In Levi factory town in Hungary, promise of globalization fades

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.