Reactions to the Hungarian summit

First I would like to call attention to an excellent description of Hungary's economic woes that appeared in The New York Times today: http://tinyurl.com/5ot5wm  If one reads this article one simply can't understand why Viktor Orbán thinks that "Hungary is not in an economic but a leadership crisis" (HírTV, October 19). The falling forint has made the extensive private debt denominated in foreign currencies, especially the Swiss franc and the euro, akin to adjustable rate mortgages in the United States. The public debt is outsized, and Hungary's credit rating, already poor, is facing further downgrades from the rating agencies. Although both the ECB and the IMF have pledged to lend money to Hungary to help stabilize the economy, Hungary's ability to borrow from other sources is severely constrained. How on earth would a change in political leadership address the immediate problem? How would an election campaign lasting for months, the formation of a new government also lasting weeks and weeks while there is no effective government help the situation? In my opinion, it would make it substantially worse.

But Orbán and his friends have said several times that with the disappearance of Ferenc Gyurcsány the international financial community would have trust in Hungary, and money would be pouring into the country. Moreover, at lower interest rates. (I assume that this is the same international financial community that is currently being bailed out with public money and is hoarding cash to improve its balance sheet. Recall that General Electric, with a AAA credit rating, had to pony up 10% to borrow money from Warren Buffett, the same rate he charged Goldman Sachs, because the credit markets were frozen.) Fidesz economists have already figured out how many billions of forints Ferenc Gyurcsány is costing the country. Exactly 400 billion, and in case this large number doesn't resonate, it breaks down to 160,000 forints for each family of four every year!

As I said, in my opinion a political crisis that necessitated early elections would exacerbate Hungary's current economic problems. Moreover, if Viktor Orbán were to win the elections Hungary's situation would be worse than it is now. Just as the Hungarian stock market plunged when he became prime minister in 1998. Because, if I may contradict Viktor Orbán's self image, the international political and financial community has very little trust in him as a responsible player on the world scene. On the other hand, they think highly of Ferenc Gyurcsány. They especially appreciate Hungary's hugely successful recent work to lower the budget deficit.

But let's move back to the Hungarian summit. As I mentioned yesterday, Orbán didn't look too happy during the six-hour session and, according to a Népszabadság report, he was in a foul mood afterward. He stormed out of the building where the summit was held and refused to answer reporters' questions. Behind him was the party's chief spokesman, Péter Szijjártó. He had no comment either, although today he gave a written assessment of his party's reaction to the summit. According to the communiqué "this weekend was proof that the minority government is preparing to introduce a gigantic austerity program." And he continued: "the socialists want those to pay for their own ineptitude who are not at all responsible for the current situation." Szijjártó expressed hope that "there will be some socialist parliamentary representatives who will not lend their names to this gigantic austerity program."

Szijjártó's communiqué is especially interesting since Viktor Orbán complained about the exact opposite: the socialists had no plans whatsoever. The summit was nothing but sheer chaos. It was only an attempt to ensure "the survival of the  current political leadership." He urged "népi politika" (people's politics), whatever that means, and a "socialist market economy." Again, whatever that means. Viktor Orbán may have thought during the meeting that he didn't strike the right tone but once it was done he couldn't turn around and suddenly be ready for a compromise solution. Perhaps the best thing would have been to disappear for a couple of days, but he had an earlier engagement: to talk before the National Forum. The National Forum was formed three years ago from former MDF parliamentary members who refused to follow Ibolya Dávid's moderate, conservative strategy. Members of this group strike me as very much to the right, so this was not the venue in which to back pedal.

I was listening to a week-old interview with Ferenc Gyurcsány this morning. The talk centered around the forthcoming summit. The prime minister mentioned that each politician will be able to bring an economic expert who will sit behind, in the second row. Orbán chose his last economic minister, György Matolcsy. His name is coupled with the ill-fated "Hungarian model." He envisaged great economic growth by raising internal consumption. Needless to say that in a country like Hungary, so heavily dependent on exports, it wasn't exactly a success. It was the beginning of fiscal irresponsibility to be continued by Péter Medgyessy. Although linguistically "expertise" is a positive concept, the fact is that there are good "experts" and bad "experts". I'm afraid Matolcsy belongs to the latter category. The problem as I see it is that the experts around Orbán are not really first-rate minds.

Here is another advisor and friend of Orbán, István Stumpf, his old college dean and the almighty minister of the prime minister's office during Orbán's tenure as prime minister. Admittedly he is not an economist but a so-called political scientist. However, one expects a man of his stature to have some notion of the global financial crisis. He, like other Fidesz politicians, complains about the pending austerity program (Magyar Nemzet). The government cannot get funds from abroad and therefore it has to squeeze the economic players, the entrepreneurs. While in the West "new money is pumped into that sector." What a misunderstanding of the situation. Governments aren't pumping money into assorted companies but into financial institutions. So if important people around Orbán know so little about the nature of the crisis, one cannot be terribly surprised about Orbán's own ignorance.