Monday, October 31, 2011

Lost decades in Eastern Europe

The NY Times has an article about the Hungarian economy. They note that one pharmaceutical company - Richter - does almost half the R&D of the country. For the rest there came some car industry but much foreign investment was about "service centers". Problem is that the car industry and service centers don't produce self-sustaining growth. That is only done by companies like Richter. And the economic climate hasn't been favorable to them:

But through the previous decade the forint was buoyed by a speculative carry trade in which investors borrowed euros at low interest rates to buy the higher-yielding Hungarian currency, creating a headache for exporters. Mr. Bogsch referred to this period as a “lost decade.”

While things are easier now, the pressures remain intense. Profitable companies are a tempting source of revenue for a cash-strapped government, which recently slapped a €13.5 million crisis tax on Richter.

More fundamentally, Mr. Bogsch said he worried that the difficulty in attracting capital to Hungary would make hiring and retaining talented staff ever harder.

So much for the benefits of being an EU member and having a neo-liberal currency policy.

This is one of a series of a NYT special report on Central European business. Others are:
In Euro Zone or Not, Countries of Central Europe Are Buffeted
In Romania, Start-Ups Gain Strength

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