A “successful” Hungarian strike without “results” and other happenings

I'm sorry if I have to give another Hungarian lesson to my readers but István Gaskó's choice of words forces me to. Gaskó's "general strike" that shrank from 3 million participants to tens of thousands and most likely in reality fewer than that abruptly ended today at noon. The strike began at midnight and was supposed last for eighteen hours. In plain language it was to end at 6 p.m. This is not the first time that Gaskó ends a strike earlier than announced. But he always finds some creative way of explaining that the early close actually meant a great victory. This time the explanation was a linguistic sleight of hand. He announced that "a sztrájk sikeres volt de eredménytelen." "Sikeres" means successful. Its antonym, "sikertelen," means unsuccessful but so does "eredménytelen." That is, it's a synonym of "sikertelen." I assume István Gaskó believes that most Hungarians are so ignorant of their own language that they will think that this debacle was in fact the greatest success in the history of Hungarian trade unions.

It was doomed from the start. During the night, that is between midnight and six o'clock in the morning, 70% of the trains were moving. After the shift change at six o'clock 90% of the trains left for their destinations. Mind you, there were not too many travellers because most people found other means of transportation anticipating the usual chaos at the railroad stations. I will be curious to see how Mr. Gaskó further embellishes his "success with no results" when he makes his rounds of the TV stations.

Meanwhile there is some good economic news. The first is that Germany is slowly recovering from its economic slump. In March, for the first time in half a year German exports and imports both grew. While in February imports shrank by 4.8% in March they were up by 0.8%. And this is a welcome development for Hungary because the country is heavily dependent on exports. Germany is perhaps the most important trading partner of Hungary. Another good piece of news was that in March Hungarian industrial production grew by 4.3% over the previous month. The forint has strengthened in the last few days. At the moment 1 euro trades for 277.993 forints while at the beginning of March it peaked at 316.5 forints. See chart belowForint euro. Of course, Hungarian exporters were happy with the weak forint. According to a businessman friend of mine an exchange rate of 1:290 would be just perfect.  Those who took out loans in euros or Swiss francs would be less thrilled with a weak forint. Although it is true that some other currencies in the region have also fared well, the Hungarian forint has outpaced them. Even the most skeptical analysts admit that the Hungarian government's speedy reaction to the crisis and the parliamentary support it received made a difference. The Budapest Stock Exchange (BUX) is also showing signs of improvement. Like most world markets the BUX had a horrific start to the year, bottoming in early March. Since then it has recouped almost 50% of its value and is positive on the year. See chart. BUXThe situation is the same with OTP (Országos Takarékpénztár), Hungary's largest bank, and MOL, the oil refining company that plays an important role even outside the country. Another good bit of news is that after months of being unable to raise money by issuing government securities, yesterday not only were all issuances sold but they were oversubscribed. The ÁKK (Államadósság-kezelő Központ/Center for Handling State Debts) announced the availability of three-year, five-year, and ten-year bonds. Each offering was for five billion forints. The three-year securities were oversubscribed three times, the five-year four times, and the ten-year six times. Thus ÁKK eventually issued not five but six and a half billion forints worth of ten-year bonds. Some analysts hinted that it would be time to lower interest rates. All this gives a lift to the new Bajnai government.

Meanwhile the Pécs mayoral election, scheduled for Sunday, is heating up. MSZP decided to send 2,000 activists (mostly women) to Pécs to campaign in districts that used to be MSZP strongholds. Certainly not downtown. Meanwhile, Mr. Páva got cold feet. He and Katalin Szili were supposed to have a television debate tonight but in the last minute he bowed out. His alleged rationale was that his opponent's campaign is unfair and he demands an apology. One strange aspect of Páva's campaign is that although he is clearly Fidesz's candidate, he doesn't use the party logo or its orange color to identify himself on posters. I'm somewhat baffled. The only thing I can imagine is that Fidesz is unsure of itself in the contest and doesn't want to have too high a party profile in case of a loss. Whatever the case, I'm sure things will just get curioser and curioser.

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Mark
Guest
“Even the most skeptical analysts admit that the Hungarian government’s speedy reaction to the crisis and the parliamentary support it received made a difference.” Let me take my customary role here of being even more skeptical than most analysts, by saying that what we are seeing in much of this are the short-term reactions of markets. These reactions are being dictated by the fact that conditions almost everywhere else are unusual and unstable, and the relative values of currencies are not likely to settle for a while. What is very clear is that this optimism is not justified by the economic fundamentals – which means that there will be further turbulence ahead at the points market participants are reminded by events of these realities. Clearly, what is happening to the German exports might be good news – though we are only looking at one month’s figures – and we should say that total manufacturing output there is still falling (which suggests that the focus on exports is about cherry picking those bits of the figures that are most favourable). The most optimistic reading of these figures would lead us to conclude that the sharp contraction has halted (though we should… Read more »
Hank
Guest

~The government can shorten this recession if they want – and the way they can do that is through budgetary stimulus, which means reversing current policies.~
Nice thought, but how to finance this stimulus? Where should the money come from?
Lending is still very expensive on international markets and EU subsidies can not just be commended in another direction over weeks, if at all. So if you want money to stimulate anything at all(for example building industry, four day work weeks, car scrapping schemes etc) you will have to get it by cutting certain other budget items. And that is just what the government is doing, as far as I understand.

