Hungary's Government reversed course over the weekend, saying there was no danger of default after it spent two days telling the world the nation was at risk of a Greece-like crisis.
Analysts from the European Union to Moody's Investors Service say the current message is correct.
That may not
be enough to ease investor concern until Prime Minister Viktor Orban takes concrete steps to achieve the budget deficit target set by the EU and International Monetary Fund.
"It's a pretty big change from one day to the next," Gyorgy Barcza, an economist at KBC Groep in Budapest, said.
Hungary's domestic politics roiled global markets last week as officials in Orban's week-old government compared the country to Greece while claiming the previous administration lied about public finances.
The comments triggered a 4.8 per cent two-day drop in the forint and pushed the euro to its lowest level in four years.
Mihaly Varga, Orban's chief of staff and a former finance minister, sought to ease those concerns.
Hungary's deficit target of 3.8 per cent of gross domestic product, approved by the EU and IMF, is "attainable" with changes in spending and revenue plans, said Varga.
Orban began three days of emergency Cabinet meetings to develop plans for meeting the budget target.
Credit default swaps, a measure of the cost to insure against default, on Hungarian debt jumped 58 per cent in two days to 410.3 basis points on June 4.
The rise on the second day was the most since October 2008, when Hungary received a €20 billion ($36 billion) IMF-led bailout.
Hungary's deficit will widen to 4.1 per cent of GDP this year, compared with an EU average of 7.2 per cent, according to European Commission estimates.
- BLOOMBERG
