The Hungarian Economic Summit

A few weeks ago, right after it became obvious that the international financial crisis hadn't left Hungary untouched, Ferenc Gyurcsány convened an emergency national summit which even Viktor Orbán attended. All party representatives, economists, bankers, even to some extent heads of trade unions tried to be helpful and displayed some willingness to assist the government in its efforts to solve the financial crisis. The lone exception was Viktor Orbán who made it clear that in his opinion the Hungarian government was solely responsible for the current situation. They created the mess, they have to fix it, and he and his party will not move a finger.

A few days ago Gyurcsány came up with the idea of another summit, this time under the aegis of the parliamentary committee on the economy. Invitations were sent to about fifty people, including party chiefs, heads of the parliamentary delegations, union leaders, and representatives of Hungarian economic and financial life. Viktor Orbán announced that he wasn't going to attend. As he said in an interview with HírTV (a right-wing news channel), it was his way of protesting the austerity program. The other opposition parties followed suit: Ibolya Dávid couldn't be there because she was in the United States; Zsolt Semjén, head of KDNP, of course wouldn't attend if Orbán didn't; Gábor Fodor didn't give any explanation, he just didn't show up. Gyurcsány was the only party leader present. I think that the people who refused to attend for one reason or another made a mistake because the summit, to everybody's surprise, including mine, was a success. Even Fidesz delegate György Matolcsy, former minister of finance (2000-2002) who is often accused of having started Hungary on its slippery slope by overspending and creating a huge budget deficit, had to agree that the government's six-point plan is the right move in the right direction. Of couse, he added that the trouble is that the government is not trustworthy and there ought to be a political change. But what else can one expect from the economic advisor to Fidesz?

The keynote speaker was Gordon Bajnai, minister of economics. First, he emphasized that credit is the oil of a country's economic engine and if it dries up the engine is ruined. Therefore the Hungarian government will make sure that in the next two years a sufficient amount of money will be available for small and medium-sized companies (that is companies employing fewer than 50 workers). While a couple of weeks ago, Bajnai talked about 800 billion forints, then 1,000 billion, the final figure (for the time being anyway) is 1,400 billion forints. With a very low interest rate: 2-3%. Second, another aim of Gyurcsány's government is job creation. To promote the creation of new jobs they will lower labor related taxes on any worker newly employed. They have enough reserves for 20,000 new jobs. Third, they want to stimulate the market by spending 2,000 billion forints on investments. Fourth, they want to reduce the cumbersome bureaucracy still in existence in Hungarian business life. Fifth, because of a large unskilled working force they want to assist economic activities that could employ these people: agriculture, the building industry, and tourism. Sixth, they want to revive the abandoned reforms.

I would like to say a few things about this last item. Ferenc Gyurcsány's second government, right after the elections, began two things at once: (1) an ambitious reform program, especially in healthcare, and (2) an austerity program designed to reduce the budget deficit, which at that point was over 10%. Launching these two programs at the same time was perhaps not the smartest thing to do. However,  the budget deficit had to be reduced because otherwise Hungary wouldn't have gotten the European Union grants that were crafted to help the country grow closer to the economic level of western Europe. Whether it was wise to start the healthcare reform at the same time is debatable, especially since everybody knew that the changes would not be received with great enthusiasm by the medical profession. The proponents of the reform argued, with some justification, that the reform was long overdue. For almost twenty years no government had dared to touch it. As we saw, not without reason.

Fidesz did everything in its power to ruin the government's chances of success. They complained about the austerity program: the government created the large deficit, let the government pay for it, not the "people." As for the medical reform, the party managed with the help of the constitutional court to undo some of the reforms that had already successfully been introduced. At this point Gyurcsány and his government lost their nerve and retreated, putting an end to any reform anywhere. Admittedly, the government's popularity was very low. Gyurcsány thought that he could revive the popularity of his government by proceeding slowly. The austerity program, the lowering of the deficit had to go on, but he offered tax reduction as long as Hungarians would be better taxpayers. If more tax money were received, if more people paid taxes, then the rate of taxation could be lowered. But only to the extent that the black and grey economy becomes whiter. He called that the "Contract" outlined in an essay. If no more money is received the taxes will have to go back to their original level. That would have been the extent of the socialist government's reform. A few billion forints of tax relief if and only if the tax base became wider.

The international financial crisis and the looming economic crisis give the government a second chance to initiate reforms. They can argue that without reform there is no hope of economic health in the long run. Perhaps now that the Hungarian people realize the seriousness of the situation they will be more willing to make the necessary sacrifices and will bear the burden of the "reforms" more willingly. Moreover, perhaps Fidesz, under pressure from the population, will be more cooperative. Of course, these are just suppositions. First of all, it doesn't seem at the moment that the Hungarian people actually realize the seriousness of the situation. For instance, personal consumption hasn't dropped. Matolcsy's less antagonistic reaction may not reflect Viktor Orbán's intentions. But one thing is sure, Fidesz is losing ground in the polls measuring party preference. Polls also show that the population would like to have cooperation among the parties.

Whatever the long-term outcome, this economic summit seems to be a government success. Gyurcsány got so excited that immediately after the meeting he sat down and dictated some triumphant lines in his blog. We will see what happens tomorrow and the day after.