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.