This is not the first time that one hears from "reliable sources" that János Martonyi is leaving his post sometime after the end of Hungary's rotating presidency of the Europen Union. I personally heard from a private source that Martonyi was furious about the handling of the media law, that it was the straw that broke the camel's back. At the same time in good diplomatic fashion he defended the law in public.
In the last couple of weeks it has become evident that Viktor Orbán and his foreign minister don't see eye to eye on many issues. One of the most obvious contradictions between the statements of the two men occurred on March 12 when Martonyi announced that a "military option" against Libya is practically unavoidable while the prime minister on the very same day said the opposite. Or when Martonyi announced after agreement was reached on the European Stability Mechanism, otherwise known as the Euro-Plus Pact, that it was a decision of historic importance while at the same time, most likely because of Viktor Orbán's insistence, Hungary refused to join.
Hungary is not alone in its refusal to join the pact, but it is in the minority among the non-eurozone countries. Bulgaria, Romania, Poland, Latvia, Lithuania, and Denmark have decided to join the Berlin-inspired project. The four that have opted not to join: the United Kingdom, Sweden, the Czech Republic, and Hungary. Orbán said in Budapest that Hungary will not join the euro pact because it wants to retain its "tax independence" and build the "the most competitive tax system" in Europe. He also claimed that he had consulted with the opposition and found national unity on the issue.
I was most surprised to hear about this alleged consultation with the opposition. Viktor Orbán doesn't consult with anyone, especially not with the opposition. A day later we heard from members of the opposition that the so-called consultation consisted of an announcement of the decision. As far as "national unity on the issue" is concerned, that is also a fabrication. Mihály Varga, former finance minister in the first Orbán government, who has been shoved into the background of late, said at a meeting with factory owners that 85% of Hungarians agree with the provisions of the pact, but "we are not willing to give up our only competitive edge, our newly introduced tax system."
For some time now members of the opposition, economists, and tax experts have been saying that Viktor Orbán simply doesn't know what he is talking about. The harmonization is not about tax rates but about introducing common rules and regulations concerning the corporate tax base. As it now stands, what is being taxed and what kind of exemptions can be taken advantage of vary from country to country. Harmonization of the corporate tax base would make companies' lives a great deal easier. It would apply to foreign companies in Hungary as well as Hungarian companies within the European Union. The Czech opposition is not at all thrilled with the Euro-skeptic Czech government's decision. They claim that by staying out of the pact "the government is harming the interests of our country." They believe that such a move would shift the Czech Republic to the EU's periphery.
This is pretty much the opinion of eight Hungarian economists who made a statement in which they criticized the government for its decision not to join the pact. The eight economists are: Tamás Bauer, László Békesi, István Csillag, Péter Mihályfi, Balázs Muraközy, Mária Zita Petschnig, Károly Attila Soós, and Éva Várhegyi. The signatories called attention to the developments of the last two or three years that point to a division within the European Union. The countries in the first group show a willingness to follow a prudent economic course. Countries in the second group followed "an adventurist economic policy" and now have to face the consequences. These countries proved to be unreliable partners within the Union. Since they refuse to obey the rules of responsible fiscal policy, investors will avoid the countries in the second category. The economists called on the Hungarian government to change its mind and vote to join the pact this weekend.
I very much doubt that Orbán will change his mind. I'm not even sure whether his critics are correct in assuming that Orbán doesn't know the difference between the tax rate and the tax base. I think he purposely mixes up the two because in this way he can better justify his staying away from the pact. The reason that Orbán doesn't want to join is simple: if Hungary joins the pact it will not be able to levy extra taxes on unsuspecting firms. And although he keeps saying that these extra taxes will come to an end in a year or two, I suspect that in the back in his mind he knows that he will have to continue the bad practice in order to remain afloat.
Where will all this lead? Nowhere good.