12 days ago
The bizarre economic and political crises in the Middle East in the 1970s led to one of the major global economic crises in the 1980s, called stagflation. This portmanteau word means that worsening economic performance and rising inflation were parallel phenomena, a direct result of the oil crisis sparked by the 1973 Arab-Israeli war followed shortly by the Iraq-Iran war.
At current value, the price of a barrel of crude jumped from US$20 at the beginning of the 1970s to US$60 by 1974 and more than doubled again by 1980 as a result of the protracted Iraq-Iran war. This stagflation was the reason why the economies of communist Eastern Europe collapsed in the 1980s.
But how is this relevant today? Firstly, because the Middle East is again akin to a powder keg, which has already had an – admittedly minor, but noticeable – effect on crude prices. Second, markets today are just as overheated as they were in the 1970s.
Should these two effects persist, their combination could again push the world economy into a lasting recession. In a recent article, The Economist had already warned of this, placing the blame squarely on Iran.
But regardless of assigning blame, a crisis is a crisis. Should it actually arrive, Hungary is now in a better position than ever to weather its effects. The budget is balanced (or thereabouts), public debt is gradually being reduced and as a result of the government’s efforts what debt the country has is held by the Hungarian population and companies.
This not only excludes related foreign currency risks, but has the added benefit that the country is not forced to obey the dictates of foreign financial circles, being able to devise an economic strategy that can help it reduce the effects of any such crisis.