Date of Award


Document Type

Union College Only

Degree Name

Bachelor of Arts



First Advisor

Eshragh Motahar




hungary, capital, became, central, crisis


The collapse of Lehman Brothers on September 15, 2008 triggered negative shockwaves throughout the global economy. Nowhere were the ramifications more intensely felt than in Hungary. Hungary, a nation of ten million citizens, was one of the major success stories of the former Soviet Bloc countries. Its ability to rapidly privatize formerly state-owned enterprises and embrace democraticization enabled the nation to become the thirteenth largest recipient of foreign direct investment and convince investors from all over the world to invest their capital in Hungary. The demise of Lehman Brothers put an abrupt end to the period of ‘easy credit’ and extensive borrowing throughout the world. It was replaced by an environment in which investors became overly conservative and shifted their capital to less risky securities. At the end of 2008, lax fiscal polices, generous social benefits, tax evasion, and the inability of the Hungarian Central Bank to operate in an independent manner drove the nation’s budget deficit to 3.8% of GDP, external debt load to 72.9% of GDP, and inflation rate to 6.1%. Additionally, the nation’s export-based economy was struggling to overcome a 7.8% unemployment rate and a mounting current account deficit. As a result of these forces, international investors and economists became concerned about a sovereign debt default and a currency crisis in Hungary. These fears caused the economic climate in Hungary to deteriorate to such a point that it could not longer raise capital on international capital markets. On November 6, 2008, Hungary was forced to seek a $15.7 Billion rescue package from the International Monetary Fund. In addition, Hungarians became so dissatisfied with the Government’s handling of this crisis that Prime Minster Ferenc Gyurcsany was forced to resign on March 21, 2009 This thesis will trace some of the central origins and causes of the economic turmoil in Hungary from both a microeconomic and macroeconomic perspective. Ultimately, it will explain why the outcome of the sovereign debt crisis in Hungary, a non-Eurozone nation, was so much different from that in comparable countries, including the other Eastern and Central European transition economies and Greece.