Hungary faces crisis as traders fear debt default Hungary, which must roll over nearly €5bn of external debt this year, is due in February to start repaying a loan to the International Monetary Fund (IMF) that saved the country from financial collapse in 2008. Borrowing costs rose in other central European countries today including Poland and Czech Republic. There are also fears about the exposure of European banks to Hungarian debt, particularly Austrian and Italian institutions. Officials from the IMF and the EU are scheduled to resume talks about a financing agreement with Hungary on January 11. However there are doubts a deal will be reached. IMF officials quit Hungary last month after Budapest insisted on pushing ahead with constitutional reforms that undermined the independence of the central bank. The laws, that came into effect on January 1st, hand prime minister Viktor Orban a raft of powers including the right to appoint all vice-presidents of Hungary's central bank. He is also able to expand the monetary policy committee to nine members, six of whom are already seen as the appointees of Mr Orban's Fidesz government. The European Commission is due to deliver a ruling on the central bank laws within the next few days. Yesterday Tamas Fellegi, a government official, was quoted insisting said Hungary wanted an IMF/EU financing agreement "as soon as possible" to restore investor confidence. State Secretary Gyula Pleschinger told reporters an international credit line "would be very beneficial" for Hungary. However, he added that "it wouldn't be a tragedy" if the extra financing did not materialise. Meanwhile, Greek prime minister Lucas Papademos said his country faced "uncontrolled default" in March unless competitiveness was boosted by a reduction in labour costs. Mr Papademos said a failure of unions and employers to agree cuts would jeopardise the negotiations for the €130bn international bail-out. "Without the agreement and the funding linked to it, Greece faces an immediate danger of uncontrolled default in March," he said. On Tuesday a government spokesman said Greece would crash "out of the markets, out of the euro" if the bail-out agreement failed. Tension was further raised by new data showing €453bn was desposited overnight with the European Central Bank (ECB), breaking the €452bn record set last week. The deposits indicate that banks are still wary of lending to each other, despite the ECB's radical €489bn lending programme before Christmas. The eurozone's purchasing managers index (PMI) improved from 47.9 to 48.3 in December, helped by better-than-expected manufacturing data but Markit said that its key indicators still showed a high risk of recession. However, Eurostat data showed eurozone inflation dropped from 3pc in November to 2.8pc in December in a development that economists said could pave the way for further interest rate cuts by the ECB. Also today, the influential DIW Institute forecast that Germany would avoid a recession. Germany sold more than €4bn euros of 10-year government bonds, attracting 1.3 times the amount on offer - far better demand than a similar auction in November that was deemed "disastrous." Portugal also saw its rates drop to 4.346pc at a €1bn auction of 3-month bonds. France faces a test tomorrow with a planned auction of €8bn of bonds.