The Hungarian economic crisis of 2011

I can't quite decide whether the disappointing news about the state of the faltering Hungarian economy yesterday was really a surprise to the prime minister and employees of the two ministries that deal with economic matters as the government claims. Because if it is true that the government was unprepared for the disappointing 1.5% economic growth in the last quarter, then I'm afraid this government is even less competent than I suspected all along.

In this "contest" between truthfulness and competence, I'm inclined to side with truthfulness. Here are three pieces of evidence, admittedly not all equally compelling. First, we must remember that the budget was built on a "conservative" estimate of a 3% yearly growth, and today most experts predict a GDP of under 2% for 2011. Second, although Orbán's spokesman claimed that the prime minister wasn't taking any vacations this summer, he spent four days somewhere in southern England with his wife last weekend. And finally, members of the opposition urged the prime minister to convene a bipartisan meeting to discuss the very serious situation created by the extraordinary strengthening of the Swiss franc against the Hungarian forint, but the answer was that there was no need to discuss the matter. All is well.

By Monday, that is a day before the official word came about the sad state of the Hungarian economy, Viktor Orbán called together a mini-summit. He invited Tamás Fellegi, minister in charge of national development, György Matolcsy, minister of economics, and, somewhat surprisingly, Sándor Pintér, minister of the interior. Thus, I suspect, it was on Monday, a day before the official announcement, that the word must have reached Viktor Orbán about the brewing trouble. The discussions of the four men continued on the next day, that is, yesterday. Why Pintér was included in these talks about "the defense of Hungary against the effects of the eurocrisis" is hard to tell. My first thought was that perhaps under the new circumstances there will be no money for the gigantic work programs to be supervised by the ministry of interior, but a friend of mine came up with a more sinister possibility. Perhaps the government is anticipating trouble on the streets given the additional austerity measures that will have to be taken in light of the new developments.

So, even though I suspect that the government was indeed taken by surprise, analysts and even laymen even superficially familiar with economics and finance knew that the prognosis was far too optimistic and that Matolcsy's "unusual" steps would not achieve the stated aims of the government: 100,000 new jobs in one year and rapid economic growth due to greater domestic consumption. Indeed, the unemployment figures are practically unchanged, economic growth is sluggish, and domestic consumption is very low. Because of the flat tax that was introduced on January 1 two-thirds of the population receive smaller paychecks than before. And millions of people have been hard hit by the upsurge in the price of Swiss francs. Thus people have little money to spend. These domestic problems are coupled with a sluggish German economy, Hungary's most important trading partner. This is really a deathblow to the Hungarian economy, which is mostly export-driven.

In any case, after two days of meetings, it was decided that Viktor Orbán must give a press conference and say something about this new situation. In the past, Orbán often refused to say anything that would be unpopular. It's enough to think of the announcement of the austerity program known by its fancy nickname "Kálmán Széll Plan." By giving the name of a nineteenth-century minister of finance to the program, Orbán's spin doctors wanted to avoid associating an unpopular austerity program with the prime minister. In addition, the details of the Széll Plan were made public by György Matolcsy while Orbán was sitting in the audience.

This time more was needed to avoid the perception that Hungary was retreating from its earlier promises of keeping the budget deficit under 3% and lowering the sovereign debt. Orbán, as usual, was vague. Details will come later at the end of September. But he promised that "Hungary will meet its previously announced deficit target." It doesn't matter what happens elsewhere in the world, "we will stick to a budget deficit under 3 percent." In typical Orbán fashion, he announced that they "will not modify the forecasts but will need to adapt to reality." In plain language, yes, they will have to modify the prognoses. In spite of the financial difficulties, he insisted that the cabinet will continue to push to lower public debt, currently at 77% of economic output.

Although some of the country's current problems stem from the misguided economic policies of György Matolcsy, Orbán naturally wants to blame the earlier governments for the current state of affairs. Therefore, Orbán instructed Matolcsy to "investigate and find the culprits."  It is unacceptable that the Hungarian population has to pay for the mistakes of these politicians. According to the government there might be other culprits as well: to wit, the banks. Orbán announced the creation of a monitoring committee that will investigate the banks' handling of their foreign exchange transactions. And, of course, as the very name of the summit (the defense of Hungary against the effects of the eurocrisis) indicates, the Eurozone is also culpable.

