If changing the citizenship law was a diplomatic blunder that caused further strains in Slovak-Hungarian relations and some consternation within the European Union, then the irresponsible utterances by Lajos Kósa, Mihály Varga, and Viktor Orbán today concerning the state of the Hungarian economy made even bigger waves. And the Hungarian forint and the stock exchange both took a hit today.
I should call attention to the fact, in case I didn’t mention it before, that Lajos Kósa became the de facto chairman of Fidesz when Viktor Orbán, in addition to his leadership of the party, assumed the office of prime minister. Surely, these are two fulltime jobs, and therefore someone had to be put in charge of the everyday running of the party. Lajos Kósa, one of the vice-chairmen, got the job and this is one reason we hear so much about him nowadays.
I think I should also repeat that Kósa is apt to exaggerate. Mildly put. To say that Gábor Demszky’s twenty years as lord mayor of Budapest caused more harm than 150 years of Turkish occupation or the wartime activities of the Red Army surely cannot be taken seriously. But at least such stupidity doesn’t do any great harm. People just laugh and say: “What do you expect from Kósa? He is like that.” But when Kósa says stupid and irresponsible things about the state of Hungary’s finances and economy and the world doesn’t know either Kósa’s exaggerations or Fidesz’s habit of not respecting the truth, then there is trouble. Big trouble.
Let me also state right at the beginning that I cannot even blame Kósa. He got the job of introducing the theme of continued austerity. Because the economic figures presented by the outgoing government are false and the economic trouble is much bigger than anyone expected, the Orbán government cannot fulfill its promises of large tax cuts and higher salaries for doctors, nurses, teachers, and anyone who depends on government salaries.
Of course, for months one had the distinct feeling that Fidesz’s economic plans included the discovery of “skeletons” that would fall out of the closet once the new government was installed. A committee was set up months ago to look for these skeletons, and it was bound to happen that if the skeletons could not be found a few would be planted here and there.
Almost a week ago, on May 29, Mihály Varga, who headed this committee, said in an interview that most likely during the summer it will be necesssary to change the budgetary figures because it will be impossible to stick with the 3.8% budget deficit. Kósa thought he would prepare the country for that eventuality and explain why Fidesz cannot fulfill its promises. Except in typical Kósa fashion the warning turned out to be an outlandish exaggeration that frightened the market.
According to Kósa, Hungary is on the verge of bankruptcy. The country’s “chance of avoiding Greece’s fate is slim.” Although he admitted that he is not able to support his contention with facts and figures, next week all will be clear about “what on earth we can do.” According to Kósa there is a crisis situation, “the ship is sinking” and therefore immediate steps must be taken. The government can’t just handle the crisis; the whole economy must be placed on new foundations. He casually mentioned that “because of the current crisis it will perhaps be necessary to suspend certain parts of the constitution that deal with the economy.”
Kósa’s knowledge of economics seems meager. Perhaps because he received his degree “in planned economy” at Karl Marx University and the socialist planned economy is a thing of the past. He claims that in Europe “those countries were successful in the management of the crisis that didn’t follow the economic prescription of the IMF and the World Bank.” Hmmm? Greece? Portugal? Spain? Great Britain? And one could continue.
Kósa’s recipe makes no sense whatsoever. He finished his speech by saying that the tax burden of enterprises must be lowered considerably. According to him “it is pointless to ask from what sources this money will come because at the moment survival is much more important.” Kósa is certain that the Greek example shows that Europe will not let Hungary sink and that the price of the steps Hungary takes will be swallowed by Europe. So, Kósa suggests following Greece’s example in the hope that the European Union will foot the bill.
My hunch is that Kósa heard a few Fidesz opinions or perhaps some discussions about the country’s future possibilities and got mixed up. Because surely no sane person who knows anything about international finances would say such stupid things.
Mihály Varga also decided to open his mouth and repeated that “in Hungary today there is an economic crisis situation.” He repeated again that the budget deficit of 3.8% cannot be maintained; the likely number is between 7 and 7.5%. In brief, it seems that the Fidesz government is still thinking in terms of increasing the budget deficit that would give it greater flexibility with a decided political advantage.
However, I suspect that all this will remain a dream because it is unlikely that either the European Union or the IMF will be game. José Manuel Barroso urged Orbán to continue the efforts of Gordon Bajnai because “consolidation will create trust necessary for economic growth.” He suggested beginning “structural reforms” that are long overdue, not just in Hungary but in other European countries as well.
Orbán’s answer was as usual cagey. Indeed, structural reforms are necessary but “with modification and adjustments we get nowhere.” Hungary needs to take quick and decisive steps that will spur competitiveness. In a few days the information about the real state of the Hungarian economy will be available and within 72 hours the Hungarian government will provide an “action plan.” As for the budget deficit, the government will set it at the “necessary level.” But who knows what the necessary level is, I would ask.
These three gentlemen’s joint efforts resulted in an incredible weakening of the forint. Here is today’s intraday chart.
Analysts attribute this weakening of the Hungarian forint to Lajos Kósa’s irresponsible talk about the country’s bankruptcy and his comparison of Hungary to Greece as well as Mihály Varga’s “skeletons” that are already falling out of the closet in addition to a 7.5% budget deficit. They also mention that the market wasn’t terribly happy about Orbán’s answer to Barroso either because after all the Hungarian prime minister talked about quick and decisive steps toward increased competitiveness and such steps usually increase the deficit.
BUX, the Hungarian stock exchange, also showed the nervousness of market participants. First, the BUX followed the European uptrend, but then the news of the utterances of the financial experts of the Hungarian government hit the market. On the surface, if one compares BUX’s performance today to yesterday’s close, it doesn’t look that bad. It lost only 228.5 points, about a 1% drop. But the day’s range, from the high of day to the close, was about 900 points, or 3%. A good summary of the events can be found in the English edition of portfolio.hu.
All in all, it wasn’t a good day for Hungary. I’m coming to the conclusion that these people really don’t know what they are doing on the global stage. Perhaps after all it wasn’t Gordon Bajnai and Péter Oszkó who were hopeless provincials, as Viktor Orbán claimed, but someone else.