It was only a few days ago that I reported on the economic problems of the country which can no longer be covered up by loud self-praise by members of the Hungarian government. How long can György Matolcsy talk about “the first great victory” of his financial policies when every economic indicator shows otherwise? But let’s not fool ourselves, Matolcsy is only “the right hand” of Viktor Orbán. He doesn’t have an independent thought or, if he does, he keeps it to himself. The man who makes economic policy is Viktor Orbán himself. And Viktor Orbán is woefully ignorant of the subject. In fact, I am beginning to think that Orbán’s only strength is destroying his political adversaries. Governing is not his thing.
Since I last wrote about the state of the Hungarian economy the situation has worsened. Inflation is higher than expected and there is more and more talk that Hungary might follow in the footsteps of Greece. (I suppose one can say that in a perverse way Lajos Kósa was prescient.)
Viktor Orbán spent a couple of days in London where he gave a lecture at the London School of Economics before “faculty, students, and journalists.” He talked about the bright prospects of Central Europe. The countries in the region, including Hungary, will be the “motor of European economic recovery.” Most likely at the request of the speaker there was no question and answer period after the talk. I can imagine only too well what kinds of questions would have been showered on him.
In his speech Viktor Orbán insisted that his government is still thinking in terms of an economic growth rate of 1.5%. This was uttered on practically the same day that the European Union predicted a growth of 0.5% while others are talking about stagnation or, even worse, recession.
While Viktor Orbán was outlining the bright future his “unorthodox economic policies” will bring to the country, Hungary’s credit-rating outlook was cut to negative by Fitch. The rating agency indicated that they are also inclined to downgrade Hungary’s sovereign debt to junk status. The decision “reflects a sharp deterioration in the external growth and financing environment facing Hungary’s small, open and relatively heavily indebted economy,” said Matteo Napolitano, director of Fitch’s sovereign ratings department.
Hungary has been having difficulty selling its treasury bills. Last Thursday Hungary cut its offer as yields rose to a two-year high. Just to give an example, the yield on the benchmark five-year government bond rose to 8.099 percent.
A day later Standard&Poor’s Ratings Services placed the country on “CreditWatch with negative implications.” S&P will make a decision this month on Hungary’s credit rating, currently at BBB-. The next move would be to demote Hungary’s bonds to junk. S&P explained the reasons for the decision as Hungary’s “unpredictable” policies, including the dismantling of checks on policies and levying extraordinary taxes on certain industries and banks at the time of a deteriorating economic environment. “A more unpredictable policy environment, stemming from a weakening of oversight institutions and some budgetary revenue decisions, will have a negative effect on economic growth and government finances.”
The question is what the Orbán government’s answer will be to the looming downgrade of Hungarian government bonds. Will Viktor Orbán change strategy or will he stick with his original “unorthodox” ideas? If he chooses the latter, I’m afraid Hungary will find itself in Greece’s shoes. They will not be able to sell the government bonds necessary to finance the repayment of the country’s ever increasing sovereign debt.
Most people doubt that Viktor Orbán will change his mind. He is not that kind of guy, they say. However, more and more people are predicting that the markets themselves will bring so much pressure to bear on the country that he will be forced to resign. Last Wednesday László Lengyel, an economist and publicist, mentioned the possibility of Orbán’s forced departure on a television program featuring political scientists and economists discussing the week’s news.
Lengyel claimed that until now Europe was too preoccupied with Greece and Italy, but now that there will be new governments in both countries Hungary’s problems will come to the forefront. And just as the markets managed to get rid of Georgios Papandreou and Silvio Berlusconi they will get rid of Viktor Orbán as well. His own men will realize that they have reached the end of the road and that if they want to survive politically they will have to get rid of the prime minister.
Péter Róna, an American trained economist, went further yesterday. He even has a successor in mind. According to him “the EU picked its own men to replace the Greek and Italian prime ministers. In the case of Greece, [Lukas] Papademos is one of the deputy governors of the European Central Bank while Mario Monti, the next prime minister of Italy, used to be European Commissioner for internal market, financial services, customs, and taxation.”
Thus, says Róna, the EU might replace Orbán with László Andor, currently commissioner for employment, social affairs, and inclusion. Of course, this is nonsense. The EU cannot replace prime ministers of member countries. Moreover, Andor is close to the socialists and his appointment was severely criticized by Fidesz while the party was in opposition. So, we can forget about Róna’s prediction on this front.
At any event, so far just this week two economists have doubted Orbán’s survival because of the dire economic situation of the country. Even Orbán’s faithful man, his former minister of finance and most likely his pick for the next governor of the Hungarian National Bank, was making fun of him just yesterday.
More and more people question Orbán’s ability to govern the country under these circumstances. Of course, he is a great survivor. After all, he managed to remain the head of Fidesz after two lost elections. The question is whether he will survive an economic and financial meltdown of the country.