Hard Lessons for Borrowers in Hungary

For many people in Central and Eastern Europe, a new experience began a quarter-century ago. Communist governments collapsed, and the wide world of private ownership, democracy and free markets opened up suddenly. It was not always a happy transition, the International New York Times reported. This month, even as Germans were celebrating the anniversary of the fall of the Berlin Wall, the Hungarian government was passing laws and issuing edicts aimed at helping a large proportion of the populace recover from the mistake of buying houses with loans denominated in Swiss francs. The story of how Hungarians wound up deeply in debt in Swiss francs — a currency many of them had never possessed and none of them earned at their jobs — is partly a story of European overconfidence during the boom that preceded the credit crisis. But it is also a story of how poor regulation of banks can be disastrous — at first for the customers and then for the banks. The fascination with borrowing in foreign currencies spread through several countries in Central and Eastern Europe early in the current century. The benefits were obvious: Because interest rates in other currencies were much lower than those in local currencies, monthly payments on a mortgage denominated in euros or Swiss francs would be lower. Read more. (Subscription required.)