Mark
Guest
Hanks: “Nice thought, but how to finance this stimulus?” In current circumstances it has to be borrowed, just as a range of other countries are doing. This does mean that it has to be anchored in a long-term reform plan, which makes clear how it can be paid back as the economy recovers. I might though equally ask the question of how Hungary is going to pay for the consequences of its current contraction. It is very clear that over the medium-term a well-planned stimulus package financed through borrowing will be cheaper for the country, than short-term budget cutting. Hank: “So if you want money to stimulate anything at all(for example building industry, four day work weeks, car scrapping schemes etc) you will have to get it by cutting certain other budget items. And that is just what the government is doing, as far as I understand.” I think you are misunderstanding two things. Firstly an economic stimulus is where the state uses its power to borrow to place extra moneys – either through tax cuts, or state spending – into the economy that wasn’t there before. If the state takes money from another part of the budget to, say,… Read more »
NWO
Guest

Mark;
I do agree that for the “producing” part of the economy a weaker HUF is desireable. As we have discussed, however, the benefits of such are very much counter balanced by the damage a weak HUF does to the household sector and to the Government balances. There is no way of getting around this problem. The MNB and the government believe on balance that a relatively stronger HUF is less risky systemically than a weaker HUF and a more competitive export sector.
Finally, Bajnai et. al. are still trying to prove their bona fides vis-a-vis the world markets, EU and IMF. Once proven, at least to some extent, the IMF and the EU will nod to breaching the 3% deficit level, and the Government will introduce some tax cuts to spur employment (too little too late for 2009 but hopefully of some help for 2010) and will announce that it has negotiated a new deal deal with the IMF-extending the existing programme for at least one more year.
Having said all this, basically, I think the HUF strength is driven by world markets, and a correction is inevitable in coming weeks.

Hank
Guest
‘Finally, Bajnai et. al. are still trying to prove their bona fides vis-a-vis the world markets, EU and IMF. Once proven, at least to some extent, the IMF and the EU will nod to breaching the 3% deficit level, and the Government will introduce some tax cuts to spur employment (too little too late for 2009 but hopefully of some help for 2010) and will announce that it has negotiated a new deal deal with the IMF-extending the existing programme for at least one more year.’ Agreed. Borrowing money now to finance a stimulus is just not a possibility for Hungary, at least for reasonable rates. That is the consequence of its irresponsible overborrowing in the past ten (or 3O) years. First it has to restore confidence, and only in the midterm borrowing (from the IMF/EU to start with) for more stimulus becomes an option again. So I am not confusing anything, I am just stating reality: Hungary cannot, as other countries do, borrow more. And yes, I know that cutting on social services to finance a cut in taxes and social contributions and to give state subsidies for the building industry, vocational education etc., is not a straightforward stimulus.… Read more »
Mark
Guest
NWO: “There is no way of getting around this problem.” There is an important long, to medium-term dimension to this problem, which is relatively poorly understood. At current levels of debt we can envisage two possible scenarios. The first is the one NWO outlines – a weaker Forint stimulates the export sector, but at the cost of the household and state sector. This means a good performance in the manufacturing sector, but a state that suffers from an endemic fiscal crisis, and a long-term burden of household debt which depresses consumption, economic growth (and also means that there won’t be much of a middle class for the forseeable future). The second scenario of a stronger Forint (with or without eventual entry into the Euro), might lead to short-term relief for households and the state, but it would have to confront the long-term competitiveness problem that Hungary faces. Robbed of the ability to restore competitiveness through adjusting the value of its currency relative to that of states it exports to, it would have to do this through direct reductions in the level of wages and social benefits, and create room for reducing the tax burden on companies through public expenditure cuts.… Read more »
Mark
Guest
Hank: “Hungary cannot, as other countries do, borrow more.” I can’t see why this should be the case. Let’s start from some first principles. Hungary’s public debt burden in relation to GDP is not sufficiently out of line with that of its fellow OECD members – 72%, as against 75% for the OECD as a whole in 2007 (the most recent year for which I can find comparable figures). Of the four most significant states with large fiscal stimulus packages only one state, the UK (46.9%) had a significantly lower debt burden; others were more comparable – the USA (62.9%), Germany (65.5%), France (70.1%)- and it wasn’t out of line with the Eurozone as a whole (71.4%). Yes, Hungary’s debt burden grew considerably to 2007, but had begun (and continued) to implement a severe austerity programme to bring this situation under control. This programme was, until the advent of the global financial crisis in 2008, regarded as sound and credible by investors. Furthermore it was supported by international organizations, especially the EU. While I can explain (and have done) previously why Hungary got into problems in autumn 2008, I don’t think this was based on a “rational” reaction to the… Read more »
Mark
Guest
Éva: “Confidence is being slowly restored and that confidence would be completely destroyed if one followed Mark’s suggestions.” To accept this analysis one has to believe that Hungary’s current economic problems are solely or largely the result of Hungarian decisions. I might point out that this resembles closely FIDESZ’s analysis of the problem! But even though that’s a bit of a cheap shot, you surely can’t ignore the timing of Hungary’s brush with insolvency in the autumn, and the way in which it followed hard on the heels of the collapse of Lehmann Brothers. The problem of investor confidence is primarily an international one with international causes, not a Hungarian one, with Hungarian causes. If you accept that, then it follows logically that formulating policy that rests on the notion that Hungary’s problems can be solved by persuading investors that the Hungarian state is behaving well is so inadequate and inappropriate given the causes of the problems, that the notion is grotesque. It also follows that the confidence Hungary now enjoys is the result primarily of international factors – as NWO has suggested above – and may be withdrawn suddenly due to factors beyond Hungary’s control. And lastly and most… Read more »
New World Order
Guest

