Viktor Orbán didn't make secret of his dislike of András Simor and and his policies as head of the Hungarian National Bank. There were attacks on the bank chairman while Orbán's party was still in opposition and as soon as Fidesz won the elections Orbán made some obvious references to the effect that Simor should pack up and leave. However, Simor decided that he was not going to cave. His large salary that was actually negotiated during the tenure of his Fidesz-backed predecessor was drastically cut, but that didn't do the trick. He said that he was elected for five years and will remain at his post until the bitter end.
After the salary cut came new appointments to the three-man supervisory council including Zsigmond Járai, former bank chief and a harsh critic of Simor. Járai immediately launched an investigation, claiming that the bank's expenditures are too high. It turned out that the bank actually spends less money today than during Járai's tenure.
Meanwhile the attacks on Simor continued. Only a few weeks ago Magyar Nemzet carried an op ed piece entitled "Hungarian? National? Bank" in which the author made a frontal attack on the bank chairman as professionally incompetent and someone who hides behind the phony label of independence. Because independence in this case means a policy that is antagonistic to the current government.
A few months ago the law governing the functioning of the Hungarian National Bank was changed. From here on the parliament will vote on the nominees and since Fidesz has a two-thirds majority it is clear that the new members, all four of them, will be people close to the government. Prior to this time the government nominated two people and the bank chairman picked two. Jean-Claude Trichet, chairman of the European Central Bank, "was very dissatisfied" and threatened the Hungarian government with a law suit. However, analysts at Goldman Sachs dealing with the region were certain only a few days ago that the Hungarian government would not back down.
Well, it backed down half way. The Hungarian government currently has enough trouble. The European presidency is a flop, the media law is still on the agenda of the European Parliament, the attacks on the philosophers have aroused international indignation, and one could continue the list of sins seemingly ad infinitum. The Orbán government got to the point that it decided that it needed help. Apparently, the government hired a London public relations firm to improve the country's battered image. So, it seems that the Hungarian government wants to avoid a direct confrontation with Bank Chairman Trichet and decided to appoint not all four rate setters but only two. Whether that will be enough to appease Trichet, we will see.
Today parliament is voting on two nominees. The names were not familiar to me, but apparently both have had experience at one point or another in the Hungarian National Bank. Who came up with the names? There is a distinct possibility that it was none other than Orbán's favorite banker, Zsigmond Járai. Both appointees worked at the National Bank during Járai's tenure. The first is Ferenc Gerhardt, who worked in various capacities at foreign banks (CIB, ING, Konzum) until 2005 when he was employed by the Hungarian National Bank for two years. Gerhardt is most likely close to Fidesz because after the elections he was named vice president of the state-owned Hungarian Development Bank. The second appointee is Andrea Bártfai-Mager who spent six years at the National Bank. She must also be favored by the government because she was named managing director of the Magyar Közlöny Lap- és Könyvkiadó Kft, publisher of the Official Gazette. Tibor Navracsics's very first act was to get rid of the old managers of the state publishing house.
Hungarian analysts think that these two candidates are moderates whose presence on the Monetary Council will not change the current course of the bank under Simor. One analyst predicted that later the government may come out with people who would more closely follow government dictates. However, for the time being the markets responded well to the two appointees. Elisabeth Andreew of Nordea said that "at first glance the nominations sound reasonable." Analysts at Raiffeisen think that "the two candidates have a relatively low profile [while] their professional background is certainly positive."
Analysts both at home and abroad think that the interest rate will not change in the near future although we know that the government would love to have lower rates. You may recall that in the last two months there were two interest rate hikes because of the fear of inflation. Ferenc Gerhardt already announced that "the greatest enemy is certainly inflation" and that the bank's most important job is to control inflationary tendencies.
Market analysts might be satisfied but neither LMP nor MSZP is happy. LMP announced today that the party's parliamentary delegation will not take part in the vote because they object to the fact that only Fidesz-appointed people will be elected to the Monetary Council. MSZP demands that the opposition should nominate the next two people. MSZP already has a candidate in mind.
So at the time of writing we don't quite know what will happen and we certainly will not know for a while whether Fidesz's solution to the nominations will satisfy the chairman of the European Central Bank. If not, most likely not even the London PR firm can help Viktor Orbán's government.