Hungary has been in one of the most severe recessions among OECD countries, with the projected fall in real gross domestic product (GDP) in 2009 being double the OECD average. Hungary’s economy suffered from a trade collapse just like other transition economies in the region, but the global crisis has been compounded by a collapse in investor confidence in forint-denominated assets. This triggered a steep depreciation of the exchange rate in October 2008 and led the authorities to request financial assistance from international organisations. A combined credit package of EUR 20 billion was granted in November 2008 by the International Monetary Fund (IMF), the European Union (EU) and the World Bank. High foreign currency indebtedness and weak fiscal sustainability were at the root of the loss in confidence of foreign investors. Foreign exchange lending became a common practice due to the interaction of several factors, reinforcing each other. On the credit demand side, lenders were encouraged to borrow by the persistently wide spread between interest rates in Hungary and western-European countries, a relatively stable currency, and the expectation of convergence. On the credit supply side, banks favoured foreign currency lending owing to the lack of domestic forint savings and also over-optimistic assumption on convergence. As a result, households and enterprises have become increasingly indebted in foreign currency, especially in Swiss francs. Total external debt reached about 120% of GDP at the end of 2008, compared to less than 50% in Poland and 40% in the Czech Republic. At the climax of the financial crisis (October 2008), gross international reserves fell short of covering short-term foreign currency debt at remaining maturity. At the same time, the capacity of the government to bail out private investors appeared limited owing to the high public debt and the still significant fiscal deficit.