Viktor Orbán, who is a cunning politician, decided that he will use the relatively high national debt as an excuse for the austerity program he was forced to introduce. Although Hungary’s sovereign debt is indeed high, the problem it will cause in the long run is a great deal less dire than Orbán is trying to make out. According to practically all economists with the possible exception of György Matolcsy, the fiscal problems Hungary is encountering are not the result of the national debt but of the negative impact of the flat tax introduced by the Orbán government. Estimates I read of missing tax revenues vary from 500 billion to 900 billion.
This shortfall required the government to take up more loans, thus adding to the country’s sovereign debt which about a year ago was 78% of the GDP and which by now has reached 81%. And, oh yes, there’s the 500 billion forints the government spent on the purchase of a 21.3% share in MOL. I heard that the MOL purchase added another 2% to the national debt.
However one parses the numbers, surely Orbán knows well enough that the sovereign debt is not such a burning issue as he is trying to make it out to be. It is a political tool that is being used to justify the very severe economic measures that must be undertaken in order to fulfill Hungary’s obligations promised to and demanded by the European Union. Hungary must have a budget deficit under 3%. As it stands now, without the one-time infusion of money from the nationalization of private pension funds and the bank tax, the actual deficit would have grown from 2.9% at the time Orbán became prime minister to 4.3%. In brief, the deficit grew and so did the sovereign debt.
You may find the following map highlighting the sovereign debts of countries worldwide interesting:
Thus Hungary’s situation is not worse than that of France, Germany, or Canada. And the prime ministers of these countries aren’t declaring “a war on the debt that is a question of life or death.” On the flip side, just because, for example, Mexico’s debt load is relatively small doesn’t make the country an economic paradise. An old example would be Ceauşescu’s Romania where people were starving but the country paid back all its foreign loans.
Now Orbán has promised that in one fell swoop Hungary very shortly will pay back a big chunk of its debt: from 81% soon enough it will be 77%. Apparently, some of the money received from the pension funds of millions of Hungarian citizens will be spent on debt reduction, which will be hailed as a stupendous achievement of the government.
And if the bloated national debt threatens to ruin the country and reducing it is a life or death struggle, one must find culprits for this dire situation. Thus a new subcommittee under the parliamentary committee on the budget was created with a huge Fidesz-Christian Democratic-Jobbik majority. At the outset it was announced that the search for the people responsible for the large sovereign debt will start with hearings at which three former prime ministers will have to appear: Péter Medgyessy, Ferenc Gyurcsány, and Gordon Bajnai. As everybody knows, the spectacular growth of the national debt began in the second half of the first Orbán government, but somehow the members of the subcommittee didn’t think that they might ask the current prime minister what he did between 2000 and 2002 with the national debt.
It was on May 10 that the subcommittee heard what Péter Medgyessy had to say about his role in the so-called “debt crisis.” Almost everybody thinks that the greatest culprit in taking up loans to cover social services was Medgyessy, but the former prime minister had a very different take on the matter. At the end of 2004, he claimed, the debt load was 59% of the GDP, well below EU requirements. He emphasized that during the two years while he was in office (2002-2004) the deficit in fact decreased from 8.9% to 6.4%. He admitted that in 2002 the debt grew from 51% to 55% but only because the government changed the accounting system following international standards. As for his decision to raise public employees’ wages by 50%, the amount spent added only 1% to the debt load. He also mentioned earlier decisions made by the Orbán government to provide very generous subsidies for real estate purchases.
Then on May 31 it was Bajnai’s turn. He didn’t claim that his government managed to stop the growth of the country’s sovereign debt. Only that “it managed to slow the rate of its growth.” He emphasized that the rather spectacular growth of the national debt between 2001 and 2006 had two primary causes: fast growing expenditures and a slowing economy. He noted that his predecessor’s government also introduced serious austerity measures but they “didn’t reach the critical mass” necessary for stopping the growth of indebtedness.
From all this Péter Szijjártó, who happens to be deputy chairman of the subcommittee, drew the conclusion that it was during the Gyurcsány premiership that the growth of the national debt became unprecedented. Bajnai was quick to point out that it would be incorrect to interpret his description of the history of Hungary’s sovereign debt between 2001 and 2008 as blaming previous governments or as claiming that the sovereign debt didn’t grow during his premiership.
Finally it was Ferenc Gyurcsány’s turn today. He told the members of the subcommittee that the responsibility for the growth of the national debt between 2000 and 2010 must be born by three governments: the first Orbán government, the Medgyessy government, and the first Gyurcsány government. Viktor Orbán in preparation for the 2002 elections introduced some legislation that added 570 billion forints to the budget. Medgyessy added 817 billion forints with his generous benefits to public employees and pensioners while the first Gyurcsány government added another 512 billion forints. That meant 1,900 billion in additional expenditures. However, he added, in 2006 there was a real change in economic policy that aimed at lowering the deficit and lowering the national debt.
Szijjártó has a single aim: to make sure that everybody understands that it is Gyurcsány who was the culprit. On the basis of the three hearings with the former prime ministers Szijjártó came to the conclusion that since Medgyessy denies that he was in any way responsible and Gordon Bajnai simply talked about the structural changes he made, the incredible debt could be accumulated only by Gyurcsány. Interesting logic: just because Medgyessy denies his responsibility he is not responsible. Szijjártó’s colleague, Mihály Babák, went farther. Gyurcsány is actually responsible for the whole eight years because he “filled important posts even before he became prime minister.” Let me add that Gyurcsány was sports minister for a short period before he assumed the post of prime minister. So, he couldn’t possibly have had much to do with national debt or budgetary matters.
The representative of Jobbik, Balázs Lenhardt, went farther yet. He called Gyurcsány “a shameless mafioso” whose “questionable affairs could be listed all day long.” Listening to “the apostle of lies” will change nothing. “Hungarian democracy is bankrupt and as long as Ferenc Gyurcsány is not an inmate in a prison cell there will be no real change. Until then there will be only revolutionary clowns, revolutionaries of the voting booths, and demonstrations of fags.”
This how things are going in the Hungarian parliament.