UPDATE 1-Hungary eyes 'unconventional' means to defend currency

[Joanne98]

BUDAPEST, Feb 18 (Reuters) - Hungarian Prime Minister Ferenc Gyurcsany has asked the central bank governor and finance minister to explore 'unconventional' means to stem losses in the forint currency, Gyurcsany said on Wednesday.

The forint hit a record low of 310 versus the euro late on Tuesday and has lost about 14 percent of its value in 2009 as Central European currencies were battered by worries over economic growth and the region's reliance on foreign debt.

'Yesterday I talked to both the central bank governor and the finance minister, asking them to explore whether there are such unconventional methods of intervention that may help protect the Hungarian forint,' Gyurcsany told a meeting with foreign journalists.

He did not specify what he meant by unconventional methods.

'I think if we have a comment regarding what the central bank can do to better defend the forint in a joint effort, then we will have to make these comments during consultations with the central bank,' Gyurcsany said.

Polish Prime Minister Donald Tusk said on Tuesday his government could sell EU funds through the market if the zloty fell to 5.0 per euro after it neared all-time lows to the single currency.

http://www.forbes.com/feeds/afx/2009/02/18/afx6064250.html

This is what the EU is worried about. Western Europe loaned Eastern Europe a bunch of money when they were booming. Now the east can't pay back the loans which are almost all in the Euro. What happens if they all start selling the Euro bonds they are holding to try to save their local currencies? Could "new" Europe collaspe the Euro? Stay tuned.

[Joanne98]

1. Downgrades Loom for Hungary, Poland, Bond Yields Show

Feb. 18 (Bloomberg) -- Hungarian, Polish and Czech government debt, among the highest rated in emerging markets, has already been downgraded by bondholders.

Investors are demanding 20 basis points more yield to own Hungary’s bonds than similar-maturity Brazilian debt, which is rated four levels lower by Moody’s Investors Service, JPMorgan Chase & Co. indexes show. The risk of Poland defaulting is about the same as Serbia, ranked six levels lower by Standard & Poor’s, based on credit-default swap prices. Czech 10-year bonds yield the most compared with German bunds since 2001.

“Everybody is running for the door,” said Lars Christensen, head of emerging-market strategy at Danske Bank A/S in Copenhagen. “The markets have decided the central and eastern European region is the subprime area of Europe.”

Investors who lost more than 18 percent on emerging-market sovereign and corporate bonds last year based on Merrill Lynch & Co. indexes now face steeper declines in Eastern Europe, said Christensen. While the region’s integration with the European Union spurred foreign investment earlier this decade, Poland’s currency weakened 35 percent against the euro since August, the Czech economy cooled to the slowest pace in almost 10 years in the fourth quarter and Hungary required a bailout from the International Monetary Fund.

Monitoring ‘Very Closely’

“Hungary is the one that we are monitoring very closely,” Dietmar Hornung, senior analyst in Frankfurt, said in a phone interview today. “The ratings as they are reflect to a certain degree the assumption that it is rating positive to be a European Union country.”

http://www.bloomberg.com/apps/news?pid=20601086&sid=aoFOX_YnlT04&refer=news