At least according to Tibor Erdős that's what's going on right now in Hungary. One doesn't hear as much from Tibor Erdős as, let's say, from Lajos Bokros or László Békesi. Most likely one reason is his age. He was born in 1928. But the few times he speaks or writes it is worth listening to him.
Uncharacteristically, he wrote two articles that appeared in quick succession in Népszava. The first on February 19 with the telling title "Cacophony" (Hangzavar) and the second on February 26 ("Four serious problems"). In both Erdős tries to shed light on the complexity of Hungary's economic situation. Without pointing fingers he makes it clear that the reform economists don't realize that some of their remedies would actually deepen the economic crisis. Such as major cuts in spending. He also discards major tax cuts because the resultant growth in demand would only add to the country's dependence on imports.
So what should the government do? They should stimulate segments of the economy that would provide jobs and would not rely on exports. For example, investments in infrastructure. Moreover, such investment would be useful in later years once the country's economy rebounds. Investments in small and middle-sized Hungarian companies that target the domestic market would also make sense. Such investments are well suited for projects financed by the European Union. Let me add that it seems that this is exactly what Gordon Bajnai, minister in charge of economics and transport, is trying to do.
As for cutting back on spending, Erdős is cautious. He recommends restructuring expenses rather than decreasing the size of the total package. For example, he, like many others, suggests reducing the number of institutions of higher learning. I don't think he would go as far as Lajos Bokros, who would shutter over 60% of these institutions, leaving only 25 of the current 70+ institutions standing. But he would close those institutions that are not worthy of support. It might even help standards, which are fairly low at the moment. Practically anyone who finishes high school can enter some kind of college.
As for reforms. Yes, Erdős says, reforms are necessary but "reform economists and politicians, attention! Be cautious when it comes to reforms in the middle of an economic crisis. Introduce them after the crisis is over." Basically, if I read Erdős right, he endorses the government's program and warns politicians not to get too enamored with the radical suggestions of the reform economists. And this piece was written before the Reform Alliance gurus came out with their plans. Of course, it is possible that Erdős already knew what was brewing. After all, he is an academician, and in Budapest everybody knows everybody, especially within the same discipline.
Although Erdős's ideas are close to the government's proposals (and I wouldn't be surprised if he were one of the advisors the government consulted with) in one aspect he goes against the common wisdom. He suggests that the budget deficit requirement be loosened. A slightly higher deficit would help the country's recovery. That is most likely true, but what about the highly desirable Eurozone membership? Everybody thinks that Hungary should join as quickly as possible, and the government seems to be making some efforts to shorten the waiting period for countries that achieve the requisite inflation rate and budget deficit. The waiting period at the moment is two years. From what Hungarian politicians drop here and there one has the distinct feeling that for the moment at least the introduction of the euro is uppermost on the Hungarian government's mind. They are especially anxious about joining as soon as possible because the weakening forint is a real threat given the high percentage of outstanding loans payable in foreign currencies.
Well, Erdős's warnings didn't make an impression on certain Hungarian politicians. The cuts recommended by the economists of the Reform Alliance are embraced by SZDSZ and MDF. Both parties adopted the plan as their own, and parliament will vote on the question of whether the plan should be an agenda item, subject to the vote of the full parliament. I would wager to say that it will be dead on arrival. MSZP won't vote for it, and Fidesz is adamantly against any cuts in benefits and entitlements. Yet in order for the government's bill to go through they need some votes from either MDF or SZDSZ. So I'm almost sure that certain parts of the reform proposals will be incorporated into the final package to appease the enthusiasts of the Reform Alliance. I do hope that, in the give and take, they won't forget Tibor Erdős's warnings.