Credit rating agencies and Lajos Kósa

Lajos Kósa, one of the vice-chairmen of Fidesz, member of parliament and mayor of Debrecen, has a way with words. An unfortunate way. You may recall that he managed to create an international panic at the beginning of June when he compared Hungary's financial situation to that of Greece. As I mentioned, Kósa to this day refuses to recognize that he made a mistake. Moreover, according to him, the financial panic had nothing to do with his and the prime minister's spokesman's words. He just told the truth.

Lajos Kósa attended Karl Marx University (today Corvinus) but never received his diploma because of his involvement in politics–he is one the founding members of Fidesz which became a political organization in 1988. He never wrote his "senior paper" (in Hungary they have a fancier name for it). How much economics does he knows? I have the feeling mighty little, especially because his "field of concentration" was the "planned economy." We know what that meant. I spent a whole semester studying the Soviet planned economy and I can assure everybody that the subject matter of that graduate course had nothing to do with "real economics." It was a different world. Perhaps that explains Kósa's total ignorance of economics and the financial world in general.

The other problem with Kósa is that he talks too much. Once he starts going no one can stop him, especially not Hungarian television reporters who in general have problems stopping the verbal diarrhea of politicians. And, what is even worse, he doesn't think before he speaks. A lot of my friends call him a boor (in Hungarian a "bunkó"). I really wonder when will it become clear to the Fidesz leadership that this man might be very useful domestically in the sense of appealing to certain right-wing voters but that he is damaged goods when it comes to the opinion of the outside world.

Kósa opened his mouth again. On the morning show of MTV on Monday, the anchor mentioned that over the weekend S&P had talked about the real possibility that Hungary will become a "fallen angel," her bonds reaching junk status. Kósa suddenly was in his element. He said in no uncertain terms what he thought of the credit rating agencies. As Bloomberg reported, Kósa said: "Rating agencies are just whipping up the mood. They are that nice person, a classical kibitzer who in decent places gets shown the door after a while, and will be lucky if he doesn't get yelled at." He added that "we would like to cooperate with the International Monetary Fund, the credit rating agencies, the lenders, financial markets, banks, everbody. But they must understand this one thing: the era when we were told from the outside what should be done is over." And if that wasn't enough, he said that "rating agencies may say whatever they want, it's more important what Hungarian voters say."

Well, whatever we might think of credit rating agencies, they have a powerful influence over investor behavior. As for Kósa's brilliant observation about the voters versus the credit rating agencies, it's true that Fidesz's popularity at home might be boosted by Kósa's provocative words about the agencies. The credit rating agencies, however, do not rate the country based on what Hungarian voters say and how popular Fidesz is. Their ratings can, however, have a profound effect on Hungary's financial health which of course may indirectly influence voters' opinions of the current governing party.

Kósa and unfortunately Hungary cannot win the war with the credit agencies. S&P two days later answered Lajos Kósa, without mentioning his name, of course. In reaction to Viktor Orbán's reaffirmation of a budget deficit under 3% for 2011 one of the agency's analysts, Trevor Cullinan, announced that Hungary's commitment to cut the budget deficit hasn't removed the threat to its investment-grade debt rating beause "the government needs to clarify its economic policies." And Cullinan continued: "We don't take a substantial amount of comfort in the government announcements about bringing down the deficit…. We are much more interested to see the government's medium-term fiscal and economic policy." In brief, until now György Matolcsy and Viktor Orbán have just talked about deficit reduction without showing how that reduction will be achieved.

On July 23, S&P downgraded its outlook on Hungary to negative from stable, while reaffirming Hungary's BBB- rating, its lowest investment grade, after talks broke down with the IMF and the EU on a review of the country's rescue loan of 20 billion euros. If S&P were to reduce Hungary's rating one more notch, a possibility it left open at the time, that would mean junk status for first time since 1992. That would put Hungary on par with Azerbaijan and Romania, Hungary's partners in the AGRI project!

According to Bloomberg, Hungarian assets have underperformed other emerging markets "since Orbán took office in May." The forint has fallen 4.2 percent against the euro this year, making it the worst performer among 25 emerging-market currencies tracked by Bloomberg. Timothy Ash, the head of emerging-market research at the Royal Bank of Scotland Group Plc, actually said that "it makes you wonder whether it will need a rating downgrade really to concentrate politicians' minds"–I assume to make them sober up.

The analysts are still hoping that the government will come out with a tangible economic plan after the elections, but I think that they are too optimistic. The Fidesz government most likely has no coherent plan in the first place and the necessary steps that should be taken to set Hungary's house in order would mean a loss of popularity. I very much doubt that they are ready to sacrifice themselves on behalf of the fatherland they claim they love so much.

 

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Pásztor Szilárd
Guest

Of course credit rating agencies are putting a huge pressure on the new Hungarian government because the govt is fighting against vested financial insterests in pushing Hungary further down the debt spiral.
Every responsible government would do the same and would face the same pressure.
Credit rating agencies are instruments of the financial markets. If they consider it good, they deny that a crisis is coming. Other times they downgrade outlooks if they want to blackmail countries. It’s up to the countries if they fall for it.

