voting, the forint strengthened slightly. However, during the first day of the fifth Fidesz government, the forint began to fall against the euro, according to Forbes.hu.
The euro fell to nearly 366 forints immediately after Fidesz’ victory around midnight on Sunday. However, the forint fell on Tuesday morning, with the euro trading around 369.15 forints at 7am.
In the evening of the same day, the forint had also weakened significantly against the major currencies compared to Tuesday morning.
According to Forbes.hu, the euro jumped to 377 forints after 1 p.m. on news of the rule of law case against Hungary. As we can read in another article of Forbes.hu, the loss of EU funds makes it very difficult to restart the economy. Growth is currently expected to fall to virtually zero from the second quarter of the year.
Source: Forbes.hu, 24.hu