Complete turnabout: Austerity program to be introduced

Ildikó Csuhaj, a journalist for Népszabadság, is usually very well informed on the affairs of Hungarian parties. She is normally the one who gets the scoop on the not so public utterances of party leaders. Once again she was the first who managed to get a bit more information about Orbán's speech at Kötcse than was available on Viktor Orbán's website. It seems that the official summary had mighty little to do with reality because from it one could learn only that "the century of utopias is over" and that "the socialists' attempt at modernization" is coming to an end.

Ildikó Csuhaj on the same day, September 4, learned a little more about the content of the speech. She found out from people present that it was not one of Orbán's usual campaign speeches. As they said, "It was realistic."

Two days later, on September 6, Ildikó Csuhaj learned more details: "Orbán promised an austerity program of trillions" in the next two or three years. The informants told the journalist that the prime minister's speech was perhaps "too honest." The conclusion of Népszabadság was that next year will see the introduction of a severe austerity program. Orbán seems to have realized that there is no other way: the strict fiscal policies introduced by Ferenc Gyurcsány and Gordon Bajnai must be continued.

As we know, in the last couple of months the Orbán-Matolcsy duo kept emphasizing that they don't want anything to do with the IMF. They put their faith in the European Union. However, on August 29 Olli Rehn, European Commissioner for Economic and Financial Affairs, made it quite clear in an interview with Vasárnapi Hírek, a Sunday paper, that an agreement between Hungary and the EU under the present circumstances was out of the question. "Instead of increasing the budget deficit, Hungary should follow a sound fiscal policy which is a prerequisite for sustainable growth." I think it was at this point that Orbán had to face facts. The European Commission was in no mood to allow Hungary to increase the deficit. It must be kept at the agreed level of 2.8%.

Viktor Orbán most likely realized on August 29, if not earlier, that the "economic freedom fight" was over. But if the message of the brief interview with Rehn in Vasárnapi Hírek was too subtle for some people, the published exchange of letters between Edit Herczog, MSZP member of the European Parliament, and Olli Rehn, the commissioner, made the European Commission's position crystal clear.

Herczog, after summarizing the events since the suspension of negotiations between the IMF-EU and Hungary, posed the following questions: "Exactly what was the reason for the early departure of the EU delegation?" and "What are the conditions for renewed negotiation between the EU and Hungary?"

Rehn's answer expressed satisfaction with the Hungarian government's promise to hold the deficit at 3.8% this year. "The government, however, couldn't give further information about a number of open questions." The promised "corrective" steps still haven't been taken and the things that have been done are considered to be temporary measures. The Hungarian government must make "strenuous efforts" to keep the deficit in 2011 under 3% in "a sustainable manner." He specifically mentioned a sore point: the Hungarian railways and the incredible losses incurred there. In his opinion the new Hungarian government has done absolutely nothing to decrease the losses. In fact, Rehn is convinced that the losses of MÁV will be even greater next year.

He also mentioned the extra taxation of the financial sector which is too high: 0.7% of the GDP. Such high taxes on banks and other financial institutions "will have an adverse effect on investment and economic growth." He expressed his opinion that the bill passed on the bank levy is most likely not in conformity with the laws of the European Union. Rehn didn't forget the beleaguered Hungarian National Bank and its chairman, András Simor. He emphasized that "the complete independence of the bank must be assured."

"The Commission's apppropriate authorities, together with the International Monetary Fund, are ready to continue the negotiations when they are convinced that the negotiations will be successful. Similarly to the program approved in 2008 a possible future program must be based on the creditable undertaking of obligations to follow solid fiscal policy."

Well, I think that this should be transparent for everybody. Even the average citizen. And because MTI made this exchange of letters public it should appear in most Hungarian papers and on the electronic media as well. I will pay special attention to Magyar Nemzet, the Fidesz mouthpiece, which doesn't like to give bad news to its readership. Yet even there I noticed a slight change in policy. The paper today published an interview with László Urbán, currently the Hungarian representative at the European Bank for Reconstruction and Development and someone who at one time was quite close to Fidesz. Urbán said point blank that Hungary should sign another agreement with the IMF. He went even further and said that "it is a mistake to name as the goal of the economic war of independence a higher indebtedness. Because a greater deficit means exactly that." I was most surprised that Magyar Nemzet published this interview.

The intriguing question is how Viktor Orbán will communicate this complete turnabout in his government's economic policy. One obvious tactic is to blame the former government for everything. However, that doesn't take care of all those empty promises about the paradise that awaits the country and its people once he is prime minister. Perhaps there is the danger of Orbán's secret speech at Kötcse being compared to Ferenc Gyurcsány's speech at Őszöd: winning an election on promises that can't be fulfilled. We know what happened to MSZP's popularity right after the announcement of the austerity program. Orbán in his speech actually made reference to a potential hit on Fidesz's popularity.

