Ferenc Gyurcsány swings into action

It is almost inevitable that when there is really big trouble, Gyurcsány's adrenalin surges.This was the situation in late 2005 and early 2006 when MSZP trailed far behind Fidesz and Gyurcsány launched an incredible campaign to sell MSZP and his program. Miracle of miracles the MSZP-SZDSZ coalition won the elections. In the process he even managed to rally the normally apathetic MSZP troops: for instance, a huge spirited crowd gathered at an outdoor meeting and enthusiastically sang the catchy campaign song.

A similar burst of energy can be observed in the last few weeks, especially in the last few days. Most likely because the European parliamentary elections are near, Gyurcsány's verbiage is becoming sharper. Until now he was very careful not to emulate the tone of Fidesz politicians, although Gyurcsány can be devastatingly sarcastic if he is aroused. He was merciless when he made fun of Tibor Navracsics in parliament on February 16 and yesterday when in a speech he called his opponents "political con-men."

Yes, Gyurcsány is full of ideas and spares no energy to promote them. His latest is that he wants the European Union to arrange a package of as much as 180 billion euros to help East European economies, banks, and companies survive the economic storm. Here he is competing for attention with Viktor Orbán who on February 22 in Vienna scolded the west for not keeping its end of the bargain by not helping eastern Europe. He referred to a "contract" that had been broken, though it is not at all clear to me what contract Orbán was talking about. A couple of days earlier he apparently had talks with the prime ministers of Poland and the Czech Republic about some kind of cooperation among the East European countries. Today Orbán had a 50-minute talk with Angela Merkel. Since Merkel said nothing about the conversation with Orbán we have only Orbán's description of the meeting. According to him, he made three suggestions. (1) Western banks should resume cash flow to their branches in the region. (2) The European Central Bank should sell euros under the same conditions to non-eurozone countries as within it. And (3) Western governments should urge their companies to continue their investments in Eastern Europe. He didn't divulge Merkel's reactions, though he remarked that "minds are already open but not the pocketbooks." Orbán is even more ambitious than Gyurcsány: he wants 350 billion dollars or 276 billion euros. I think one can count one's blessing if Gyurcsány's suggestions bear fruit. Orbán's surely won't. For one thing, however bright his political prospects may be, he is not currently a major player on the international scene.

Gyurcsány already gave a name to his 180 billion euro plan: the European Stabilization and Integration Program. It would include short-term financing for governments, restructuring of private debt, capitalization of banks, and liquidity for companies in twelve different countries. Gyurcsány will present his plan at the March 1 European Union summit in Brussels. The Hungarian government already warned the Hungarian public not to expect results at the summit. It is not enough to convince the Western European leaders of its necessity; the plan would have to be put in place, which as we know only too well can be a daunting task. The program would help Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Romania. In addition two non-EU countries would benefit: Croatia and Ukraine. Meanwhile the European Bank for Reconstruction and Development and the World Bank launched major lending programs. The EBRD will lend 11 billion and the World Bank about 7.5 billion euros.

Gyurcsány has another favorite plan: to shorten the waiting period for admission to the euro-zone. Hungary has substantially reduced its deficit in the last two years. Right now the deficit is under 3%, comfortably below the 3.5% insisted on by the European Union. Inflation not surprisingly will also be low. Most likely well under 3.5%. According to the current rules Hungary would have to wait two years while holding the current figures before admission. This is what Gyurcsány would like to change. It seems that Poland will support the Hungarian proposal to shorten the waiting period. Whether the proposal will find support outside of the region is questionable. But Gyurcsány can be very persuasive. If he manages to pull this off his chances at the polls in 2010 would greatly improve. 

