More Europe: The EU’s Response to the Debt Crisis. With Gyorgy Szapary, Hungary’s ambassador to the US
By Rachel Brown:
On February 24, György Szapáry, the Hungarian Ambassador to the U.S., spoke about strategies for resolving the current European debt crisis. Trained as an economist, Ambassador Szapáry has previously worked at the European Commission and the IMF (where he was Hungary’s Senior Representative), and has twice served as Deputy Governor of the National Bank of Hungary. Approaching the topic as both a diplomat and an economist, Szapáry offered the unique perspective of someone who has worked with many of the major players involved in the current crisis.
Although his talk was billed as a discussion of how the EU can work to “melt the iceberg” of debt, Ambassador Szapáry spent much of the talk outlining how Europe and the United States arrived at their current fiscal situations. In particular, he noted the confluence of a financial crisis, a debt crisis (in both the private and public sectors), and a growth crisis – a combination he deemed “quite exceptional” and which the world has not seen since the Great Depression. One of the central problems he identified was the inevitable tension that arises from the need to reduce debt through austerity measures and the fact that such cutbacks inhibit the economic growth necessary to emerge from a recession. He also addressed the problem of low consumer confidence and how this exacerbates the existing economic downturn.
Shifting his focus specifically to the Hungarian economy, Szapáry noted one way in which Hungary, which is not a member of the euro zone, has experienced the effects of the European debt crisis. Prior to the recession, domestic interest rates were high and so people circumvented this by borrowing in Euros and Swiss Francs, both of which had lower interest rates. However, in the uncertainty following the 2008 economic crisis, the Hungarian currency, the forint, started to depreciate and many of these foreign currency-based loans began to go bad. Ultimately the government reached a deal with banks that allowed customers to refinance their loans in forint at more favorable exchange rates.
Szapáry then broadened the discussion to include a comparison of the American and European economies. Although he noted that neither the U.S. nor Europe is in a strong economic position, he believes that America faces better prospects for recovery than Europe does, partly because the U.S. has a growing population and more flexible labor market. He illustrated his discussion of the differences between the two regions with a slide. The U.S. was represented by a large aircraft carrier, while Europe in contrast was a chain of destroyer ships. He explained that it is much easier for one captain to lead a ship, than for 27 different captains to coordinate their efforts.
Ambassador Szapáry expressed a strong conviction that the euro zone will remain intact. Despite the flaws in the existing system, he believes it is far better than the alternative of constantly managing exchange rates between different European countries. He also discussed the future of Greece, one of the most pressing concerns for euro zone watchers. He explained that when a nation faces a large debt (such as Greece currently does) they have three options: to pay their debt and suffer a lower standard of living, to default on the debt, or to pay the debt off with inflated dollars. However, as a member of the euro zone, Greece has forgone access to this third option. Yet, he does not think that Greece will default entirely, and believes that they will continue to pursue a policy of both austerity measures (to pay off the debt) and debt restructuring (to reduce the amount Greece actually has to pay). He added that even if Greece were to leave the euro zone, the rest of the zone would probably stick together.
When Ambassador Szapáry addressed the structural reforms needed to improve European competitiveness he used another transportation metaphor. He explained that in car racing, “what is important is not how your fast you come into the curve, but how fast you come out of it” and that speed is determined within the curve. Likening the “curve” to a recession, he explained that European leaders should use the recession as an opportunity to adjust their course and address problems they might have ignored in better economic times. Hopefully they will be able to emerge from the recession at a good speed.
Rachel Brown ’15 is in Saybrook College. Contact her at rachel.brown@yale.edu.