If one is wondering why Orbán didn't wait with this speech until the local elections, there is an easy answer. Tomorrow the finance ministers of the European Union will meet and discuss the Hungarian situation. He couldn't postpone the decision.

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Mark
Guest
Let’s be cautious, shall we? All we have a second-hand comments made to a representative of an opposition newspaper – at the moment it doesn’t add to an announcement. But if this was reported correctly, it might mean a few things. The first is that this was always implicit in the 29 points. For the next three years the revenue losses were going to be covered by the bank tax income. Given that (as Slovakia is now finding) flat taxes do not lead to huge (or any) increases in revenue they were always going to need a more permanent solution. Cue those like Zsigmond Járai who have always argued for huge tax cuts to be used as a trojan horse to radically reduce the size of the public sector. Thus to maintain the flat tax after January 2014, they were going to need to make permanent cuts in spending over the next three years, and that these cuts would be big, and would involve structural reforms in health, pensions and education. There might though be something else going on. I suspect though the problem all along from the government’s perspective hasn’t been the international organization. The real problem is that… Read more »
Pásztor Szilárd
Guest

Despite not understanding with most of what I’ve seen from Mark here before, I’d emphasize his first two sentences with a comment:
“Let’s be cautious, shall we? All we have a second-hand comments made to a representative of an opposition newspaper – at the moment it doesn’t add to an announcement.”
Comment: Ildikó Csuhaj is widely known to be an anti right-wing extremist who often doesn’t refrain from representing facts in a false manner. She again mindfully deprives us of the vital information that Orbán DID NOT use the word “austerity” or the like, not even close in meaning. That we’ll need sources from the economy, as he has said, means only in Csuhaj’s mind austerity by definition.
She still doesn’t realize it’s a different garniture governing now who are not thinking in cutting smaller pieces off the cake to have more slices, but in baking a larger cake.

Pásztor Szilárd
Guest

Sorry, of course I meant “agreeing”, not “understanding”.

cba
Guest

Szilárd: He certainly uses the word austerity here…


Sandor
Guest

Oh, by the way Szilard, I just predicted and argued yesterday that Orban and his government will buckle under the economic pressure. You said I was wrong. Yes, you had the temerity, the audacity, to say I was wrong.
Well yes, I was wrong, because I expected this to happen in a few months and that indeed was wrong. I didn’t expect it so soon.
Otherwise who was actually wrong here, if you don’t mind me asking.

Pásztor Szilárd
Guest

@cba: yes he uses it, and in what context? What does he say in the next sentence? Do you think everyone is stupid here?
@Sandor: what buckling are you referring to? To a well-known opposition liar journalist’s (Csuhaj) unfounded and biased interpretation of some “leaked” information? Lol…

Eva S. Balogh
Guest

Mark: “Let’s be cautious, shall we? All we have a second-hand comments made to a representative of an opposition newspaper – at the moment it doesn’t add to an announcement.”
Well, since I wrote that Orbán’s remarks could be seen in living color on the news. So, Csuhaj’s information was correct.

Eva S. Balogh
Guest

Sándor, I was surprised that he came out with the bad news before the local elections. I guess he had no choice.
Unfortunately in the last three months he made an awful lot of mistakes which cost dearly the country and the people.

Mark
Guest
Éva: “Well, since I wrote that Orbán’s remarks could be seen in living color on the news. So, Csuhaj’s information was correct.” But the really important point is the one I made below the sentence you quote – is it a change of policy? After all financing a deficit from the market requires accepting the terms on which investors will be prepared to purchase Hungarian bonds and, unless, Hungary’s economy grows and grows substantially, this will demand fiscal discipline. All we have are fragments of what is being planned, and not the whole picture. On the one hand Orbán’s comments imply that – Ceausescu-like – he is preparing to take “trillions” out of the economy to reduce the debt and achieve financial independence. On the other, Fellegi talks about the nationalization of the energy sector (which might, or might not be a good idea, but is certainly going to be very expensive for taxpayers). Again Navracsics argues for the introduction of district level local authorities (even though these did exist and were abolished in the 1980s as part of a drive to streamline and reduce costs in Hungarian local government!), though had he studied the British experience he would have… Read more »
Eva S. Balogh
Guest

Mark: “I don’t think it is possible to say anything for certain other than the government has no more idea of what it wants to do now than it did in April.”
We agree on that. Orbán purposely is very vague and his cronies (pardon, ministers!) mostly talk about costly nonsense. Thrashing about is a good description. I also remember my total frustration when Horn was mucking about in 1994-1995. At one time there was no chairman of the National Bank, no foreign minister while Horn was interviewing people for the jobs. I was ready to scream.