Paul Haynes
Guest

Szilárd – my father-in-law, a fantical Orbánista (but otherwise an intelligent and generous man, whom I like and respect), firnly belives that all this financial “blackmail”, etc is simply down to an “international Jewish conspiracy” wishing to destroy Hungary.
How do you stand on this?

Alias3T
Guest
I think we can discount anything Kosa says at this point. He’s not setting economic policy; at most he’s reflecting a mood. There’s plenty to get worked up about without getting distracted by him. @Shepherd: If Hungary wants to borrow money – and it does, 3 pc of GDP this year, 3.8 per cent next year – then it needs a credit rating. In fact, Hungary pays the ratings agencies to rate its sovereign bonds so that it can raise money from the pension funds and insurance companies that buy all that Hungarian debt. Without the rating, they won’t touch it. If you can find somebody else to buy trillions of forints of Hungarian bonds – and not demand a huge interest rate premium to compnesate for the added risk – to pay for those tax “cuts” you’re so thrilled about, then by all means ignore the rating agencies. Why, exactly, would “the markets” want Hungary in a spiral of death? How do you think “the markets” – specifically, a bunch of incurious young men in their late 20s, sitting on trading floors in London, Frankfurt, New York and possibly Hong Kong, bleary-eyed because they’ve been up since 5am, with… Read more »
Karl Pfeifer
Guest

A local Jobbik Website shows the rise in exchange the exchange rate of swiss francs and shows also who according to them is responsible for that, a face taken from a Der Stürmer cartoon. So the father in law of Paul Haynes is not alone in thinking that financial markets are manipulated by an “international Jewish conspiracy”
http://kepviselofunky.blog.hu/2010/09/12/ullesen_meri_a_jobbik#comments
This morning I heard in the news that Swiss export industry is not happy with this high value of sfr, because export business is suffering.
Probably Pásztor Szilárd could give us his theory about this subject matter.
It is interesting to note, that in Germany the national-bolshewist daily Junge Welt is enthusiastic when writing about the fight of Hungary against world capitalism.
And of course the extreme right wing media.
After October 3 (local elections) we’ll see where this fight against the markets will end.

GW
Guest

Pásztor Szilárd wrote:
“Of course credit rating agencies are putting a huge pressure on the new Hungarian government because the govt is fighting against vested financial insterests (sic) in pushing Hungary further down the debt spiral.”
As far as international financial institutions, including credit givers and rating agencies, are concerned, and in terms of the international credit market as a whole Hungary is statistically insignificant; if it wants credit, it must get it on the terms of the international market. There is no unique pressure being placed on Hungary, Hungary is simply being told that there it cannot receive unique conditions.

Pásztor Szilárd
Guest

@Paul Haynes: I usually ignore your comments because they rarely contain more than low-standard personal insults. This is the last time I’m warning you: QUIT putting your foul words into my mouth about a Jewish conspiracy which has exclusively and only mentioned by you.
If you can’t do any better with your time than insulting me, go use your right hand.

Pásztor Szilárd
Guest

@GW: what unique conditions are you talking about? All the topic with the IMF is about that Hungary can finance itself entirely from the market, under regular conditions, therefore we don’t need a new IMF loan.
This is something considered outrageous by the IMF and most financial institutions interested in giving loan. The case is very simple, they’re afraid of the Hungarian example being sticky. If many more countries adopt this attitude and refuse IMF’s help, that already means a significant market loss for them.

Eva S. Balogh
Guest

Szilárdto Paul: “This is the last time I’m warning you: QUIT putting your foul words into my mouth”
And I’m warning you that if you keep insulting people you will be barred from this blog.

Karl Pfeifer
Guest

To delude Hungarians, that IMF has an interest to act against Hungary is probably helping Fidesz at the next local election. But in the long run it will not help Hungarian economy.
If I have the choice between the outlandish economic theories of Mr. Orbán or the reports of IMF, I rather find the reports of IMF to be matter of fact.
People who are interested in the facts of life cannot believe that there is a World Conspiracy against Hungary. But of course it is an old subterfuge to blame a scapegoat for one’s own failures. And that is also what Pásztor Szilárd wants us to accept.

Pásztor Szilárd
Guest

@Eva: nice. Paul, making claims in my name which I’ve never made, and repeatedly trying to make people believe that I conform to Paul’s stereotypic idiot, this is allowed.
Defending myself against such malevolent actions is not.

Peter
Guest

Szilard: I will quote you from an earlier toipc: “It’s not really important what this tag by definition means anyway, in Hungary this expression is used for a very characteristic group of people with severe hatred towards every aspect of Hungarian patriotism and everyone and everything related to it.”
While I have been away from Hungary for over 50 years, I do remember the use of code words. As I asked you before, who are these “very characteristic group of people”? Like several people on this blog, I have the distinct feeling that you are referring to jews, but use the old code word.
Other code words are urban, cosmopolitan, and liberal, a word that actually means open minded.

