At eleven o’clock this morning Mihály Varga had to face the music. He gave a press conference that must have been very difficult: after all, he had to admit that the Hungarian situation in no way resembles that of Greece. Furthermore, there is no question of impending bankruptcy and, after all, the new government will be able to stick to the 3.8% deficit as promised by the Bajnai government instead of the 7-7.5% he was talking about only two days before.
Not surprisingly this was big news and not just in Hungary. MTI’s reporter sent three reports back to headquarters in the course of 45 minutes. He first reported Varga’s earlier accusations that the budget for 2010 “bears little resemblance to reality and immediate intervention will be necessary.” The committee created by Viktor Orbán a couple of months ago reported some “serious false assertions and tricks” and therefore immediate action was necessary. The intervention must be “profound” and “level headed.” He announced that the cabinet will have a three-day emergency meeting to discuss the government’s answer to the budgetary situation.
What are the tricks and false assertions? According to Varga the tax revenues for the year have been overestimated while the deficits at the state enterprises such as BKV, MÁV, and MALÉV have been underestimated. The two banks in state hands are also in trouble. The losses at these lending institutions are about 100 billion forints.
This was the introduction that was supposed to justify the sad reality that all those promises Fidesz campaigned on cannot be fulfilled. Varga tried to convince the general public that after all this is not their fault but that of the former government. But soon enough he shifted course, saying that “the Hungarian economy is in consolidation.” That is, the economy is not in a downward spiral but is muddling through. He also admitted, without mentioning Lajos Kósa’s name, that comparing Hungary to Greece was unfortunate. He, of course, forgot to mention his own press conference that resembled in content if not delivery Kósa’s speech.
Varga’s references to the budget deficit were vague. The journalists pressed him for more details but in vain. Varga refused to answer. Péter Oszkó, the former finance minister who has a blog and is a pretty responsible blogger, expressed his delight that the new government realized that the former government’s financial policies must be continued. At the same time Oszkó rejected Varga’s claim that some of the figures in the 2010 budget bear no resemblance to reality. There were some items that had downside risk, but the former government put enough money in reserve to cover most contingencies.
Oszkó told Hírszerző that Varga’s committee, charged with combing though the items in the deficit, found not skeletons but chewed up bones. “Skeletons” is a reference to the daily assertion of Fidesz that they cannot say anything about their own economic policy until “all those skeletons fall out of the closets” in the ministries. The repetitious mention of skeletons was indeed a bone that had been chewed over and over again.
Most commentators describe Varga’s announcement of Fidesz’s new economic policy as a complete reversal. If Orbán and Co. had illusions about pulling off the trick of crying poor and hoping to get preferential treatment they were dead wrong. What I don’t understand is how it was possible that they entertained such hopes in the first place. It was clear to everybody even superficially familiar with international finance that the IMF and the EU would not play ball. Among economic commentators László Lengyel was the one who most bluntly expressed his belief that “the market simply will not tolerate” what Orbán’s economic experts cooked up. The market will teach them. Well, their education began even before they had the opportunity to implement their zany ideas.
A friend of mine who knows much more about financial matters than I do suggested that the Bajnai government was clever when it decided not to ask for the second half of the IMF loan. Bajnai and Oszkó didn’t trust Orbán and his so-called economists and didn’t want the new government to mismanage half of the IMF loan for their own political purposes. This way the IMF has leverage while the new Orbán government’s spending is greatly restricted.
Anyone who has any doubts about the influence of Lajos Kósa’s and Péter Szijjártó’s incredibly stupid statements on the exchange rate should take a look at this chart.I might add that the weakness in the forint started right after Fidesz won the elections. See the first green arrow indicating the day of the second round of the elections. The second green arrow corresponds to Kósa’s speech and the third is Szijjártó’s reaffirmation of Kósa’s ridiculous comparison of Hungary to Greece.
If I recall, when Fidesz won the elections in 1998 the Hungarian stock market sold off. Given the size of the market it wasn’t a big deal, international markets barely noticed. This time Viktor Orbán had an international stage and the critics weren’t kind.