Hungary and Greece

A few days ago I heard an interview with Judit Járai, MTV foreign correspondent, who just returned from the United States after reporting from Washington for Magyar Rádió for over six years. Her appointment in 2003 was rather controversial because Járai unabashedly represented views associated with people like Zsolt Bayer and István Lovas who are considered to be anti-Semitic and partisan. The fear was that Járai might not be the best person to inform the listeners of Magyar Rádió on American politics.

Well, Járai is back and almost daily she appears on the screen as a foreign affairs expert. Last time she was asked about the Greek crisis and was only too happy to note that the Greek governments cheated and falsified data "just as the earlier Hungarian government did." Well, this was not the case. The Greeks did falsify data, the Hungarian government didn't. However, there are parallels not exactly complimentary to Hungary.

The New York Times had an interesting article about the everyday behavior of Greeks. After reading it one ought not to be terribly surprised at Greece's economic fate.

First, there is the question of taxes. What taxes? one could ask after reading the article. It seems that almost nobody pays taxes. Apparently in a wealthy suburb of Athens only 324 residents checked the box on their tax return admitting that they owned pools. Satellite photos revealed that in the area there are 16,974 pools! Studies estimate that the government may be losing as much as $30 billion a year to tax evasion. Apparently that amount would have gone a long way toward avoiding the current situation. I guess I don't have to point out that this state of affairs is very similar in Hungary. Tax evasion is a national sport there too.

But there are other similarities as well. To get better care in the national health system, Greeks pay doctors cash on the side, a practice known as "faleki," which means "little envelope." In Hungary we are all familiar with the "hálapénz" (gratuity), a polite word for "tip." Mind you, some specialists don't even wait for the envelope. They announce ahead of time the "price." That is allegedly illegal, but it makes no difference for most Hungarians. Either for those who demand it or for those who give it.

Greek officials are routinely bribed. Apparently, €300 will get people an emissions inspection sticker. The situation in Hungary is not much better. In Greece the most aggressive tax evaders are the self-employed "in a country of small businesses." The situation is the same in Hungary where there are as many as 1.5 million "small businesses," two-thirds of which are phony. People's expensive personal cars are registered as belonging to the business and therefore the price of the car as well as the price of gasoline can be deducted from the "businessman's" taxes.

In Greece tax evaders are apparently quite bold. When authorities checked the tax returns of 150 doctors in a fashionable section of Athens, more than half had claimed an income of less than €30,000. Thirty-four of them earned only about €10,000. Apparently this figure is totally unbelievable. It costs more than that to rent a doctor's office in that particular neighborhood. Needless to say, doctors don't pay taxes on income received on the side. The situation is the same in Hungary.

I have to tell a personal story. On the Internet I encountered a man from Pécs who turned out to be the son of an old schoolmate of mine in grades 5 and 6. When it became known that I was planning to visit Hungary I received an invitation from our young man. Earlier I heard how little money he and his wife (a doctor) make. Not enough to put food on the table. Indeed, the amount sounded pitiful. Great was my surprise when I saw their brand new, modern house with a two-car garage, two or three baths, a study, and three bedrooms.

Greece's population is 11 million, Hungary's 10 million. However, only a few thousand Greek citizens claimed incomes over €100,000. "There are many people with a house, with a cottage in the country, with two cars and maybe a small boat who claim they are earning €12,000 a year," the reporter was told by a high-ranking official in the Ministry of Finance. The situation is very similar in Hungary and there is no effective property tax in place that could catch some of these tax evaders. The Bajnai government tried to introduce it but the Constitutional Court threw it back as unconstitutional.

Here are a few other similarities. "If [Greeks] go to the mechanic, it is one price without a receipt and quite a bit more with it." Well, one feels at home! I talked to someone in Hungary about this problem who told me that she has not encountered one tradesman yet who offered her a receipt after being paid for work done in her house.

Apparently, there are various studies on shadow (grey, black) economies the world over and these estimate that the Greek black economy represents 20-30% of the country's gross domestic product. Estimates for Hungary are very similar. By comparison, the United States' grey economy was put in the same study at 7.8%. Quite a difference.

I began reading Ferenc Gyurcsány's assessment of past mistakes and suggestions for the party's "renewal." At one point he talks about the 2001 and 2003 period when "personal wealth accumulated while the state was getting dramatically poorer." Gyurcsány tried to change the mentality, obviously rampant in Greece as well, that citizens have no responsibility (for instance, to pay taxes) but that the state has the responsibility to provide all the social services. This was a tall order; no wonder the "reforms" failed.

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Odin's Lost eye
Guest

There are so many ‘loop-holes’ in both the Greek and Hungarian systems that such tax evasion is not only possible it is probable. The only saving grace for Hungary is that it was not a part of the Euro and has its own Central Bank.
The European Central Bank in Frankfurt has been very slow to react and the leaders of the Euro-zone very lax. The main speculation is against the Euro which is a much larger and more profitable in Dollar terms if it can be forced to de-value. Greece and the rest of the ‘P.I.G.S.’ are the Euro’s ‘Achilles heel’ which the Banks and other speculators would make several ‘mints of money’ if they could either severely weaken the Euro or better still destroy it.
The Fortin on the other hand is in the ‘Little League’ (third division for the U.K.) by comparison and Hungary is not in the same game let alone league in terms of total economic power as the ‘Eurozone’. As such it is almost below the ‘RADAR’ as far as the international bankers are concerned.