Karl Pfeifer
Guest

I do not know if I have written about it. During the first V.O. government I was asked to write a comment about Hungary for Het Financieele Dagblad in Amsterdam. My article was published and under my name the following explanation was given “correspondent of the Budapest Christian weekly Hetek”.
The day after publication a lady phoned to the office of Het Financieele Dagblad and complained about my article. The lade spoke Dutch but with a strong Hungarian accent. She said: “Hetek is not a Christian weekly”, so the editor asked so what is Hetek? “It is a liberal weekly” she said. The editor said, well that is much better, we are liberal too.
Of course the Hungarian lady thought that in Amsterdam they understand how some people in Hungary use the word “liberal” as a synonym for Jewish.

Pásztor Szilárd
Guest

@Peter: and I answered to your obvious provocation exactly the way you deserved, and exactly how the truth is.
If you think of Jews, that’s your own personal problem. In my view the world is not divided into Jews and non-Jews. If yours looks different, that’s none of my business.

Pásztor Szilárd
Guest

@Karl Pfeiffer: and still wrong, Hetek isn’t even a Jewish weekly, it is of the sect Hit Gyülekezete. The Jewish weekly is Szombat.

Karl Pfeifer
Guest

Pásztor Szilárd, Some Hungarian extreme right wingers misspell my name. I can imagine why you do that too.
If you google “élet és irodalom” or “hetek” and my name you can find out, how I write my name.
Why do you call the fourth biggest Hungarian church a sect?
And being for more than ten years their correspondent I know that they are not Jewish.

Peter
Guest

Szilard:
It is clear that you are the provocateur on this forum and not I. Your binary division of the world is “hazafi,” or patriot, where you define whose views fit that category, and “others.” It is a simple world view: Us against the others!
While I disagree with everyting you say, I admire your great facility with the English language. Remind me of “double speak!”

Pásztor Szilárd
Guest

Seems we are getting on lower and lower standard in here:
@Karl Pfeifer: I usually copypaste names, this time I didn’t, and so what? Is my accidental misspelling your biggest excuse?
As to why I call the Hit Gyülekezete a sect? Because they are a money-driven sect, that’s why.
@Peter: I didn’t call you a provocateur, I said you were provoking me, which you obviously were, but why oh why should I expect from you to see the difference?
Let’s not respond anything more to what you wrote as there’s nothing more worthwile to respond to.

Paul Haynes
Guest
“@Paul Haynes: I usually ignore your comments because they rarely contain more than low-standard personal insults” What? When have I ever posted “low standard personal insults” against you?? I will admit to being amused by some of your wilder posts, and perhaps that amusement sometimes shows through, but my “Jewish conspiracy” question was a genuine one. I very much like Hungary and the Hungarians, and (up until recently, at least) would have been happy to live there (ironically it is my Hungarian wife who prefers living in England), but a few things about Hungarians bother me, and way above all else is the casual, unthinking racism I encounter almost every day – usually against the Roma, but often against just about anyone not Hungarian, and, of course, very specifically, and frequently, against the Jews. To a Western European, especially one born just after the war, this was and is a huge shock. I simply couldn’t imagine that such attitudes were still held by ordinary, educated people in Europe in the 21st century. But sadly, not only are these attitudes very much still alive in Hungary, they appear to be the majority opinion. And the one area where I come across… Read more »
Karl Pfeifer
Guest

@Pásztor Szilárd@ Why would I need an excuse?
And in what way is Hit Gyülekezete different from the Reformed Hungarian Church? I’ll tell you, both take money from their adherents, but Hit Gyülekezete would not tolerate an anti-Semitic pastor. The Reformed Church of Hungary tolerates the fanatic anti-Semitic pastor Lóránt Hegedüs jun. By the way according to your definition every church in Austria is a sect, because all of them are entitled by law to take a tax from their adherents.
Of course your definition is a political one, because Hit Gyülekezete is not tolerating Antisemitism and incitement to hate others it is in your opinion a sect.
@Paul Haynes@ your question is taken by P.Sz. as an offence. Instead of answering he is heaping abuse on you.
I have lived in Budapest as a young boy from 1939 until 1943. At that time no anti-Semite would hide his opinion.
Now this has changed. The Fidesz crowd is usually hiding behind code words when they talk to a foreigner.
However watching Echo TV and reading Magyar Demokrata and Magyar Hirlap one can find explicit Antisemitism.

Paul Haynes
Guest

Karl, you don’t have to look that hard for it. I hear anti-Jewish (and anti-Roma) views expressed all the time when we are in Hungary. And perhaps the most worrying aspect of this is that they are expressed so casually, with the certainty that, not only will no one object, but that everyone will agree.
A recent case in point – friends of ours have just announced they are getting divorced. The sympathy has been almost exclusively for one partner, not because of the (few) known facts of the case, but because the other partner works for a Jewish owned company, and is therefore assumed to be suspect in some way.
I have heard people quite openly saying that she must have been the guilty party “because she worked for Jews”, and others saying they knew all along that it wouldn’t work out because “she was the sort who would take a high salary, without caring who it came from”.
All these opinions are from people who are well educated, and otherwise decent folk.

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