Promise of free-market utopia of eternal growth rings hollow

BUDAPEST LETTER:Two decades after the fall of the Berlin Wall, eastern Europe has found itself snared in a financial trap

BEHIND HER stall in a Budapest market, Maria smiles bleakly at the familiarity of the moment: another customer buying a small portion of her cheapest meat, and leaving with a quiet apology that he can’t afford more.

“Even my regulars are buying much less than they used to,” she says, casting an eye along half-empty aisles for signs of another potential sale.

“I never remember things being this bad. And if it keeps getting worse we’ll be out of business in a couple of years.”

Maria is one of millions of people across eastern Europe who are feeling the bite of an economic crisis that has already sparked riots, toppled a government and hammered hopes of prosperity across the old communist bloc in the very year it marks two decades since the fall of the Berlin Wall.

The Budapest butcher has been snared in a financial trap that has claimed victims from the Baltic to the Black Sea, and belied the promise that free-market democracy and the European Union would replace Kremlin- backed dictatorship with a utopia of stability, security and unending economic growth.

Maria’s money troubles are typical. She took out loans in a foreign currency when interest rates were low, but now faces growing repayment bills as her local currency plummets in value on the world market. And just when she needs more income to meet those repayments, a recession starts, claiming jobs, tightening purse strings and hammering her income.

“Our loan repayments have gone up by 20 per cent just as business is getting worse. Four of us live on what this business makes, and it’s getting tough. And maybe the worst thing is that no one knows when things will improve.”

Maria’s financial woes are mirrored in government balance sheets across eastern Europe. For years, they spent far more money than their economies were making, and they are now struggling to service their debts as global demand for products shrivels, tax revenues shrink, currencies weaken and nervous markets drive up the cost of borrowing more cash.

Hungary and Latvia have already sought billions of euro from the International Monetary Fund (IMF) to help them survive the crisis, and Romania is expected to follow suit; non-EU members Ukraine, Serbia and Belarus have also received rescue packages from the IMF.

While Hungary, the Baltic states and the Balkans are wrestling with the most serious debt and budget imbalances, even the region’s most stable countries are entering a sharp slowdown: countries such as Poland, Slovakia and the Czech Republic are not at risk of financial collapse, but their export-driven economies are suffering as demand dives across the EU, and the Polish zloty and Czech koruna have been pummelled along with neighbouring currencies.

The EU has rejected an appeal from Hungarian prime minister Ferenc Gyurcsany to pump up to €180 million into eastern Europe to prop up its banks and small businesses, amid warnings that the bad debts on their books could drag down parent companies in Austria, Germany, Italy and Scandinavia.

The fear and anger cuts several ways: eastern European banks complain that their coffers are being drained by western owners desperate to bolster their own account books; and the more financially robust capitals of “new Europe”, such as Warsaw, Prague and Bratislava are disassociating themselves from the grim plight faced by leaders in Budapest, Riga and Kiev.

“Everyone’s to blame – world leaders, bankers and our own government, which should have done more to protect us,” says Szabo (53), another trader at the market beside the river Danube.

“The mood in Hungary now is terrible, and you can see the stress and anger on shoppers’ faces. They are desperate to find work or hold on to their jobs and pay off their debts. People are just trying to survive.”

To add to the tension, deepening despair is strengthening radical nationalist groups in Hungary and neighbouring states, and fuelling discrimination and violence against the region’s large Roma, or Gypsy, minority. A far-right group called the Hungarian Guard has raised hackles by claiming that a wave of “gypsy crime” is sweeping the country. The murder of a Roma man and his young son last week was the latest in several apparently racist killings which Hungary’s police have yet to solve.

For Budapest souvenir-seller Agnes (47) and millions like her, the 20th anniversary of the fall of communism has brought nothing worth celebrating.

She gave up her job as a nursery school teacher because the pay was so bad, and her husband, a radiologist by training, has been let go from a construction firm because work has dried up.

“For years people here have waited for life to get better,” she says.

“Not any more. Now they just wonder how bad things can get.”