Hungary’s central bank governor warns of parallels between today’s financial climate and that of the 1970s

Logo of the Hungarian Central Bank. (MTI)
By Dénes Albert
7 Min Read

As more and more people see greater parallels between modern-day global issues and those prevalent in the 1970s, many are asking the question: will the ’70s return in our decade?

The short answer is no, because history is never truly repeated in its entirety. The long answer is yes, because there are enough similarities between the two decades upon analysis of the global political climate and the economy. The dual law of life and history is repetition and change — both can be valid simultaneously for the 1970s of 50 years ago and now for 2020.

A new era is beginning

The early 1970s marked the end of about 25 years of general economic recovery after World War II. In doing so, within the framework of a dual world system, Western economies based on industrial mass production have been able to sustain high growth, low inflation, moderate budget deficits, low public debt, high employment, the construction and maintenance of a welfare state, and promote a foreign policy in favor of global trade over isolationism.

The 2020s will also see the end of a period of some 25 years, with a brutally complex health, social and economic crisis at the very beginning. This was an era of growth fueled by the introduction of new digital technologies, namely the Internet revolution that took place in 1996.

The digital revolution has also initiated significant transformations in a number of other technologies (energy sector, automotive, AI, 3D, robotics, financial system). As a result, despite the crises, the world economy has been growing steadily, inflation has remained low, employment has risen, two billion Asian consumers have entered the world market, and budget deficits and public debt have been squeezed. New means of payment (euro, renminbi, cryptocurrencies) and digital techniques (but not yet digital central bank money) replaced the former petrodollar while the dollar continued to function as the global currency.

A complete turnaround in these areas is also expected in the 2020 decade. Inflation has returned and will remain persistent, leading to rising central bank and bank interest rates; budget deficits and public debt are persistently high; the major central banks continue to play a key role in financing government debt; GDP growth will be modest as energy prices, commodity prices, supplier prices as well as transportation costs rise. The investment climate is deteriorating and financing conditions are becoming uncertain. High employment is at stake and social tensions are perpetuating.

Not a few years – a whole decade

In the 1970s, many times it seemed that the ordeal was over, but there was always another shock and it was only by the end of the decade that the picture came together. The initial steps of the scenario launched by the U.S. Great Strategy created a chain reaction in the then Western world economy.

The release of the dollar from the gold fund (1971) sparked exchange rate and interest rate wars. The first oil price explosion (1973) was followed by the second (1979); the world economy recovered from the 1974-1975 crisis by 1976, but the sharp rise in oil prices following the 1979 Iranian revolution led to another crisis.

The easing of Soviet-American tensions in the first half of the ’70s was again followed by sharp opposition in the second half of the decade. Inflation was double-digit, sometimes very high indeed, and eventually the “Volcker Shock” reversed the explosion of inflation in America. It is instructive that the Fed first responded to inflation, which rose to 7 percent in 1978, with a base rate of 10 percent, and then, with inflation rising to 9 percent by the end of 1979, the new Fed president (Paul Volcker) raised the base rate to 20 percent, beating inflation.

The group of OECD countries also split during this decade. Those who had not been able to curb inflation through austerity are still carrying the burden of accumulating public debt due to high budget deficits.

A decade of geopolitical turn

We are here in the early 2020s, and the chain reaction in the global economy has already begun in the wake of the first steps taken by the United States. An attempt to separate China from the world economy, dead in the ashes, has begun. Inflation has returned, with the first crisis of the decade — the coronavirus pandemic — leading to falling average GDP growth, soaring energy and transport prices, rising budget deficits and rising public debt.

Exchange rate and interest rate wars are back. Instead of deficits in the national economy, global deficits are emerging (chips, rare earths). The developed world is again divided into a growing and a stagnant group. Much of the developing world is in trouble, and a significant portion of attempts to catch up are coming to a halt.

The turning point so far and expected in the 2020 decade stems in large part from the U.S. recognition that while the U.S. has maintained global security, trade, and a dollar-based financial system as the only world power, the eurozone is attempting to build a dollar-competing world currency, moving faster than expected towards a new dual (G2) world order. Just as 50 years ago, this decade will simultaneously challenge the U.S. in Europe and East Asia, with a slightly modified role.


Hungary has already recognized the parallels of the 1970s and the challenges of the 2020s. The next step is to find effective solutions. This went well in the crisis management of 2020-2021, so why can that not continue throughout the whole decade? Just as the current successful crisis management is built on a successful decade of 2010-2019, we can build on the crisis management of the last two years throughout the 2020 decade, and we will certainly need to.

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