FEARS ARE escalating that Europe’s debt problems are spreading beyond the euro zone after Hungarian officials warned for a second day that the country was at risk of a Greek-style crisis.

Hungary’s forint fell to a one-year low yesterday, the cost of insuring its debt rose sharply and equities fell across central Europe after a spokesman for Viktor Orban, the new prime minister, said the economy was in a “grave” situation and a default was possible. US and European stocks and commodities also slid, while the euro fell below $1.20 for the first time since March 2006.

The spokesman’s remarks came a day after a vice-president of the newly elected Fidesz party suggested public finances were worse than the government had expected.

However, Hungary’s central bank, previous government and many analysts immediately insisted the warnings were exaggerated and that the country’s finances were much sounder than those of Greece.

The latest comments are likely to increase suspicions of the Fidesz administration among investors. Markets initially welcomed the centre-right party’s election victory in April. However, they have been unsettled by repeated government clashes with the central bank and calls for foreign-currency loans to be converted into forints.

“The new government needs to think a bit more clearly about communication with the market,” said Tim Ash, global head of emerging market research at Royal Bank of Scotland. The government has accused the former administration of lying about the country’s true economic health. It is expected this weekend to unveil findings from a fact-finding committee on the economy.

Mr Orban’s spokesman Peter Szijjarto said yesterday the economy was in a “grave situation”. He added that it was “not an exaggeration at all” to talk about a default. – (Copyright The Financial Times Limited 2010)