József Szájer, head of the Fidesz delegation to the European Parliament, only yesterday boasted about Hungary's arrival after eight years in the wilderness "at the High Street (Fő utca) of Europe." I don't use "Main Street" as a translation because that has acquired a special meaning in English linked to provincialism and the ordinary citizen; it is often contrasted with Wall Street. What Szájer and other Fidesz politicians mean is something very different. In their heads "Fő utca" is just the opposite of Main Street. It suggests a meaning close to "forefront." Viktor Orbán considers himself a Hungarian intimately familiar with the world, someone who understands the intricacies of international politics and finance. In his first "international press conference" he in fact referred to "provincialism" as the trademark of the socialist government as opposed to his panoramic view of the world.
Unfortunately, it seems that provincialism in the sense of not understanding the interconnection between political sloganeering or petty local political squabbles for home consumption and international politics and finance is rather typical of Viktor Orbán's thinking. He was totally insensitive to foreign reactions to his policies in his first administration and as a result Hungary's foreign relations with the neighbors as well as with the United States and Russia were in a total shambles by 2002. It took his successors years to repair the broken bridges Orbán and his team left behind.
However, one was hoping that the political scientist László Kéri was right, that in the last eight years Orbán has matured a lot. After all, he was only 34 when he became prime minister in 1998. Alas, he has already made some unfortunate remarks that met with immediate negative reactions from the established High Street of Europe.
In 1998 the financial world at home and abroad reacted negatively to Fidesz's winning the elections. This time my distinct impression was that most analysts looked forward to a change of government and some of them actually welcomed the two-thirds majority that would enable the government to introduce the long overdue reforms. Not only the experts but investors as well enthusiastically greeted the Fidesz victory. While on April 11 (Sunday), on the day of the first round of the elections, one euro was worth 268.37 forints, after the elections the forint strengthened considerably. By April 14, the exchange rate was 262.20 forints to the euro. In the two weeks between the two rounds of the elections the forint weakened somewhat, but it was still around 263-265 forints to the euro. On April 26, that is a day after the elections, it again strengthened slightly (262.89), but then came Tuesday when it became a great deal weaker: it reached almost 270 forints to the euro. The last time the forint was that weak was in the middle of February of 2010.
What do the experts say? Of course, the Greek financial crisis had a substantial impact. But the forint also weakened on Viktor Orbán's less than careful utterances about the chairman of the Hungarian National Bank and his attitude toward the IMF. We can measure the effect of his statements by comparing the decline in the forint to that of other currencies in the region: the zloty and the Czech koruna also weakened but less so than the Hungarian currrency.
So, what did Viktor Orbán say that foreign investors didn't particularly like and foreign commentators wrote about? First and foremost, Viktor Orbán said a few less than diplomatic things about the International Monetary Fund. He announced at the international press conference that "neither the officials of the IMF nor those of the European Union are our bosses. We will negotiate but we don't bow to dictats." Thus the Financial Times Deutschland not surprisingly drew the conclusion that "Hungary is giving up its austerity program." In the middle of the Greek crisis this sounds especially ominous.
But Orbán didn't stop here. He said a few nasty things about András Simor, chairman of the Hungarian National Bank. It has been no secret that Orbán doesn't like Simor whom he called "an off-shore knight," referring to an earlier ownership of a consulting firm registered in Cyprus. Whatever we think of the chairman of a national bank owning a firm giving financial advice, any kind of change in the leadership of the Hungarian National Bank at the moment would have a very adverse effect. Yet there is no question that Orbán would like to force Simor out of office. Even if he himself didn't openly say so at the press conference, a day later one of his deputies in the party, Zoltán Pokorni, made it clear that the new administration expects Simor's resignation. Simor, whose term ends only in March 2013, has already indicated that he has no intention of leaving his post.
The reaction was immediate. Barclays Capital yesterday dealt with the threat of removing Simor, adding that it is unlikely that Simor will oblige, but they noted that the "political noise" might have an adverse effect on the bank's monetary policies. Barclays' analysts noted that even if Simor left, the new chairman would most likely continue his policies, but the market has trust in Simor and any "forced change" might adversely affect the exchange rate, and thus the ongoing reduction in the interest rate (which is at the moment the lowest since 1990) might come to a halt. J.P. Morgan followed suit, adding that the strained relations between the government and the Hungarian National Bank might have an adverse effect on investment.
So, all in all, it seems that the path to the High Street of Europe has its bumps.