All in all, Orbán began to shift the blame to others while admitting no mistakes of his own. One of his worst decisions was the introduction of a flat tax, which has made the rich richer and the middle class poorer, all the while depressing government revenues. Without a modification of the tax code, it will be that much harder to solve Hungary's budgetary problems. 

 

Sort by:   newest | oldest | most voted
Member

I guess everything is going fine at the Orban household. Plenty of money left for vacations from the saving created by the flat tax scheme, that benefited, who else, but example the Orban family. There are new jobs being created in the different review, control, investigative departments and authorities. Do, not worry Hungarian fans, your favourite soap opera star and his friends are going strong, remain popular and ready to participate in the new season. Unfortunately the prices of the subscription for the channel the program can be viewed on is going up.

Ron
Guest
Dear Professor, I would like to opt for a third option the ostrich policy. A few months ago most of the commentators, notably Kirsten mentioned that the 3% growth was too optimistic. However, most of us felt that the real situation would be revealed towards the end of 2011 and 2012. And actually it is already happening. Some of the European governments came back from vacation to discuss the situation of Greece and the fact that they feel a second recession is coming. And they want to discuss further what they need to do. Whatever savings VO and his comrades are planning, I am afraid it will not be sufficient to safe money. I am sure that VO is now angry that he purchased the MOL shares with the money left over from IMF, but he will never admit to it. The blaming will not be only the previous government and the banks. Also the farmers get hell from them. A few weeks ago there was a story on Csany and the fact that the pig farmers were not able to compete despite all the subsidies they received. He fails to mention is that he himself was partly debit to… Read more »
Member

The name this awesome plans after famous dead people because otherwise it would be name after them. Like the “Bokros Package”. The press should only refer to the plan as Matolcsy plan from now.
I think this was all expected by them. They are lazy but not entirely stupid. It was expected in a scratch off ticket sort of way. It may win but statistically speaking you are lucky to get cost of the ticket back. I’m afraid they won’t stop gambling.
The twisted logic is that an escalated economic crisis will keep them in power even longer because there will be a lot to blame.

chayenne
Guest

Correct me if I’m wrong, but isn’t this ‘no matter what, Hungary will stick to the budget deficit planned for 3% even if it breaks us’ has a kind of Ceausescan (is it a word?…) ring to it. I mean C. and co. were hell bent on paying back the country’s foreign nebt and they a actually did but at a terrible cost, regardless of how it effected the people. OV seemes obsesses with national debt too and he is the kind of person who just can’t admit that he has taken a bad decision, so he is going to stick to the flat tax and Matolcsy’s misguided economic policies. And let’s not forget how Ceausescu’s economic policies appealed to the west, so they let him wreak havoc among his people.
I fear that Hungary is on the road to turn into a kind of Romania. Or, and I hope it won’t get that far, Orbán will indeed require the services of his minister of interior in the upcoming food riots.

rental mobil
Guest

Nice article, thanks for the information.

D
Guest

In response to Eva’s opening paragraph:
I sincerely believe that Orban’s delusions of grandeur have become so great and that he is truly so far removed from reality that he was truly surprised by these figures. Much like Charlie Sheen, he is surrounded by enablers who tell him only what he wants to hear and while the stated growth was preposterous to laymen, in my opinion, Viki had full confidence in the stated growth.
Terrifying, isn’t it?

