Hungary’s problems are not going away

But why would they? Any sane politician, realizing the negative impact of his government’s statements on the financial markets, would have carved out a little wiggle room. But not the new Hungarian government. In the early afternoon Péter Szijjártó, who is the prime minister’s not the government’s spokesman, in effect repeated what Lajos Kósa said yesterday, which had sent the Hungarian forint into a tailspin. So today the forint fell even more against the euro (which itself was very weak), closing at 289.225 forints to the euro, whereas yesterday it was just a little over 282. At one o’clock the stock exchange began to fall precipitously. Not surprisingly Hungary’s largest bank, OTP, was the hardest hit. Trading in OTP was suspended for a while, and by the close of trading it was down 11%.

Analysts simply don’t understand what is in the heads of the Fidesz politicians, though all sorts of theories are circulating. I don’t think that I will be able to come up with any answer. Instead I will try to piece together the events and comment on them.

Let me start by stating my strong belief that yesterday’s political announcements were coordinated. It couldn’t have been a coincidence that Lajos Kósa and Mihály Varga came out on the very same day with very similar messages about the dire state of the Hungarian economy. It is also no coincidence, in my opinion, that these announcements were made on the same day that Viktor Orbán was meeting with José Manuel Barroso in Brussels. Let’s fix the approximate timeline of these events based on the time that the MTI reports were released. The world learned about Kósa’s speech at 2:45, about Varga’s comments at 3:00, and MTI reported on the press conference after the Orbán-Barroso meeting at 4:39.Thus, it seems that the Kósa-Varga speeches were timed to precede Orbán’s meeting with Barroso.

Did Barroso learn about the Hungarian announcements? I doubt it, but even if he did I don’t think that he would have fallen for the dire messages about impending bankruptcy. Of course, we don’t know what kind of story Orbán told Barroso. Very possibly the same his faithful lieutenants frightened the Hungarians and the world with. From Barroso’s public statement it is clear that the president of the European Commission wasn’t moved. But by that time the whole mechanism had been put into motion.

Late last night Péter Szijjártó, who accompanied Viktor Orbán to Warsaw and from there to Brussels, returned to Budapest and gave an interview to MTV’s “Az este,” an evening political program. The transcript of Szijjártó’s conversation can be found here. In it Szijjártó minimized the financial turmoil that had beset Hungary. He even joked about the connection between Lajos Kósa’s speech and the fall of the Hungarian forint. Let’s keep in mind that Péter Szijjártó cannot utter a word without first consulting with Viktor Orbán.

Some analysts assume that Orbán and his team simply have difficulties switching from their position as spokesmen of an opposition party when they could say anything without serious consequences to their status as responsible representatives of a government. But this seems a weak explanation since Péter Szijjártó was sent out again this afternoon to give another press conference with the same message Kósa had formulated the day before. Szijjártó announced that he didn’t think that Kósa’s description of the situation was an exaggeration and repeated Kósa’s sentence about Hungary’s slim chance of avoiding Greece’s fate. He repeated Kósa’s charge that the previous Hungarian government had falsified the figures just like the Greeks had. The Hungarian government is ready to avoid Greece’s fate and, after finding out the truth, it will not hesitate to announce its plans.

So far so good because one could interpret these words as the government’s recognition that the Orbán government must follow the path that Gordon Bajnai and Péter Oszkó, his finance minister, chose. But during the question and answer period it became clear that this is not what Orbán has in mind. When asked about tax cuts Szijjártó announced that drastic tax cuts will take place as planned regardless of the “real” figures. He reiterated the Orbán government’s plans for a stimulus package and expressed his hope that tax cuts and the introduction of a stimulus package can be achieved at the same time.

Well, that press conference was so “successful” that the Hungarian crisis further deepened. The reaction, just as a day earlier after the Kósa-Varga speeches, was immediate. If Szijjártó made light of the influence of political utterances on the financial markets, he could now experience firsthand the connection between his own speech and the reaction of the international financial world.

What now? Viktor Orbán spent the day in the flood-threatened areas in northeastern Hungary and called together an “extraordinary cabinet meeting,” ostensibly to discuss the serious physical damage created by the weeks of heavy rain and the swelling of all the rivers and streams. The cabinet meeting was so urgent that the ministers couldn’t even attend the much heralded Trianon Memorial Session. One can be pretty certain that flooding will not be the only topic. Perhaps not even the most important topic of this cabinet meeting.

