While Viktor Orbán was visiting the Budapest Stock Exchange today where he was apparently conferring with the leaders of the BUX, three economists got up early in the morning to talk to a reporter of Napkelte, the early morning political program (MTV). Listening to them it became even more obvious how little relevance Orbán's pronouncements have given the current economic reality. All his speeches dealing with economic matters have a hollow sound. As one listens to them one wonders whether he understands what's going on or whether his own propaganda seduces him. Hard to tell. However, one thing is sure: politically speaking it is an attractive message to everyman. The people on top, the rich and the powerful, cheated, lied, and stole, and they ruined the country. They are making the little people pay for their sins. Whether this message will resonate or not is difficult to tell. It seems that the Hungarian people, although relatively ignorant of the workings of the capitalist system, are aware of the real nature of the crisis. They might not know all the ins and outs of how subprime mortages in the United States ended up wreaking havoc all over the world, but they seem to comprehend that the crisis is international and that the financial crisis will most likely be followed by a recession. They also understand that this will mean higher unemployment and slower or negative growth. In brief, hardship.
Meanwhile out there in the real world things don't look too good. OTP again lost about 10% of its market cap, the forint fell again, and the BUX closed in negative territory. The BUX is down about 50% year to date. Meanwhile some very irresponsible utterances can be heard and read in the media. The comparison with Iceland crops up far too often when in fact the two countries' situations are not at all similar. Orbán and Fidesz love to point out that Hungary is faring the worst in the region. All other countries are doing much better. Irresponsible talk can be heard about the bankruptcy of the state itself. As long as these politically motivated announcements are for internal consumption only all is well; no great harm will result. But the world is very small nowadays and these irresponsible utterances might only exacerbate the flight to safety–far, far away from Hungary.
There is certainly no need for panic. The situation is serious but not worse than in some other countries. This is what three well respected economists, Éva Palócz, Mihály Kupa, and András Vértes, were talking about this morning. As opposed to the common wisdom that the Hungarian stock exchange is out of sync with the stock exchanges in the region it is moving more or less in tandem. Yes, the national debt is high but in Europe this is considered to be average: 66%. Some people look at the performance of the stock exchange over a few days and draw hasty conclusions. Yes, in the last few days the BUX didn't do well, most likely because of the losses suffered by OTP. According to Kupa OTP's stock was overvalued and this added to its current problems. Otherwise, the bank's fundamentals are fine. (A footnote here to Kupa's take on OTP. During the financial meltdown virtually no stock in any international market traded on fundamentals. Overvalued, undervalued, didn't matter. It got sold. Some sectors got hit harder than others–financials a lot more than consumer staples. A simple rationale: the bank may go belly up and equity holders will be wiped out. But we'll all need to buy toilet paper. As the bond market starts to stabilize, slowly and tentatively the American market is returning to normalcy, where earnings matter. The market may not rally, but at least it's not held hostage to things outside its sphere of competence. That is, it's now focusing on recessionary concerns rather than credit concerns.) The economists called for calm and patience in dealing with the BUX. Sooner or later, most likely sooner, things will settle down. As for the forint, it was kept artificially high for years during the tenure of Zsigmond Járai as chairman of the National Bank.
The reporter wanted to find out why Hungary has lost the trust of investors and the financial community in general. The three economists agreed that the problem was that between 2001 and 2006 Hungary never managed to fulfill any of its projections. The government promised a deficit X and at the end it turned out to be X+Y. The international community was actually very patient but eventually it lost trust in the Hungarian government's promises. It's true that in the last two years the Gyurcsány government's performance was spectacular when it came to reducing the deficit, but it is very difficult to regain confidence once lost. Hungary was also just very unlucky. As György Surányi, former chairman of the Hungarian National Bank, said at the National Summit: "The ship didn't reach the harbor before the storm." The Hungarian government would have needed a couple of more years to show the results of the responsible fiscal policy of the first two years of the second Gyurcsány government. This was the plan. It didn't turn out that way.
The economists agreed that at the moment there cannot be any tax cuts. Éva Palócz advocated tax reform but Mihály Kupa wasn't even sure whether changing the tax code again was the best idea. One needs calm and one of the problems in the past was the constant changes in the tax code. Éva Palócz wanted to see greater savings in the proposed budget just released. She missed "structural changes" as well. András Vértes, I think rightly, pointed out that if the budget is too restrictive it might deepen the possible recession. Obivously, there are no easy solutions. Which might be good for one thing might be harmful in another respect.
While Orbán keeps repeating his refusal to cooperate with this prime minister, Fidesz and the Christian Democrats accepted an invitation by SZDSZ and MDF to a five-party meeting for tomorrow. Indeed, I don't think that Orbán's party has another option. It is becoming quite clear that SZDSZ and MDF will most likely cooperate with the government and will make sure that the 2009 budget is passed. They feel the need for political cooperation in the midst of a financial and economic crisis. Therefore for the time being it really doesn't matter what Fidesz does. The government will survive. Let's hope that they will be able to handle the crisis without dire consequences.