Confused communication or something else?

Let me start with Viktor Orbán's trip to Berlin and his talk with his old friend Angela Merkel. A few minutes after the meeting there was a joint press conference, the video of which was immediately up on the website of the German chancellor. It was interesting to see how nervously Orbán behaved while listening to Merkel's brief talk. Until the camerman decided to cut away, we saw him using his right hand to listen to the simultaneous translation and constantly fussing with his left hand.

Both talked about the necessity of taxing the banks. Let's state first and foremost that this is a very popular move with ordinary citizens. However, there are at least two important differences between the German and the Hungarian bank levies. The Hungarian government is using it to fill a gap in the budget they themselves created by introducing tax cuts and other popular measures. The German tax will be used to create an emergency fund in the case of future bank failures. Also, the size of the Hungarian tax is much larger than the western plans hitherto introduced. I guess one ought to mention that although Viktor Orbán today in parliament repeated his often used excuse that the banks caused the crisis and the government had to bail them out, in the Hungarian case neither accusation is correct. The banks in Hungary didn't require government help and they certainly didn't cause the Hungarian economic crisis. In fact, the foreign owned banks kept their Hungarian branches comfortably liquid.

Orbán's most surprising announcement was that since the loan agreement with the IMF expires in October there is no necessity to continue negotiations with the IMF. Hungary will pay back the billions it borrowed from the IMF in the next two years and that's it. (I admire Orbán's optimism about the state of the Hungarian economy in 2011 and 2012!) From here on, Hungary will talk only to the European Union. The subject of these talks will be how Hungary will reduce its promised deficit of 3.8% this year to under 3% by the end of 2011.

But while Orbán in Berlin insisted on abandoning talks with the IMF, his deputy Tibor Navracsics, speaking with Michael Brainer, the EU commissioner in charge of internal markets and services, expressed his hope that Hungary would come to an agreement with the IMF. Lajos Kósa, vice-chairman of Fidesz, was also sure that Hungary's negotiations with the IMF will reach a satisfactory conclusion.

But it is even more interesting that today Péter Szijjártó, the personal spokesman of Viktor Orbán, claimed that Economy Minister "György Matolcsy made it clear over the weekend that the Hungarian government would of course continue talks with international organizations including the IMF, EU, and the European Central Bank."

Iryna Ivaschenko, the resident IMF representative in Budapest, also tried to be helpful and encouraging.  Today, in the early afternoon, she expressed her belief that "there was still a slight chance" of coming to an understanding but, she added, "first the Hungarian government must radically change its attitude toward the budget reform and to the independence of the national bank." The IMF, as opposed to what the Hungarians claim, complained not only about the size of the bank levy and the reduction in the salary of the bank chairman but more importantly about the obvious reluctance of the Orbán government to make long-range plans for deficit reduction. The IMF delegation thought that the "economic package presented is to a large extent of a temporary nature. It in no way assists the handling of the deficit of 2011." Indeed, structural reforms would be necessary to take care of the problem in the long run.

Ivaschenko also corrected Orbán, in case Orbán didn't know the facts: the IMF and the EU loan negotiations cannot be separated from one another. "The IMF worked hand in hand with the EU. This is a common program and it will stay that way." Orbán also seems to think (or pretends to think, we don't know) that the IMF has no right to inquire about any details. The Hungarian delegation told the IMF-EU delegation that they would stick to the promised goal of 3.8% and that's it. However, this is not the case. According to János Veres, finance minister in the Gyurcsány government who was the chief negotiating partner in the original agreement with the IMF-EU delegations in 2008, part of the agreement entailed "the constant monitoring" of Hungary's performance.

The IMF's spokesman in Washington repeated the Monetary Fund's readiness to continue talks at any time. But if American and Hungarian media reports are correct and the IMF-EU delegation left on Sunday because the Hungarians refused to lower the amount of bank levy, then the IMF offer might be in vain. The Hungarian parliament tonight voted with of course an overwhelming majority to accept the proposal for the enormous bank tax. It is quite obvious that Orbán has no intention of compromising. In fact, he repeated several times in the last two days that he and his government are ready to go against "the taboos of the last century." I guess one of these taboos is to fly in the face of international organizations and expectations. Moreover, if the IMF and the European Central Bank were upset over the Hungarian government's attack on the independence of the Hungarian National Bank, their concern was justified. Another piece of legislation that was accepted in parliament today was to reduce the salary of the chairman of the National Bank.