A broad spectrum of the Hungarian media have condemned the new government’s handling of economic matters. Even those internet papers that in the past expressed opinions that were sympathetic to Fidesz are turning against the Kósa-Varga-Orbán line. published an opinion piece that pretty well predicted the failure of György Matolcsy as super minister of economics and development. bluntly announced that “Fidesz managed to ruin the stock exchange and the forint.” The same Index published an opinion piece in which the author announced that the days of “symbolic politics” must end. It is time to govern and govern responsibly.

But how can Orbán and his political cohorts get out of this very sticky situation without losing face? Perhaps we will find out this weekend.

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I would like to risk a prediction of how they will continue, but first an observation: the same as yours must be. Just look at that picture!!
Barroso smiling and pleasant, Orban on the other hand has a murderous frown on his face, he is not going to be sweet talked into even saying hello.
And now my hunch. If those economic statements were really coordinated as you seem to fear, then they are part of the naively extended version of the politics of appearances. First they talk upo a crisis, but they, the geniuses will “handle the crisis” that actually wasn’t there in the first place. They had to claim the existence of some crisis to be able to solve the problem later. And since the nonexistent crisis will be relatively easy to solve, they will claim victory in no time at all, without even having to do anything more then just talk.
It is a damning testimonial to their amateurish approach, because they may be able to sweet talk the population, but the markets will not buy the snake oil so easily.
This government seems to be specializing in fimflammery and nothing else.

And here another interpretation, which I heard yesterday from some foreign diplomats, that it is a ploy to financially reward the oligarchs behind Fidesz. The theory is far too Balkanesk (a huge conspiricy) for my liking, so I do not think it is true. But it does show that, to the outside world of normality, reasonable action and calculated governance, it is a total mysteria how this new government is operating and why the hell they do what they do.And as a side-effect, the theory might have some validity. The suspicion is the following: Kósa, Szijarztó and Orbán had a coordinated plan to talk the country into a short crisis and make the forint and the stock exchange weaken. This will result in foreign owners of Hungarian stock (see OTP) to dump these assets, which can then be bought up cheaply by the oligarchs behind Fidesz. Within three days, though, Fidesz will announce its plans to stabilize the situation, the forint and stocks will rebound and everything will be back as it were. With, of course, a lot more Hungarian stock in ‘Hungarian’ hands. The fact that minister Pinter a bit earlier sold a lot of his OTP stock, so… Read more »
John T

“The fact that minister Pinter a bit earlier sold a lot of his OTP stock, so just before this crisis,is seen as an ominous sign.True?” Hank – he may of course buy up shares at the lower price and make a tidy profit for himself. But I do get the feeling that these guys actually believe they are being very clever, when in fact, any objective observer will think they are bonkers. Its a very dangerous game, but what is really shameful is the fact it could damage the lives of tens of thousands of families to varying degrees. I have to say that the whole political system in Hungary exasperates me. But nobody seems to care to be honest. I’m in Hungary at the moment and there isn’t really any appreciation of just what a collosal cock up this is becoming.


The thought actually occurred to me yesterday that they were trying to manipulate the markets to make some trading profits. Then I thought they are not smart enough to pull this off.
Anyway, how ridiculous does FIDESZ look now after what Varga said today. No real skeletons. No chance of bankruptcy. 3.8% deficit target achievable.
I imagine such an about face either demonstrates their was a plan to manipulate the markets for private profit or that there is total incompetence and a complete lack of co ordination among the top ranks of the Party (and Viktor hit the panic button over night). Szijarto in a normal country would have already been fired.
In less than a week in office, FIDESZ has lost all the credibility with the markets that Bajnai built up over a year.

John T

nwo – if there was deliberate market manipulation, it may be that agencies outside of Hungary as for an investigation. So there may be fallout. If true, then Fidesz will have proved they are crooks just like they claimed the MSZP were. Its asset stripping by the political elite while the masses look on. Whatever party does this is scum, pure and simple.

Eva S. Balogh

nwo: “Szijarto in a normal country would have already been fired. In less than a week in office, FIDESZ has lost all the credibility with the markets that Bajnai built up over a year”
In agreement with everything you said except Szijjártó’s firing. Szijjártó simply said what his boss told him to say. In that case, Orbán should be fired.
This was a monumental blunder that badly backfired. The Orbán government’s first few days will be memorable for a while in the international community.
What his voters will think we will see. Put it that way: they will not be happy.

John T

And the main beneficiaries of this stupidity will no doubt be Jobbik at the next local elections.