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Mark
Guest
“Gyurcsány already gave a name to his 180 billion euro plan: the European Stabilization and Integration Program … Gyurcsány has another favorite plan: to shorten the waiting period for admission to the euro-zone.” I’m very encouraged by the first plan – it is widely recognized that an EU-funded stabilization package of this size is essential, not only for Hungary and other CEE countries but for general European economic stability. I think Gyurcsány deserves support and credit for leading a campaign for this package (but he should really have been doing this in the autumn). I am – for reasons I won’t go into here – sceptical about the second part. Euro, or no Euro, a rescue plan on this scale will not be free. In fact, given that it implies that the EU as a whole should take some responsibility for ensuring economic stability in CEE, it should not be free. In the medium and long-term the issue must be that of the obligations the assisted countries should assume to fulfill their part of the bargain offered. Even in the absence of Euro membership there must be some managed currency regime. This also implies plans that ensure fiscal consolidation quickly… Read more »
Mark
Guest

“Here he is competing for attention with Viktor Orbán who on February 22 in Vienna scolded the west for not keeping its end of the bargain by not helping eastern Europe. He referred to a “contract” that had been broken, though it is not at all clear to me what contract Orbán was talking about.”
Stories like this – which is being reported in Germany, but not yet in Hungary – seem to suggest he might have a point:
http://www.thueringer-allgemeine.de/ta/ta.thueringen.ticker.volltext.php?kennung=ontaTICRatgeberMantel1235754953&zulieferer=ta&kategorie=TIC&rubrik=Ratgeber&region=Mantel&auftritt=TA&dbserver=1

Mark
Guest

“Not that kind of contract he was talking about but some kind of unwritten understanding that Western Europe will help the east. ”
Well, yes, and no. Yes, in the sense that he was not speaking so specifically, and about something much vaguer and less realistic. No, in the sense, that international organizations and western European governments have been telling Central and Eastern Europe for years that all they have to do is make their economies fit for foreign investment and the second the going gets tough look what they go and do. It is in this more general sense he is completely right (and, as you may have guessed I am no Viktor Orbán fan)

Jimmy the Tulip
Guest

Dear Eva,
Long ago I have noticed your never ending admiration toward Fleto fellow. Could you convince him pls to pay a visit to you and stay there with you forever(in a mutual eternal love), wherever u r? Many here in Hungary would be truly thankful to you.

Andras
Guest
Andras
Guest

Actually, if Mercedes scrap the plant building project in Kecskemet for Eisenach, that decision will have will surely bigger effect beyond the fate of Daimler, Eisenach and Kecskemet. It would have major psychological effect across the board from the financial world to right wing extremists. It would make clear: globalisation within European continent is over, the doom the CEEC region is inevitable. It would outbalance the psychological impact of the recently announced smallish 25 billion package, which would have anyway only a lifeline for the next three-four months.

NWO
Guest

If it is cheaper and easier for Daimler to acquire an existing Opel plant located in a “risk free” but expensive country instead of building a green field plant in one of the world’s most “toxic” countries, why would they not do this? This is not about breaking a social compact it is about business acument. If instead they are doing it because the German Government is effectively pushing/forcing them to do it, despite it not making good economic sense then this story is about the disintegration of the EU single market.
Finanlly, the fact is that Hungary is not an attractive investment destination, even with the HUF at around 300. The risks involved in investing in Hungary are substantial, and a wildly gyrating Fx rate is only one of the myriad of problems.
Last thing, Orban is not respected in Europe, but neither is Gyurcsany. Numerous times I have been told by EU/Brussels types and U.S. diplomats that Gyurcsany is not taken seriously, that he is a granstander, and that Hungary is always asking for concessions or favors but not actually being productive. It is hard to argue with the assesment.

