Think it’s improbable that anyone is worried about Hungary?
This is the real reason—Austria.
Austrian banks have an estimated $226 billion in exposure to formerly Soviet eastern Europe and total asset holdings there of €1.14 trillion ($1.6 trillion) at the end of June. Note that the size of the Austrian economy was $332.9 billion in 2010.
So with Hungary on the verge of failure, investors are worried about the impact that will have on Austrian banks. That could make the debt holdings of the Hungarian government spiral out of control, even though they amounted to a respectable 72.3% of GDP in 2010.
That’s all being played out in Austrian government bond yields. The Austrian government is still paying a much lower premium on borrowing than Italy and Spain, but yields are moving in much the same general pattern. They fell sharply after dollar funding and liquidity support measures last month, but they’re swiftly turning around.