Paul
Guest
“he spent four days somewhere in southern England” I knew it – he waited for us to come over here for the summer, then he nipped over to the UK to trash our flat! But seriously… The culture of Fidesz for the last 10 or 15 years has been to believe that things are/will be as they want them to be. Reality is to be ignored – it’s far too nasty and messy. It’s hardly surprising if the economy doesn’t perform as ‘predicted’ with self-deluded cowboys* like this in charge. It’s a wonder to me that things are still as stable and relatively healthy as they are. Luckily for OV, the economy seems to be stronger than many thought and to have a momentum that makes it hard even for OV’s lot to knock it off course. Although he still has (at least) another two and a half years to really screw it. *I don’t know if ‘cowboys’ has the same meaning outside the UK, but for us it means people who claim they can do a job (plumbing, decorating, etc) but actually make a complete mess of it. There’s a lovely story (probably apocryphal) of some Asians who set… Read more »
Member

Paul, the “cowboys” in Hungary would be the “kontars” (“kontar” in singular form). Also, there was a lovely animated series on TV while I was a child, called Mekk Elek az Ezermester (Mekk Elek the jack of all trades). He pretended to know it all, but whatever new trade he choose as his business ended wit h disaster. I know some people still use his name to describe someone with similar qualities. For your entertainment here is an episode where Mekk Elek tries out as millwright http://video.google.com/videoplay?docid=-8598208863892060880

Guest

Thank you some1!
“Ezermester” is well remembered by my wife – it must have been hilarious …
PS: We also have some “Tausendsassas” here, I wouldn’t want any of them to work in/on my house …

Member

“you’ve had the cowboys, now try the Indians”
ROFLMAO ! I’m in the software business in the US. It would make even more sense here!

Paul
Guest

Some 1 – Mekk Elek is on DVD these days, I think I know every episode off by heart!
But he did at least eventually find the one thing he COULD do. Let’s hope OV finds his special talent a bit earlier than the last episode!
Incidently, for those who get misty-eyed about Mirr-Murr, A Kockásfülű nyúl, Lolka Bolka, Kisvakond, Pom-Pom Meséi, etc – they are all available on DVD, and usually for only about 990 Ft.
Your childhood can be relived cheaply!
My favourite is still A Legkisebb Ugrifules, but sadly you can only get the first series on DVD.

Track runner
Guest

If 2011 is a crisis because GDP “only” grew by 1.5-2% what was 2009 under the MSZP government when
GDP declined b 6.3% that is -6.3% GDP change comparing to +1.5%.
Sorry but I don’t see any crisis right now it’s a LOT better than it used to be.
As long as it is better than the previous situation I am happy.

Eva S. Balogh
Guest

Track runner: “Sorry but I don’t see any crisis right now”
Unfortunately, you’re wrong. The problem is that this year’s budget and the Kálmán Széll Plan both assumed a 3-3.5% GDP. Thus, this year there is a shortfall of 100 billion forints and next year most likely 400 billion. That means that if the government wants to hold to the 2.9% deficit target which they must do they have to come up with these missing billions. And that can be done only by further austerity measures and/or increasing taxes.
In brief, the whole Matolcsy edifice is in ruins.

Member

Track runner: ” LOT better than it used to be.”
Lot better to whom? I do net see that the wealthy needs to cut back. Under the MSZP the measures that were proposed (and often rejected by the Fidesz) were blanket measures that would of effect the whole society, not a segment of society. Flat tax is beneficial to the top earners, and so forth. So, who’s side are you on? Where does your demography falls?

Track runner
Guest
“Lot better to whom?” For the Hungarian economy because +1.5% is still a lot better than -6.3%. The situation of the deficit is indeed dire it must be under 3% of GDP. This is because of the “túlzott deficit eljárás” don’t know the official English term but it’s a deficit monitoring program of the European Union. Hungary signed a contract that said it’s deficit will be under 3% of GDP. In every single year in the past eight years all of the budgets put together by MSZP and SZDSZ none of them met this goal NOT A SINGLE ONE!!! (one notable case is the 2006 election year, when the Gyurcsány government submitted a projection of 4,6% and real deficit without privatisation revenues excluded were actually over 10%…) Of course the MSZP politicians bridged this gap by taking loans and taking loans and taking more loans raising the total debt from around 52% to over 80% of GDP (real debt is higher still because they managed to hide some of the debt away in state owned corporations such as BKV and MÁV). Thus after so many years of MSZP politicians lying and breaking the 3% limit again and again and again… Read more »
Member