Andras
Guest
NWO, it is likely that Daimler does not need any new plant at all within a period at least three years given the collapse of demand for their cars. I don’t see what they could produce in Eisenach in the next 2-3 years, save the ECB needs a new printing shop. None the less, Daimler desperately probably needs a low cost plant for the long term future to cut down production costs in a cost-sensitive market, with heightened competition from China and Japan, and within Europa in competition with Audi and BMW. In Hungary, fundamentals are fine for business. Infrastructure is good, labour is well trained and flexible, cheap, with devaluation very cheap in long term, geographical proximity very important factor, and the existence of a wide range of supplier firms and RandD support from universities. This is the reason of the success story of Audi, and these fundamentals are not changing. East Asia also have reborn after the 1998 crisis. Hopefully, around 2012, we are out of the depression, and we entering into recovery period. For that recovery period would be key for any European firm to have low cost production base alongside traditional ones, and to develop a… Read more »
Mark
Guest
Andras: “Actually, if Mercedes scrap the plant building project in Kecskemet for Eisenach, that decision will have will surely bigger effect beyond the fate of Daimler, Eisenach and Kecskemet. It would have major psychological effect across the board from the financial world to right wing extremists. It would make clear: globalisation within European continent is over.” This is exactly why when I saw it in the press in the UK and Germany, I thought it was so significant. There are two major points that connect which I think people in Budapest and Brussels ought to address. The problem with the single market is the lack of any legitimate political institutions to regulate it. In Europe the great political success of the past half decade is the nationally-organized welfare state. Its political success has created an expectation that national states defend citizens from problems in the world market. Given this split between the supranational location of the institutions that police the market, and the democratic/social institutions that are located at the national level, the political limits of the single market are going to become clear. I don’t go so far to say as this represents the end of globalization in the… Read more »
Andras
Guest
The pre-september 2008 world order provided a work-bench role for Hungary through FDI and inclusion of the cream of local industries into the lower layers of the vertically integrated supplier networks. There was not any other viable option, given the distorted national development route due to the integration into the soviet empire, and the consequent lack of capital and knowledge. It is also clear, that we entered late into the party, and we did not have the lack of European mediterranian countries, which begun their integration into Europe two decades before us. We may had have better policies (like czechs, slovaks, slovens), but we had not. Governments and their oppositions – together with the economist elite – had clear responsibility in this since 2000. The correction came too late, in 2006, and the crisis hit us before the correction ended. This made Hungary easy prey of the credit crunch. But that is history already. And I really dont want to enter into the blame-game. The issue is what to do. Again, we have – although at different level – the same problems that we had in 1989: 1) Lack of capital. Instead of capital we have a major debt which… Read more »
Mark
Guest
Andras: “Europe really should concentrate its efforts to avoid financial gotterdammerung …… I am sure that there are think tanks thinking on these scenarios.” I’m rather sure that there aren’t, or at least there aren’t any that really understand what they are dealing with. For the past decade and a half at least the real economy across Europe has been characterized by low growth relative to the general record of the post-war period. This is the result of widespread cost-cutting in manufacturing intensifying competition (CEE policies contributed to this, but not as much as did East Asia – what is actually striking when compared with East and South Asia is how unsuccessful CEE’s “globalization” has been!), combined with the policies of competitive deflation induced by the Euro convergence criteria. However, this has been paralleled by the growth of the London-based financial sector, and a huge paper-based economy that created a number of bubbles in countries like the UK, Ireland, Spain, and the Baltic states. Given the divorce between the real economy and the realm of finance it was always going to end very badly (what surprised me, and I admit, I’ve been waiting for this crash to happen for some… Read more »
Andras
Guest
EU has the following in-built time-bombs: – oversized bank sector, with much bigger exposure to toxic assets than the US one, -oversized industrial companies with much bigger credit burden than the US one, -oversized welfare states, with huge amount of cash-hungriness and debt up to their necks, – households are in debt-trap in most of the peripherical countries, where there was a credit boom in the last ten years. – There are no data appeared yet about the debt situation of the service sector, but I guess, there also should be too much debt. Further deteriorates the situation n Europe, that it has an unsustainable single currency tying together separate economies with different business cycles without proper correctional mechanism. This half-baked system even in the time of boom created major unbalances in forms of property booms in the periphery, and now the unbalances will be unbearable. So, I think it will come: – about 50% collapse of industrial production across Europe. The euro-regime, until stays afloat, outprice Spain, Italy, Portugal and Ireland. These countries would see de-industrialisation by market forces. Their fate will be even faster as German and French governments will order their companies to cut jobs everywhere to… Read more »
Mark
Guest
Andras: “about 50% collapse of industrial production across Europe” I suspect this is too apocalyptic. If this happens on this scale then the demands for state intervention will become so great and the economic implosion so huge that we will see the creation – probably by default, more by design – of predominantly publicly owned economies regulated by state mobilization to drive economic growth, and also with a state monopoly of foreign trade. From the recent Hungarian past such an outcome might seem a little like history repeating itself. We will certainly be writing History differently if you are right – 1989 will not mark the collapse of Communism, but the beginning of capitalism’s Indian summer before it was overwhelmed by its terminal crisis. Ironic indeed. But this isn’t going to happen! At the very worst we will have a very painful clearout of a lot of redundant capacity both in manufacturing and the service sector over the next decade, before capitalist growth resumes on a new basis. Obviously, firstly we have to get through this, and History suggests to us that this will not be easy (after all the last crisis on this scale played no small part in… Read more »
NWO
Guest