Financial Times, Deutschland published a long article about Hungary today in which the author, Christian Höller, declared that Hungary under Orbán's guidance is again moving toward bankruptcy ("Ungarns rechter Weg in die Pleite"). Höller claimed that Hungary since Orbán took over became "one of the most problematic" countries in Europe because Orbán combines two dangerous traits: obstinacy and nationalism. He believes in a "Hungarian solution." Indeed, he is brave and is ready to go against the whole world. In fact, today in parliament in an answer to Attila Mesterházy, he expressed his opinion that "the Hungarian elite must not behave like frightened chickens." He accused the MSZP delegation of siding with the IMF-EU delegation. As he said, "I heard all these objections a few days ago, only in English." And, he continued, "the [MSZP] politicians weren't really the representatives of the Hungarian people but panicky, nervous brokers."

Orbán after his meeting with Merkel gave a lecture at the Society for the Promotion of Culture (Gesellschaft zur Förderung der Kultur) entitled "What Next Hungary?" (Wie geht as weiter in Ungarn?" The author of the article added: "That is a good question."

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NWO
Guest

I do have this sense that Orban believes he can get the IMF/EU to blink first. He makes a series of threats; he passes his legislation and he will wait for the IMF to takes those steps as a fait accompli.
The thing is, however, Hungary does not have any good will left. And in particular, Orban and FIDESZ are not liked. However, more importantly, when the IMF/EU extended the original package to Hu in 2008 it was because they feared a tidal wave of systemic risk if Hu failed. My guess is that they might not feel this way. Greece was the cresting of the wave. If Hu were to fail now (which it certainly would without a new package), it would have negative effect on the rest of Europe and the CEE but I suspect not a systemic one. In that case, teaching Hungary and Europe a lesson might be just what the IMF/EU would choose to do.