Eva S. Balogh
Guest

Odin’s Lost Eye: “The only saving grace for Hungary is that it was not a part of the Euro and has its own Central Bank. The European Central Bank in Frankfurt has been very slow to react and the leaders of the Euro-zone very lax.”
What a coincide. About a minute before I read your remarks we had been talking about how badly the ECB is handling the situation and it is time for the G8 to get involved.

Odin's Lost eye
Guest
It should be remembered that this problem began in the mid-late 1970s when banks computerised their systems. This lead to a down grading in the status of the ‘Local Branch Manager’ who up to that time controlled most of the lending to local traders and manufacturers etc. The ‘Local Branch Manager’ knew the problems of local business. Where I lived as a boy the ‘Local Branch Manager’ knew as much (or more) about farming and agriculture as those who actually farmed the land. On market days within an hour of selling starting he knew how much per kilo a beef animal would fetch, and would advise his ‘customers’ when and where to buy or sell. He was seldom wrong. He was replaced by ‘Higher Authority’ and his knowledge and skills were lost (and have never been replaced). This is why a small company who is owed money by his customers and needs a loan cannot get one. The ‘Higher Authorities’ were much more ‘City/Wall Street’ orientated and were more concerned in the 80s with ‘Stock Values’ so banks turned from investing in ‘producer/supplier/seller’ equities which they did not understand to investing in those of the ‘futures/derivatives/foreign exchange/other financial instruments’ varieties,… Read more »
Odin's Lost eye
Guest

The problem for the ECB is its terms of reference. I do not know what these are do you? At one time Governor of the Bank of England would have ‘called in’ banks and building societies who were misbehaving and twisted tails!. This was changed by the Labour Government after the failure of the BICS which was registered in Luxemburg not the UK. Admittedly its main branch was in London but the rules prohibited the ‘Old lady of Threadneedle Street from moving in. As a result there was no one in overall charge! Are the ECB rules the same?

John T
Guest

György Matolcsy – looking at some of his pronouncements this week, is this guy an idiot? I don’t necessarily disagree with some of what he says, but the manner and speed in which he seems to be predicting calamity at every turn is really going to undermine confidence in the country if he continues. Additionally, Fidesz are talking about major tax cuts. How are they going to address the shortfall in government receipts in the short term?
I enjoyed the article though – ties in with my observations. I don’t have much sympathy for a sizeable chunk of the population. If they are suffering now, a lot of the problems are of their own making, through reckless spending and fiddling. It’s not just politicans that are crooks. What gets me is that people are so brazenly dishonest.

Eva S. Balogh
Guest

John T.: “György Matolcsy – looking at some of his pronouncements this week, is this guy an idiot?”
I think he is. He was the first who started the country down on the slippery slope of accumulating high budget deficits. By the time Medgyessy took over it was over 9% and Medgyessy added to it mightily.
I just don’t understand how Orban can trust the country’s economy to him. Most likely because Orbán is totally ignorant of economics.

Guest

“Ferenc Gyurcsány’s … personal wealth accumulated while the state was getting dramatically poorer.”
Isn’t that also a kind of description of what happened ?

Eva S. Balogh
Guest

wolfi: “”Ferenc Gyurcsány’s … personal wealth accumulated while the state was getting dramatically poorer.” Isn’t that also a kind of description of what happened?”
Not true. Gyurcsány gave up all his business activities and put then in a kind of blind trust. In addition, he gave his salary in toto to charity all through his tenure.
One can contrast that with Viktor Orbán and his extended family’s enrichment while he was prime minister. Papa Orbán got all sorts of very profitable government jobs, Orbán’s wife got non-returnable subsidies for her vineyard in Tokaj. There is no way of explaining how he managed to get so much money that he could buy and completely redo a very expensive house in Buda and built a brand new one in Felcsút. He is a real shyster who got very rich while in office.

John T
Guest

Eva – I think it’s right to say though that Gyurcsány was well placed to make a lot of money. And many supporters of the old regime have made willing capitalists and not had any difficulty in ditching their former principles at the drop of a hat. While he may not have done anything improper, his hypocracy stinks. But then the communist elite were always more equal than the workers.

Eva S. Balogh
Guest

John T. “Eva – I think it’s right to say though that Gyurcsány was well placed to make a lot of money.”
Sure, but he didn’t do it while in office. He wasn’t corrupt. Orbán was and I’m afraid he hasn’t changed. The same thing will continue. His friends will greatly benefit from his position.

ANCIENT HUNGARIAN DNA (from bones)
Guest
ANCIENT HUNGARIAN DNA (from bones)

Eva, Gyurcsány became quickly rich under socialist Gyula Horn’s era (1994-1998).

ANCIENT HUNGARIAN DNA (from bones)
Guest
ANCIENT HUNGARIAN DNA (from bones)

He became rich due to the illegal privatizations

Eva S. Balogh
Guest

Ancient DNA: “Eva, Gyurcsány became quickly rich under socialist Gyula Horn’s era (1994-1998).”
And a lot of other people like Demjén, Csányi and many many more, including Győző Orbán.

Eva S. Balogh
Guest

Ancient DNA: “He became rich due to the illegal privatizations”
It wasn’t illegal. This kind of privatization was almost unavoidable in those days. By the way, businesses were advertized all over already during the Antall government and these properties were cheap. However, very few people dared to jump at the opportunity because they were risky. He did and it worked out for him and for many others. It is that simple.

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