Having spent the last couple days in Warsaw, it is clear that Gyurcsany’s plan was met with scorn. Poles have absolutely no interest in being associated with his bail-out or with anything having to do with Hungary. The Poles feel they have been unfairly brought down by being unfairly associated with the weaker parts of the CEE already, and are trying their best to dispel the notion of a CEE in the first place.
What does this mean? I think Gyurcsany misplayed the politics of his proposal (regardless of the merits as an economic matter) and it has no chance of gaining any support going forward. This also makes Hungary for the moment much more vulnerable.

Odin's lost eye
Guest
Mark If I read you aright what you are saying is that because the capitalist system is in reality an amorphous mass of small units/people its destruction is most unlikely. Again we come back to the micro-economic world of the little man and the little company. These are mobile, quick to respond to change and can be very efficient. So long as they do not try to rush (or are pushed into rushing by desperate authorities) their growth these will succeed. What they need are ‘Trading Houses’ that will represent them in the markets of the world. There is no alternative to Capitalism even Communism was state run Capitalism ie the ‘corporate state’ fails when faced with real non global capitalism. The real problem which lies at the back of it all is the decline in the value of assets held buy bankers etc. They have spent their depositor’s money on ‘flim-flam’ and so have lost ‘trust’. This was done to raise their share values in the market to give their shareholders greater returns, which I have always felt was a big ‘No-No’. but many of their market orientated shareholders believed that 10 minutes was a very long time to… Read more »
Mark
Guest
Odin: “Mark If I read you aright what you are saying is that because the capitalist system is in reality an amorphous mass of small units/people its destruction is most unlikely.” This isn’t quite what I think. What is happening to the global economy has happened before – it happened after 1929, and after 1873. There will come a point when the destruction of redundant capacity stops and investment again becomes profitable, and the conditions for self-sustaining growth return. Secondly, while this a crisis, it is not, I would suggest, the terminal crisis of capitalism envisaged by Marx and his followers. Globalization may have been a relative failure in CEE and the former Soviet Union, but there is no question that it has raised the general standard of living across the planet. The transformation of material conditions in East and South Asia (even though at times this process has not been pretty)is the great economic success story of our times. The real problems stem from the fact that we regarded the market as a self-regulating panacea, and we failed to develop the kinds of co-operative global institutions that would have allowed us to regulate the global imbalances produced by export-led… Read more »
Andras
Guest

It seems that Mercedes stays with its original investment plan.
http://www.hirado.hu/Hirek/2009/03/03/13/A_Daimler_kitart.aspx

Mark
Guest

András: “It seems that Mercedes stays with its original investment plan.”
Maybe Gyurcsány’s interventions in Brussels were not as ineffective as everyone first assumed!

Mark
Guest
NWO: “Gyurcsany’s plan was met with scorn. Poles have absolutely no interest in being associated with his bail-out or with anything having to do with Hungary.” I’m sure that although he was not the perfect messenger, Gyurcsány did the right thing. The view from the UK is different to that in Poland: the Hungarian government is presenting the only alternative to an outright regional collapse that is on the table. On the New York Times blog yesterday, Paul Krugman criticized the EU for their rejection of the Hungarian package – getting the most recent recipient of the Nobel Prize for Economics is not the same as getting the money, but it does suggest that the “scorn” was far from universal. I think that in the end the EU will have no alternative but to accept something like the Hungarian plan – just as I think Hungary should have put something like it on the table much earlier. The question is how much damage will be done first. There is something tragi-comic about the reactions of the various CEE leaders, and in my eyes Gyurcsány comes out with more credit than any of them. Hungary unveils a plan for “Eastern Europe”.… Read more »
Mark
Guest