Mark
Guest
NWO: “And in particular, Orban and FIDESZ are not liked. However, more importantly, when the IMF/EU extended the original package to Hu in 2008 it was because they feared a tidal wave of systemic risk if Hu failed.” I don’t basically disagree with you, but I think the issue of systemic risk needs to be approached in a different way. We know that the IMF/EU cannot afford to capitulate in the fact of Orbán, and it is fairly obvious from the way in which the rhetoric is being ramped up that anything other than a capitulation by the international organizations would be a defeat for Orbán. They cannot do so, because they risk in the future nationalist-populist leaders unpicking their aid programmes in a similar way in other countries, and a loss of authority and control in the region. In the past, negotiations in Latvia have not gone entirely smoothly, even if they have been less problematic than those in Ukraine and Romania. Orbán’s escalation of this situation from a negotiation into a conflict means that he is almost certainly (a) not going to gain anything, and (b) is probably headed out of power faster than anyone has previously thought.… Read more »
Hank
Guest
I agree that what Orbán and Matolcsy are currently doing, can only lead to a very serious crisis and financial breakdown, come the year 2011 at the latest. I also agree that there is a very serious risk that, seeing the weakness of the left and the greens (which doesn’t have the capability to become a serious mass party anyway), forces that are more to the right such as Jobbik might benefit. There are, I think, only two ways out: either a resurrection of the center left (it seems unlikely now, but political developments can go extremely fast in times of crisis) or a rearrangement of forces within Fidesz, with the more pragmatic and market-oriented faction coming to the fore and the proponents of the current policies forced out. But I only see either of these options happening if there is a serious financial breakdown first. Markets have to force the Hungarian elite to be serious, otherwise they will keep thinking they can get away with this kind of behaviour. And a financial breakdown is apparantly also the only thing that can convince the public that some serious reforms are really still necessary (health care, state-owned companies, corruption, local bureaucracy)… Read more »
NWO
Guest
Mark- I agree with most of your response, though I am more inclined to side with Hank on the ability for Orban to hold on in the face of reality. Today, there is no alternative. I still don’t see Jobbik being able to become the dominant party. As I mentioned some weeks ago, I am of the opinion that the IMF/EU were not being sensible if they were religiously committed to the 3% (or 2.8%) level for 2011. If FIDESZ could demonstrate real commitment to structural reform, then that level becomes a fetish. I also think with such a commitment, any deficit level below say 3.5% [assuming this year is 3.8-4%]would have been accepted. However, the EU [i.e., GERMANY] is now totally obsessed with budget deficit levels, even in cases like Hungary were private debt is the more significant problem, and FIDESZ is obviously not interested in any real structural changes to the State sector or to entitlements. While in my view the Forint has held up better than I expected (due to favorable external environment and a feeling that a deal will eventually be reached), I expect increasing doubt to creep into the market a force down the HUF… Read more »
Mark
Guest
Both Hank and NWO make very important points. But there are three important issues here. Firstly, it has long been clear that the IMF’s (and the EU’s, because I think they were the bigger culprit) insistence on deficit cutting was a fetish – it would have been important had Hungary required a bail-out in summer 2006, but it served no useful purpose by 2008. The rational way out for Hungary is for a package a measures to be implemented over a five year period that concentrates on employment, competitiveness, debt-restructuring, and shaping a sustainable welfare state that is compatible with a market economy. Annual targets relating to the fiscal balance should be flexible and responsive to external conditions, and subordinate to the achievement of long-term goals. Secondly, we shouldn’t underestimate Orbán – after all he is the last of those that were in the front line of politics in 1990 to still be standing. That in itself is an achievement, and is a considerable tribute to his talent for re-invention. But, when we observe most political careers that ability for re-invention is more marked at their beginning, than towards their end. Furthermore, his talent for re-invention has been observable in… Read more »
Alias3T
Guest

Mark: Leaving aside the deficit for a moment – any structural reform of the railways, the BKV, health, higher education – all those areas where we know change is needed, would put him on a direct collision course with those who have invested in that image.
Wasn’t it Éva who pointed out that Fidesz will be holed beneath the waterline the moment they are forced to reintroduce the doctor’s visiting fee? As they likely will.

Frank
Guest

Why is Hungary in dire financial condition? Reading your comment one would think that this is the fault of Fidesz as Well.
All you smart guys about IMF and EU coming down hard on Hungary. Has any country gone bankrupt in recent times?
What is the experience of Argentina? They are still negotiating the loan repayments from the 90’s. And what do you think will happen with Greece?(or Spain, Italy, Ireland…should I go on). These countries will not go under but quite a few banks will take a hit on their balance sheets.

Mark
Guest

Frank: “What is the experience of Argentina?”
It is very nicely summarized here in the pink text box on pages 18-19:
http://www.bankofengland.co.uk/publications/fsr/fs_paper01.pdf
Let’s put it this way – if this experience was repeated in Hungary, Hungary would eventually recover, after it was forced to come to an eventual settlement with the IMF of its outstanding debts to them. But the current middle class would be wiped out long before that happened.

whoever
Guest

Structural reform. Hmmm. Let’s not confuse ‘structural reform’ with privatisation. The two are not necessarily synonymous.
The attempted privatisation of social security was a particular type of ideological and corruption-driven policy masquerading as a structural reform.
A true structural reform – I would say – would focus on the overall sustainability and the way these institutions could channel investment.
The visit charge was a tiny amount in terms of the health budget. But big enough to be annoying, as a form of ‘double taxation’ on health service users.
Let’s not get ‘structural reform’ confused with bothering people for money everytime they get ill. There is a relationship, but it is a distant one.
And let’s not confuse an attack on the wages and jobs of the public sector with structural reform – as we know expertise has a habit of re-employed later for twice the price. No, these are measures which are more like ‘structural panic.’ In fact Hungary has never seen properly structured reform. Only occasional panics.

