Hungary Passes The Bank Tax

Hungarian parliament has passed a law assessing a ½% levy on banks assets.

Needless to say, the banks are having a conniption over this:

Domestic and foreign banks doing business in Hungary have complained about the tax as well. Erste and Raiffeisen, two banks based in Vienna that have branches in Hungary, estimate they would have to pay €40 million and €35 million, or $52 million and $45 million, respectively.

“This tax is a quick-win measure, and only that,” said Juraj Kotian from Erste Group Bank in Vienna. “It does not provide any sustainable support for budget consolidation.”

The European Banking Federation called for a “profound modification” of the tax, saying it was a discriminative levy that would cause losses at some lenders and hamper economic growth.

This tax, which includes a levy on insurance companies as well is raising hackles for the same reason that Malaysia's imposition of capital controls was vociferously attacked during the 1997 Asian financial crisis, because the market participants are terrified at the thought that this might work.

After all, Hungary is a very small fish in the overall EU economy, so if this tax fails, the impact is minimal, but if it is successful, then you can see an explosion in such taxes, just as you saw nations ignoring the IMF and imposing their own capital controls following Malaysia's relatively mild recession and quick recovery.

If this becomes a more general practice, then it starts eating into 7 figure banker bonuses, which is not what the bankers want.

My prediction is that this will shrink the finance industry significantly in Hungary, and with the generally bloated and parasitic industry cut down to size, the Magyar republic will outperform its neighbors.

My earlier post on the attempts by the EU and IMF to browbeat the Hungarians into being the bank's bitches is here, and my advice to them remains the same: back away from joining the Euro and set about leaving the European Exchange Rate Mechanism.