Hungary's economy is approaching "meltdown," analysts warn, adding another financial crisis within Europe and raising concerns about more extreme populist moods gaining ground.

The forint, Hungary's currency, has been spiraling downward. The European Commission says the nation is expected to have the lowest growth and highest debt in 2012 among the former Soviet satellites of Eastern Europe.

But a deeper concern among European leaders familiar with the continent's history is the effect of prolonged low wages – or no wages at all – on ordinary people. Such conditions breed unrest, populism, extreme nationalism, and hatreds. The effect can be an undermining of social and democratic health, especially in states or regions of Europe like Hungary with a relatively shallow history of rule of law.

Always in the continental shadows is the memory of the 1930s, when economic chaos and popular frustration in Germany led to the rise of the Nazi party and fascism.

“Our worst enemy right now is populism,” said Italy’s minister of economic development, Corrado Passero, at a conference of top European leaders and economists on Friday at the French ministry of economics. Mr. Passero was responding to a question on Hungary's status that other elites and officials felt was too sensitive to approach. “When the pace of economic growth is too slow for too long,” he said, “and fears about the future become too high, we are entering dangerous territory.”

A European crossroads

Hungary is an EU member but not part of the 17 member eurozone. The former Soviet satellite is situated in something of a European crossroads: It borders Austria in the north and Serbia in the south, two cultural opposites in Europe.

While Hungary has veered sharply to the political right – in 2010 elections the neo-fascist Jobbik party won a substantial 17 percent – it retains a center-right government elected by a 53 percent margin.

Yet the combination of economic chaos, and recent authoritarian moves by Prime Minister Viktor Orban, are causing worry about its overall direction, including a rising far right, reports of beatings of minorities including gypsies and Roma, and nationalism.

Mr. Orban pushed for a new constitution that appears to hard-wire the country into one-party rule, prompting tens of thousands to protest last week outside the Budapest Opera House. Orban has also refused to guarantee the independence of the Central Bank, causing the IMF and EU to walk out of loan meetings in December that Hungary desperately needs.

Downgraded to 'junk'

Ratings agency Fitch on Friday put Hungary’s bonds in the “junk” status, meaning that now all three top ratings agencies have lost faith in Hungary’s value. The country must repay $26 billion in loans from the crisis of 2008, along with other loans, but a bond last sale week yielded only $140 million.

The EU may not have much leverage to counter a constitution that is derided by legal experts. But it does have rules about politicians not dominating the head of a Central Bank.

The Wall St. Journal on Saturday reported that Orban may be now willing to discuss the independence of the Central Bank, though he wishes to delay a decision.

Passero in Paris Friday said that austerity and responsible management are important principles for debt-ridden Europe, but added that growth and integration policies are an antidote to extreme populism. Unemployment in Europe is “higher and more serious than what we believe," he said, explaining that adding the underemployed and discouraged to the totals of unemployed workers would top 50 percent of the overall population in some countries.

Hungary under Orban has been shifting away from democratic norms, critics both inside and outside the former Soviet satellite say, with the ruling Fidesz party grabbing spoils and ensuring its perpetuation. The nation faces isolation in Europe, which itself can work to populist and nationalist ends, analysts say.

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Mr. Orban is now “a lonely rider [in Europe],” says Peter Balazs, a former Hungarian foreign minister. “He has very few visitors from abroad, and is not received in many places.

"We [Hungary] are moving toward a one-party ruling system in which the prime minister and his little circle are trying to sell 19th-century romantic nationalism,” Balazs added. “Many people are buying that. It is true that normal national ideas were missing during the communist period. But the prime minister is now misusing the national card.”