nwo
Guest

Given the income tax burden falls actually on very few people in Hungary, a fee for health care would hardly be for most people a tax on a tax. In fact, it is a sensible way to allocate resources and make sure people who use public resources-like State health care- (1) understand there is a cost associated with the service and therefore use the service appropriately and (2)makes sure that those who most use the service pay for it. In that way, this is no different than charging for public transport. And don’t say it is different because health care is a fundamental right. Even if this is the case, as ultimately everyone needs to pay for the service, the burden should be borne most by those who use it disproportionally. Anyhow, as I said up top, most people don’t pay SZJA anyhow, and especially this is the case in health care where users tend to be elderly.
More fundamentally, structural reform will be aimed to make the provision of Government services more efficient, and will aim to better allocate such services in a way that those who actually need these services/benefits most receive them.

Alias3T
Guest
Whoever – The visit fee had a clear purpose. Hungarians go to the doctor all the sodding time. Average of 13 times a year per person, last time I looked. That compares to about twice a year in the UK, where healthcare is also free at the point of delivery. The whole point about the visit fee was that it was meant to be annoying – how else are you going to cut that completely crazy number of visits. Think about those 13 visits per person per year. Since there are, nonetheless, plenty of people who never go at all, there must be others who are going pretty much every day. Either that person is so ill they should be in intensive care, or they’re hypochondriacs going to the doctor for the company and the conversation. In which case, provide those people with cheaper public services – pensioners’ clubs, for example – don’t let them burden the expensive healthcare system. And what do you have at the moment? Lots of doctor-conversation therapists handing out antibiotics for illnesses that they know are not treatable with antibiotics. You get the cost of the doctor’s time, the cost of the placebo pills, and… Read more »
whoever
Guest
Looks like people here – who I guess are kind of right-wing liberals – still haven’t quite got it. The visit charge was driven by economics – but to come even close to bridging the shortfall in budgets, it would have to be set at a truly prohibitive level. So it would either be pointless, or if it were higher, it would cause real damage! Alis3T is right in that there are a lot of mental health issues in Hungary. In what way would the visit charge help? If anything, specialised and mobile psychological services would be far more expensive – and effective – than a free GP. By all means, introduce these. But this is a separate issue – and don’t expect to charge anything, if you want it to be effective! The same goes for pensioners clubs with an occasional nurse. These are real gaps in the social services offered by the Hungarian state. They don’t exist because the /genuine/ structural reforms, one which would enable a cross-disciplinary, joined-up approach, have not been taken. The visit-díj as a symbol of ‘patient pays’ is a weak surrogate for the investment and change that Hungary really needs. People should move… Read more »
Eva S. Balogh
Guest

whoever: “So this is a moral argument, and the arguments represented here are almost inhumane. “You are poor and sick. You must pay for this – again!”
The fact is that they are paying anyway, out of pocket and much more than 300 forints.

Alias3T
Guest

Aren’t you missing the point, Whoever?
The visit fee was meant to be an annoyance – a slighty disincentive to going to the doctor. For the person who goes once a week, a tiny barrier to make them less likely to do so. If you can shave that average number of visits down from 13 to just 10, you’ve already saved a vast amount of money. The revenues from the fee were never meant to be significant.
As for the mental health problem: yes, there is an issue with this, but I would argue that it is partly a result of people’s very willingness to go to the doctor so much, to take so many pills. If you convince yourself you’re ill, then go to the doctor, and he confirms it, giving you a course of medication to deal with the ‘problem’ – then your self-esteem is going to go down a notch. Overuse of the medical service is a cause – not a symptom – of Hungary’s medntal health problems.