Track runner, so how exactly the Fidesz would of get closer without the “einstand” (stealing) of people’s private money that they called “privatization”? Also, to use the term “for the Hungarian economy” is a way-out under the responsibility for any government and for any responsible person to take the blame for catering to the wealthy. You did not say “Hungarian society”, neither did Ceauescu, who managed to repay Romania’s debt while living a lavish lifestyle with his buddies on the expense of the Romanian Society. Hey, it was good for the Romanian Economy! Zimababwe done it to. Ask the people of Zimbabwe how they did it. I think actually there are many similarities between Mugabe, Ceauescu and Orban’s philosophy.
So, again, beside to the “Hungarian economy” can you tell me who benefits from the austerity measures?
Here is a great rad for all: http://www.spiegel.de/international/europe/0,1518,780794,00.html

Eva S. Balogh
Guest

Track runner: “in the past eight years all of the budgets put together by MSZP and SZDSZ none of them met this goal NOT A SINGLE ONE!!!
And to be fair, the Bajnai government put forth a 3.8% deficit target for 2010 and the Orbán government went well over it. And I wouldn’t bet too much money on whether this year will be any better. Especially if we don’t figure in the nationalized private pension funds.

Eva S. Balogh
Guest
Track runner: “Of course the MSZP politicians bridged this gap by taking loans and taking loans and taking more loans raising the total debt from around 52% to over 80% of GDP” Again, a couple of corrections. In 2002 the Orban government left a deficit of well over 10%. On the surface it didn’t look so bad because of an illegal accounting system which hid the real situation. That practice was changed during the Medgyessy government. As for the 52% of sovereign debt, this figure is not quite right. It was closer to 60% which indeed went up to 70% by 2007. The real problem came with the 2008 crash but that was a worldwide phenomenon. So, the difference between the performance of the first Orban government and the socialist-liberal governments is not as great as your figures would indicate. As for adding to the debt, I’m afraid the recent reduction of the debt is not for real. Since the large part of the pension plans’ assets were invested in government bonds now the government doesn’t have to pay these debts back. It is easy this way. So, it was basically a paper transaction. Meanwhile I hear about loans taken… Read more »
senki
Guest

egesd csak az orszagot es a magyarsagot vilagszerte, gratulalok …. meg egy szelsoseges bertollnok, nincs meg eleg ferdito? kotelet erdemelsz, nem nyilvanossagot.

An
Guest

@Senki: Nem Eva egeti az orszagot, hanem azok, akik kotelet kivannak azoknak, akik megirjak sajat velemenyuket. Gondolom belatod te is, hogy ez valahol ciki, kulonben miert irtad a bejegyzest magyarul, egy angol nyelvu blogon?

Eva S. Balogh
Guest

To make sure that those readers of Hungarian Spectrum who don’t know Hungarian “senki” (nobody) thinks that I deserve to be hanged because I am an extremist hack who spreads lies about Hungary. Senki provided a nice footnote to my article on the language of the Hungarian right.

Member

@senki Kiskocsog! Irj angolul, vagy tunj el innen.

Kirsten
Guest

It is likely that the government’s forecast for this year has been too optimistic from the start but the current euro crisis is an additional burden which Hungary has not created, and it is not responsible for its steady intensification. Other governments in Europe too have to consider additional measures in their public finances and there is too widespread discontent. It might be a bit difficult to explain if OV promised to turn Hungary into Europe’s powerhouse but I think he can just stick to the paradigm he used before and point to the good relations established with China and his own criticism of “finance”. I actually expect that Hungary or Hungarian politicians will not be the only ones in Europe that will find this paradigm “interesting”.

Member

senki (nobody): Your name says it all. You little nobody is the one, who Hungary should be worried about. You and the like of you are the ones who make the world cringe.
On the other hand senki makes a good case why is an eduction reform and the teaching of foreign languages are a must in Hungary.
In case he/she does not speak English
senki; A neved mindent elarul. Te Kis Senki, te vagy az aki miatt Magyarorszagnak aggodnia kell. Te es a hozzad hasonlok miatt szorul ossze az a vilag gyomra.
Mas szemszogbol viszont, “senki” egy jo pelda arra, hogy miert is van szukseg iskolareformra es idegennyelvek tanitasara Magyarorszagon.