Eastern Europe: Backsliding? An arc of crisis is developing in the East.

Byline: William Underhill

Shades of 1956. It began with a mass rally. Then a stone-throwing mob of right-wingers and hoodlums broke into the offices of MTV, Hungary's national TV station, demanding the government's resignation. "It is very, very depressing," says Attila Kert, the Budapest news director, saddled with a [euro]400,000 bill. "This is not the true face of Hungary."

Maybe not, but Hungary's true face has been hard to discern. As elsewhere in Central Europe, some impressive economic growth rates now seem to mask a messy picture of political immaturity and financial incompetence that threatens disaster. "Central Europe is a mess," says Anders Aslund of the Institute for International Economics in Washington. "These countries just stopped undertaking good economic policies when they joined the EU."

Hungary stands out, if only because it was once seen as a lodestar of respectable stability. No longer. The Budapest rioters were protesting the leaked admission by Prime Minister Ferenc Gyurcsany that he'd lied repeatedly about the state of the country's finances to win a second term for his Socialist government in elections earlier this year. The true picture: a likely budget deficit for this year of 10 percent, the largest in Europe.

The full consequences of Hungary's spendthrift habits are still to be seen. Economists talk darkly of parallels to the Asian crisis of 1997. A boom in foreign-currency loans has left Hungary dangerously exposed to any rise in interest rates ...