Pásztor Szilárd
Guest

@Sandor: moreover, if you consider audacity if someone says you are wrong, then maybe discussions aren’t exactly your style.
You simply threw your totally biased wishful thinking in here, made assumptions without even the slightest attempt to back them up, then predicted things based on these assumptions. To reply to these with simple things such as “you are wrong” certainly isn’t off league.

Eva S. Balogh
Guest

Eva S. Balogh: “At one time there was no chairman of the National Bank, no foreign minister while Horn was interviewing people for the jobs. I was ready to scream.
Pardon, of course, not foreign minister but finance minister.

Mark
Guest

Eva S. Balogh: “At one time there was no chairman of the National Bank, no foreign minister while Horn was interviewing people for the jobs. I was ready to scream.”
I remember it well. But that was rather late in the day in February-March 1995, when Hungary was already in the midst of its financial crisis. The period now reminds me more of the one that led up to Christmas 1994 when the government wasted its time and its goodwill, as it was racked by serious disagreement over what to do (although at least then there were some within the government with an economic strategy, and the underlying international environment, if not the internal one, was better).

cba
Guest

Szilárd:
I was merely demonstrating that Orbán had already told the international media that he will introduce “austerity measures, some”, as you had emphasised that he had definitely not done so in Kötcse.
I most certainly do not think everyone on this site is stupid, by the way, quite the contrary in fact.

Pásztor Szilárd
Guest

@cba: then, if you consider the people here knowledgeable, why are you twisting the facts to conform your will?
First, Orban used the word but not in the Kötcse speech as the post and its reference suggests, and second, in the direct continuation of the sentence Orban mentions a cut on government expenses, as austerity measure, which obviously favors the citizens’ budgets instead of burdening them. And see, he exactly did so as he spoke with his 29 points.
Why are you suggesting the exact opposite then?

Sandor
Guest
Szilard: “You simply threw your totally biased wishful thinking in here, made assumptions without even the slightest attempt to back them up, then predicted things based on these assumptions. To reply to these with simple things such as “you are wrong” certainly isn’t off league.” Actually, I did not write my opinion at all, nor have I had written assumptions. What I wrote was an analysis of Orban’s options. IT is obvious two days later that they are extremely limited. Now, if I stay on the ground of economics and you float in the air of boundless, and uncritical hero worship, then calling me wrong while also being mistaken, I would say is really, as you say, out of the league. I must warn you that your uncritical and slavish hero worship of Orban and the fidesz is not convincing anybody and if you have nothing more to offer than that, your opinion, bereft of any facts or any coherent argument, is strictly for the birds. This type of mindless adulation may wash in Hungary, for a few more weeks perhaps, but the people who write and read this blog are accustomed to more substantial fare, so you also would… Read more »
cba
Guest

Szilárd:
I was simply making the point that Orbán had already told foreign media that he is planning austerity measures. I only made that point because you had emphatically denied any possibility of him having used that word over the weekend.
Nevermind, its probably academic now, because it seems that György Matolcsy was communicated a pretty clear message from Ecofin members in Brussels yesterday.
The subsequent comments that the government has decided to reduce the budget deficit in 2011, as made by György Szapáry in Bratislava later in the day, were probably the government’s way of acknowledging this, while losing a minimum of face.
And please bear in mind that assumption is a logical fallacy. My “will” is merely to see my country of residence run with a level of competency, and democratically. Anything I say I will back up with facts, politely, and I expect the same from you, and from anyone else with whom I exchange analysis on here.

Odin's Lost eye
Guest

Mr CBA The more I read of the good Professors commentary and of some of the replies the more I become convinced that someone here is getting very annoyed and worried that “He who thinks he is the ‘Mighty One’ (Orban Victor)” has been ‘Rumbled’! The Mighty One does not want this knowledge to spread, No siree he does not!.
Ah yes the Austerity program can be blamed on
A/ The Europeans
B/ The Bankers
C/ The IMF
D/ Other foreigners
E/ Just to please Jobbik Tel Aviv
But never on the fact that Hungary is in a financial mess. It must Never Ever be blamed on the ‘Mighty One’ and his minions.

cba
Guest

Mr OLE, yes indeed, it always surprises me how such a mediocrity inspires such religious devotion.
But you forgot my personal favourite:
F/ Its a communist conspiracy
everything is

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