To tell you the truth I don’t know whether Matolcsy has any strong points at all. I’m starting to have my doubts. It was about a week ago that people who know something about finance, the budget, the deficit, and such matters were stunned to hear that the Hungarian government is putting aside a so-called “stabilization fund” of 250 billion forints. The news broke on February 11th after the three-day meeting of everyone who matters in the party and the government. There were the two parliamentary delegations, 263 MPs if everybody showed up, and the government. When it comes to the size of the government that is pretty much of a mystery given the peculiar structure of the second Orbán administration.
The three-day affair was held in Siófok. Everybody was expecting Viktor Orbán to share his government’s economic plans. Instead there was quite a disagreement between Fidesz and the Christian Democrats about the ill-fated constitution, and an equally contentious argument surfaced between Zoltán Pokorni, former Fidesz minister of education, and the Christian Democrat Rózsa Hoffmann over education. There was no discussion of the “reorganization” plans (alias austerity program). The only “financial” matter that came up at the meeting was the establishment of a “stabilization fund” of 250 billion forints which Matolcsy must come up with somehow.
Everybody was baffled. Why is this new stabilization package necessary? After all, this year’s budget was passed only a couple of months ago and now the numbers are being changed. Because the “stabilization fund” basically means that a very sizable amount of money is being taken out of the 2011 budget. The explanation that this money was being put aside for “rainy days” is surely not the whole story.
Two possible explanations are circulating concerning this “stabilization fund.” One is that Matolcsy got the word from Brussels that the nationalization of the private pension funds and its partial use in this year’s budget wasn’t accepted by Olli Rehn, European Commissioner for Economic and Monetary Affairs. And if that is true the 2.9% deficit Hungary agreed to cannot be maintained. And if this number cannot be kept, the subsidies from the convergence program are down the drain.
The other possibility is–as Index reported today–that Matolcsy’s ministry doesn’t quite know how to put together a budget. They miscalculated. After, all it shortly before the final touches on the budget were due that Matolcsy fired the man who was Mr. Budget himself. For almost twenty years he played a key role in putting together the country’s budget.
If I had to pick the more likely explanation I would opt for the first one. The European Union didn’t like using nationalized private funds accumulated over more than a decade for current expenses. If it were only the question of not being able to count up to 250 billion the problem could easily be remedied by putting a little more money into the kitty from the huge amount of money that the government will receive soon enough from the nationalization of the private pension funds. People were in fact talking about a surplus of about 5 percent. The government could spend and spend merrily. But obviously that is not the case. Someone told them that the solution is not that simple.
I do hope that my guess is correct. The European Union shouldn’t put their stamp of approval on this ruse that Matolcsy and Orbán concocted. They are trying to ignore every EU rule while desperately trying to get all possible financial benefits from Brussels. After all, if there were no convergence program and billions of euros there would be no New Széchenyi Plan either. And then what?
Then here is another piece of news. Apparently, the Hungarian government couldn’t keep the 3.8% deficit and the figure will be more like 4% or even more. Do you remember the famous 3.8% that is written in stone? Do you remember Viktor Orbán’s trip to Brussels when he tried to sell a 7.5% deficit without any success? Do you remember the 29-point action plan that was supposed to solve all the problems? Repeated promises of keeping the magic 3.8% and now the deficit is 4%+. I wonder what Brussels will say to that. Perhaps not much. But I wonder how long its patience will last.