Spatializing the future: financial expectations, EU convergence and the Eastern European Forex mortgage crisis

Abstract

Existing accounts of failure to predict the financial crisis focus on the complexity of the financial system, and are less useful for understanding crises in non-securitized markets. We examine the roots of optimism leading up to the Eastern European mortgage crisis through the case of Hungary, and use recent theories of expectations, which understand them as both pragmatic and fictional practices that commonly incorporate narratives. Based on archival research and interviews with bankers, regulators and legislators, we demonstrate how the EU convergence narrative was central in forming optimistic expectations. Fusing the underspecified convergence process with an orientalist geographical imaginary, this narrative and its associated measures translated growing indebtedness as ‘catching up’ with Europe, de-emphasized exchange rate risk through a belief in European convergence and precluded crisis scenarios originating in the European Union. Our findings contribute to theories of how economic expectations are formed, stabilized and maintained by developing the concept of ‘spatializing the future’, denoting practices that handle uncertainty by charting the future as movement in concrete geographical or abstract space, along externally verifiable pathways.

Keywords:

• expectations
• mortgage markets
• foreign-currency lending
• future
• Hungary
• financial crisis

Acknowledgments

We would like to thank Christian Berndt, Jens Beckert, Leon Wansleben, Adam Banai, Tamas Gerőcs, as well as participants in the ‘Uncertain Futures in Economic Decision Making’ mini-conference of SASE for their helpful comments. We are particularly grateful to the three anonymous reviewers for their invaluable feedback and to the research participants for sharing their experiences with us.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Calculation for a typical Swiss franc (CHF) mortgage (10 million HUF, 20-year maturity, acquired between 2005 and 2008), using Central Bank of Hungary (CBH) statistics on average interest rates and monthly average exchange rates to estimate changes in monthly instalments.

2 This scenario did not apply equally to all Eastern European countries, due to differences in the level of household debt and the proportion of Forex mortgages within it, exchange rate policy (e.g. floating versus fixed) and policy responses to the crisis. The countries that were hit hardest were Hungary, Poland, the Baltic States, Bulgaria, Romania and Ukraine, while Slovenia, Slovakia and the Czech Republic experienced fewer problems (Bohle, 2014; Dübel & Walley, 2010; Marer, 2010; PFS Advisory Team, 2012; Yeşin, 2013).

3 For a related discussion on decision-making under conditions of uncertainty see Gigerenzer (2016) and Savage (1972).

4 Expectations about the future behaviour of ‘the market’ have been studied as part of collective practices of knowledge-production, performed through specific technologies (e.g. the notion of a ‘scoping system’ and ‘flow market’ (Knorr Cetina & Preda, 2007). In this literature, however, imagining the future was not theorized as a core form of market action.

5 Economists agree, but see it as a temporary feature (see, for example, Banai et al., 2011).

6 For a discussion of how these relate to the social construction of geographical investment regions, see our Conclusion.

7 For an analysis of power struggles across actors see Pellandini-Simányi et al. (2015).

8 Squared brackets are our additions; round brackets are alternative translations. Italics are added emphasis.

9 As noted above, we do not claim that the convergence narrative was the only reason why the CBH did not intervene. Financial stability, guarded by the CBH, could be equally threatened by an economic slowdown as by a credit boom. House-building was a significant part of GDP growth; hence, the question became whether risky borrowing or slow GDP growth was more dangerous. Between 2006 and 2010, slackening GDP growth appeared to be the bigger danger to convergence than the possibility of a mortgage crisis. This and other explanations are not discussed in the paper because our aim is to analyse the role of the convergence narrative in downplaying the crisis scenario, rather than a full review of expectations.

Additional information

Funding

This work was supported by the Hungarian Scientific Research Funds under Grant [101261], by the Bolyai Research grant [BO/00653/15] and by the Swiss National Science Foundation [171351].

Notes on contributors

Léna Pellandini-Simányi

Léna Pellandini-Simányi is Assistant Professor in the Department of Media and Communication, Eötvös Lóránd University (Hungary) and Senior Research Fellow at the Institute of Management and Organization at the Università della Svizzera italiana (Switzerland). She received her PhD in Sociology from the London School of Economics and Political Science. Her current research focuses on the making of the mortgage market in Hungary, the financialization of everyday life and the shifts in the conceptions of financial subjects in post-crisis regulation.

Zsuzsanna Vargha

Zsuzsanna Vargha is Associate Professor at the University of Leicester, School of Business (United Kingdom). She received her PhD from Columbia University in Sociology. Her work draws on economic sociology and organization studies to look at markets and the confluence of valuation, technology and marketing, primarily in consumer banking. Current projects include the algorithmic personalization of the economy, the Hungarian mortgage crisis, digital health technologies and the automation of pension valuation. She was recently Editor of the Economic Sociology European Electronic Newsletter.