Mark
Guest
I think both sides of this argument have a case, of sorts. Let’s take a look through the issues ….. “Rising levels of poverty and inequality, increasingly evident in all Hungarian cities, seem to have a detrimental effect on health.” I’ve never seen statistics on life expectancy by local authority area for Hungary, but they exists for local authority ward in the UK. If we look at average male life expectancy they show a 13 year difference (yes, 13!) between the richest and poorest areas. I would be surprised if the differences in Hungary were smaller, though I would expect to see the lowest in rural areas in the east of the country along the Romanian border. Poor mental and physical health, as well as substance abuse, is often closely related to poverty, to income insecurity, and to a lack of permanent work. The ways in which these things feed each other are very obvious to anyone who has spent time in ex-industrial areas in Hungary, and though the problems are greater in degree, they are not different in nature to those that exist in post-industrial regions in the UK, where secure manual employment has disappeared, and has been replaced… Read more »
Jules
Guest

Question: perhaps I missed it, but will the result of the new bank levies be that the banks will raise customer bank charges? Early on, I heard that that would be the case, but it would strike me as odd that the banks would just swallow this w/o trying to make up for it with increased fees for customer services. Please advise.

Eva S. Balogh
Guest

Jules, almost everybody predicts that the banks will pass their loss to the customers. Or at least a portion of it. The only person who says that they will not is Viktor Orbán. See his interview yesterday with Olga Kálmán of ATV.

whoever
Guest

“mental health problem: yes, there is an issue with this, but I would argue that it is partly a result of people’s very willingness to go to the doctor so much”
I’m afraid you’re wrong about this – I can’t really back it up with evidence. As Mark says, there isn’t really a great basis of data broken down by district, and with correlation to economic status. Mental illness is very hard in any case to quantify. But my eyes and ears tell me that these problems in Hungary are very serious indeed, and help to explain a lot about the low employment rate and precarious skills base.
I agree with to a certain extent about ‘instant fix’ pharmaceutical remedies, but we live in a consumer society. So that is a systemic criticism against capitalism, if anything…

Jules
Guest

@Eva — Orban seems to be using the Obama tactic: only Obama says that you can keep your health insurance as is and also no one’s taxes will increase as a result of universal health care in the US. All evidence indicates otherwise. I see Orban is borrowing from B. Hussein Obama’s playbook.

whoever
Guest

Yes, Eva – and I’d add that the lines followed by the MSZP/’liberal’ opposition in Hungary, really look like Republican standpoints, much of the time.

Alias3T
Guest
Whoever – I do take your point and Mark’s. There are deep structural problems, linked to a shortage of jobs for the low-skilled and the collapse of large-scale industry, which are contributing to a healthcare crisis. Rates of incidence of serious illness – whether mental or physical – are high, whether it’s cancer, depression or addiction, and the survival rate is too low. But there is a fetishistic attitude towards doctors, which is damaging. I have an anecdotal sense, backed up by the stats I cited earlier in the thread, that people here run to the doctor far sooner than elsewhere, and are far more likely to receive a placebo prescription when they do. And I think that has harmful consequences for people’s self-esteem and also for their general sense of well-being. And politicians feed that. I remember Mikola telling me that of course Hungarians had to go to the doctor more often. “Hungarians are iller!” A fine patriotic sentiment if I ever heard one. And then Orban, the day after the social referendum, telling a press conference that “it’s wrong to say that the 1 euro fee is nothing. You have to pay it every time you go to… Read more »
whoever
Guest
But I think witch-doctory is all over the place. Look at the popularity of homeopathy and natural healers, the fizzy vitamin tablets, the Potemix sex-bull pills, fortified UHT milk and eggs. Going to a GP is probably less harmful than many of these. I’ve never seen so many people drink as much Coldrex-type drinks as they do here. Having eavesdropped on a number of patients during interminably long periods of waiting, it is obvious to me that many visitors are there for counselling or a chat, or have long-term ailments associated with age. The doctors themselves seem to encourage repeat visits, implying that it remains in their interest to encourage more visits rather than less. In any case, perhaps the counsellers, social workers and therapists just aren’t being provided, or are not available. I’d be interested to see the numbers of people visiting out-of-hours consultations, with random doctors, as opposed to in-hours consultations. In other words, I think if the system were changed, whereby the patient saw a more or less random doctor, say out of a pool of 10, then you would see the number of visits plunge. Oh and yes, you can imagine the noise this would generate,… Read more »
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