Junk status

Hungary lashed out at credit rating agency Moody's on Friday in response to a credit downgrade to junk status, accusing Moody's of a "financial attack."

Moody's lowered its valuation of Hungarian bonds late on Thursday by one notch to Ba1, just below the level considered suitable for investment. Markets responded with nervousness, as interest rates for the country's debt soared to above 9 percent and the national currency, the forint, neared an all-time low against the euro.

Hungary's finance ministry released a furious statement on Friday, pointing to the country's current account surplus, a dropping budget deficit and economic growth that surpassed the European Union average in the third quarter of 2011.

"It has no basis because, despite all the external difficulties, in the past year and a half there has been an expressly favorable change in most areas of the Hungarian economy," the ministry said.

Unsustainable growth

Moody's justified the downgrade by citing concerns over Hungary's ability to stave off negative effects from the debt crisis in the rest of Europe. It questioned the country's ability to meet fiscal goals, the sustainability of its economic growth and its high debt levels.

"Moody's believes that the combined impact of these factors will adversely impact the government's financial strength and erode its shock-absorption capacity," the US-based agency said.

The downgrade also dealt a blow to Prime Minister Viktor Orban's economic policies, which have avoided the austerity common throughout the rest of Europe in favor of a special tax on banks and the nationalization of $14 billion in private pension accounts.

Rival rating agency S&P said it would maintain its "negative" outlook for Hungary, but that it would put off a potential downgrade pending talks between Hungary and the EU and International Monetary Fund on what Budapest called a financial "safety net."

Author: Andrew Bowen (AP, Reuters)
Editor: Andreas Illmer