Ėva: “I just heard Péter Felcsúti (Bank Association) who claimed that if Poland came up with a similar plan then Germany et al would have been more sympathetic to the plan.”
Obviously this begs the question of why Poland didn’t come up with the plan. Poland has some significant and growing problems that may not yet be as severe as Hungary’s, but are more significant than many have recognized. Also, their Minister of Finance is a well respected academic economist with a real track record as a specialist researcher in CEE’s economic transformation.
Felcsúti should realize that the imminence of a federal election is not irrelevant to Germany’s stance, and that while CDU/CSU while almost certainly be the largest block, it is far from certain what governing combinations will be possible after.

Andras
Guest

The funny thing is that Orban also argued for a 350 billion aid-package before the March 1 meeting. I really dont understand why fidesz is now attacking Gyurcsany, instead of working together for an aid package. It is really beyond comprehension.

NWO
Guest

Mark:
I do not disagree with you on the merits on a region wide solution. I do believe a lot of the problem, however, as Felcsuti suggests is about the messenger. Hungary, given its fiscal position and given that Gyurcsany is not popular at home, is not a particularly credible “leader for the region” [See, Anne Applebaum’s [wife of the Polish FM]piece in yesterday’s Washington Post]. Whether it is true or not the other CEE countries see a path to salvation for themselves through an accelerated Euro entry and a decoupling of the CEE association. If the problem of the Western European banks is systemic then they are wrong. The bet in Poland, however, is that capital is limited and that when push comes to shove with limited capital the western European banks would prefer to save their Polish operations than their Hungarian ones (given the relative size of the markets and Poland expected early entry into the Euro, this is not a bad bet).
If Gyurcsany really wants to promote his plan, he does really need to talk less ad find someone more credible to do the hard work.

Andras
Guest

NWO, I agree with you. Well before Gyurcsany, Austrian banks and the Austrian FM begun to rally for a similar sized package, and Merkel was sympathetic towards the Austrian initiative. Gyurcsany had to ally with Austrians and only retain for himself a background diplomacy to drum up other CEECs. That would have been the wise solution. Instead of this, he begun a roadshow to pose like Tony Blair as savour of the region and to match the initiative of Orban. Unfortnately, this is not the time for such vote-chasing grandour. We are in really trouble, the region is in real trouble. We really need serious work, background diplomacy and coordination among FMs, National Banks, ECB and Commission.

Mark
Guest
András, and NWO – with all due respect I don’t think here the point is the messenger, – it is the message. I can’t but feeling that overly focussing on Gyurcsány’s shortcomings runs the risk of a fairly spectacular loss of perspective. I think we agree that Gyurcsány is a politician with deep flaws that have been manifested in his making of unguarded comments with microphones present (the 2006 ones were only some of a number). I am absolutely sure that the audience he needs to convince are other politicians, and although they may not have admitted to it with a mircophone present I’m willing to bet quite alot of money that most of the other heads of government have “lied morning, noon and night” when their own elections were on the horizon! And also, yes, Hungary was profligate – but if one looks at the extent of irresponsible public and private borrowing around the EU during the 2001-2007 business cycle it wasn’t the worst offender, not by a long way. It has the misfortune/fortune (depending on how you look at it) to have been noticed first by the financial markets. Nor is it unknown for leaders with deep moral… Read more »
NWO
Guest

Anyway, it appears the other CEE countries have voted Hungary “out” with their communique today that appears specifically designed to distinguish their plight with that of Hungary’s. In turn, the Fx markets have also worken up to this, as the Forint (going to 312 to the Euro when I last checked) has now begun to decouple from the other regional currencies. It would probably be suicidal, but the MNB is probably thinking about another emergency rate hike. A month ago a HUF 300 level was considered unbearable. The market now assumes HUF 320 is a given.

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