Mark
There ia really only one solution to the problem you identify. Bank recapitalization (there is no credit available in Hungary at all for SMEs) and a forced conversion of CHF and Euro household debt into HUF. After doing that, allowing a devaluation would be much easier, with the real harm coming in the form of inflation expectations.
As for today, I assure that there is no price at which the Hu State can raise debt in hard currency and probably not in HUF either. Increasing the deficit to spur growth is just not an option.

whoever
Guest

No offence to Eva, but Mark’s posts are the real reason I keep coming to this blog. I’ve yet to see a more cogent dissection of the MSZP’s blunders and the sheer disingenuity of the Gyurcsany/Bajnai era.
What really worries me, is nobody seems to to think about the policy implications for the Hungarian economy and society, of pursuing such a tight monetary agenda.
The Hungarian government and opposition, pitifully, are simply attempting to return to a failed growth dynamic, without actually considering fundamental restructuring. The very basis on which the economy depends is threatened – threatened by the institutional failures across health, education and administration.
If the current “TINA” policies are continued by either this administration, or the next, I would expect the further darkening and outright subversion of the Hungarian state in favour of oligopoly.
Let’s not pretend that the fortunes of Bajnai or Gyurcsany would have been possible in a “more normal” country. These are people who experts in crony capitalism, not experts in production or marketing of products in a competitive market economy. They are “speculators” – and this colors the basis on which they manage the economy.

Mark
Guest
NWO: “As for today, I assure that there is no price at which the Hu State can raise debt in hard currency and probably not in HUF either.” That may be true of the market; the issue is one of the conditions for international assistance, and whether with a more rational plan Hungary can drive a better bargain that allows it to underpin a more rational policy. I think in this connection the policy package underpinning Romania’s loan from the IMF approved last week is considerably more rational than Hungary’s measures (it talks about reform to bring the deficit to below 3% in 2011, but in the short-term allows for higher public investment and social spending to mitigate the effects of the downturn). Clearly Romania has secured a better bargain for its citizens than Hungary did – a point not lost on the president of its central bank, anxious to point out to the press how much better Bucharest had done than its western neighbour! There is also a contradiction between your hostility to budgetary stimulus and support for forced conversion and bank recapialization. All these measures require additional resources – forced conversion (which I agree is essential if Hungary… Read more »
whoever
Guest
Eva, tightening “the belt” (a discomfort felt especially by certain people) – and hoping for the best – is a very strange approach to public policy. Firstly, because it shows inductive logic. Just because it worked before, that means it will work again. But will it? It doesn’t fill me with confidence, as the international economy now is a different beast to the 1996-2001 period. Secondly, because you think the recession in Hungary is an economic recession. But I think it is equally a social recession, a crisis of confidence in politics and a failure of institutions. I know I’m not exactly spreading joy by saying this, but it looks to me like a combination of chronic and acute factors. At best, Hungary will be in intensive care for a long time – assuming there will continue to be the international structures which have “rescued” Hungary at such high a cost. There is still so much uncertainty internationally – for a small country to be so directionless as Hungary is a dangerous thing. This of course goes beyond simple criticism of politics and parties. So we can agree that more fundamental problems exist. But the failure of the MSZP, after… Read more »
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