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In Levi factory town in Hungary, promise of globalization fades

A jeans plant that helped usher in capitalism is expected to shut down in June, another victim of the worldwide economic crisis.

March 29, 2009|Jeffrey Fleishman

KISKUNHALAS, HUNGARY — Nearly everyone old enough remembers that day when Levi Strauss & Co., whose jeans evoked the rebellious allure of the West for millions of youths trapped in the Soviet bloc, opened its doors at the edge of town and began hiring box men and seamstresses.

It was 1988. The Berlin Wall was months away from tumbling down. And there was Laszlo Varnai, a worker at a state-owned cooperative farm, watching with delight as spools of thread and crates of indigo blue were hauled into a factory beyond a row of trees.

"It was a grand miracle of the times," said Varnai, recalling how road signs went up pointing traffic to the plant. "They brought a production mentality and a way of working that was alien to the socialist system. It changed us."

The town grew. Varnai became mayor. But the fable-like quality has vanished. The Levi factory is closing.

The company's troubled balance sheet is another creak in the global economy, but Kiskunhalas, named for a clan that centuries ago sharpened swords on this furrowed land, is bitter that its fate is woven into market whims. Nearly 550 townspeople, many of whom ride bikes to work, are expected to lose their jobs in June.

"It's the suddenness that's unacceptable," said Varnai, sitting in the town hall with a big hole in his budget and a lot of worry outside his door.

"Those are people in that factory. Life is more complex than just shutting something down. It might not be to Levi's, but it is to this small town. The inhuman nature in the cold numbers of capitalism, that's what stuns you."

The global financial crisis has battered Hungary's economy, raising worries across the continent that 20 years after the Berlin Wall fell, former Soviet bloc nations are becoming costly burdens to the European Union.

The EU's goal of cohesion is straining relations between Western and Eastern Europe, and between formerly communist nations, the more prosperous of which, such as Poland and the Czech Republic, don't want to be lumped with laggards such as Hungary and Latvia, which this year have seen riots and protesting farmers.

Hungarian Prime Minister Ferenc Gyurcsany, who unexpectedly announced his resignation this month over the slow pace of fiscal reforms, has warned that a new economic "Iron Curtain" is stretching across Europe. That may be overly dramatic, but it's telling on a continent where the ideal of Europe crystallized in a West that has reluctantly embraced eastern nations. Grand plans, ideals and visions are colliding with widening debt and plummeting currencies.

The EU recently rejected a request for a $240-billion loan to Eastern Europe, even though the crisis is the worst on the continent since the rise of fascism in the 1930s. It later agreed to double a credit line available to the East to $68 billion, and European leaders have endorsed a doubling to $500 billion of International Monetary Fund loans to struggling countries around the globe.

Officials in Central and Eastern Europe are concerned that their Western neighbors, facing pressures from unions and anxious voters, may abandon solidarity for protectionism. France has hinted as much by vowing to prop up its carmakers, and German Chancellor Angela Merkel does not want the prospect of Eastern European bailouts to taint her country's parliamentary elections in September.

The EU has expanded to 27 members, including Hungary and Romania, but the fit is akin to well-to-do cousins tolerating their unpolished kin on the other side of town. The financial crisis has highlighted these divides, especially in Hungary, which has entrenched corruption and has failed to reform a bloated welfare state regarded as a throwback to a Europe that no longer exists.

"We cannot afford to go through the big bust we are now going through," said Gyorgy Jaksity, managing director of Concorde Securities in Budapest, the Hungarian capital. "When communism ended 20 years ago, it was an historic moment, a time to put in a new structure to catch up with the developed world. But Hungary never put that structure in place. It's not what we did in 1989; it's what we didn't do.

"Our neighbors want to distance themselves from us, saying, 'You don't want to fall off the cliff with those irresponsible Hungarians.' "

But globalization has shrunk distances, whether between Levi's Kiskunhalas factory and the company's European headquarters in Brussels or between Budapest and Berlin.

Follow the global meltdown trail: German factory orders are down nearly 40%, which means Hungary's exports to Germany have fallen, which means Budapest, carrying $100 billion in external debt, can no longer avoid reforms to its generous pension and health programs. If Hungary's currency continues to wither -- the forint has declined 25% against the euro in less than a year -- the country may default on its international loans, sending another jolt through Western banks.

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