Adventures in alternative reality: the Hungarian government’s reaction to Moody’s downgrade

The title is unfortunately not original. One of Hírszerző’s regular contributors who writes under the pseudonym “Nyüzsi” (an abbreviated form of nyüzsgő = swarmer) came up with it today. The Hungarian government tries to act as if nothing happened. And “Nyüzsi” gives examples. On the homepage of the Hungarian government there is a picture of politicians inside and outside of Hungary at a conference of representatives of Hungarians living in the neighboring countries. The headline reads “Above all the national interest.” When one visits the Ministry of National Economy one can read “In September retail sales again in positive territory.” The first thing one can see on the website of the prime minister is Orbán giving a speech at the conference cited above with the headline: “Dual citizenship is a historical success.” On the same page: “The government guarantees the value of the pensions” and “We must close the era of post-communism.” Fidesz’s website got stuck on the possible negotiations with the IMF and optimistically announces that “The Hungarian government moved in time and gave the correct answer.” If one is interested in other news on the subject, one can click on an article about Antal Rogán’s prediction that “2012 will be the year of careful planning” and that “our emotional relationship with the IMF hasn’t changed,” whatever that means.

I guess one can handle a huge crisis that way but I wouldn’t recommend it. If I were György Matolcsy, I wouldn’t stand there telling the people that I’m baffled because the Hungarian economy is robust and there was no reason to downgrade Hungary. The problem is that there is an attack by speculators against Hungary and this attack is under investigation by the national security forces. Good luck to them! I wouldn’t say such nonsense even if half of the population seems to believe it. You tell a Hungarian that some dark foreign circles are out to get them and they will lap it up. I saw a video today of pedestrians on Budapest streets as a reporter is asking their opinion about the Moody’s downgrade. At least half of them agree that this is a concerted effort on the part of either speculators or simply enemies of the country to ruin Hungary. Since these people don’t have the slightest idea how money markets work, I’m not surprised, but it would be a capital idea if the Hungarian government, instead of resorting to lies, would tell them the truth. One, the country is in trouble because of the high sovereign debt that by itself wouldn’t be so serious if the economy were roaring and not limping along. Two, even more important, if the country didn’t have such an incompetent government and such an aggressive prime minister Hungary would fare better. Viktor Orbán, György Matolcsy, and the whole crew are utterly discredited. And not only when it comes to finance. It is also becoming clear to more and more people that in Hungary the democracy so many people dreamed of for so long is in danger.

I know that Árpád W. Tóta is a favorite of many readers of this blog. Tóta occasionally uses pretty strong language but he is always on target. To give you a taste of Tóta’s style. His blog’s title is “This is Sparta!” and it begins like this: “It must be bad to be György Matolcsy. I am beginning to feel sorry for the poor man. Dreamless nights, anxiety, wetting the bed. And he is surely preparing himself for further adversities. For example, that in the end they will dump the whole thing on him. But this fuck-up is not only his doing. He wasn’t the only one who managed to achieve this junk bond status.”

After that Tóta reminds his readers that the famous Hungarian equivalent of the “f”-word “elkurás/elkurtuk” until now was reserved for Ferenc Gyurcsány’s political moves. This was the word the pro-Fidesz rabble kept repeating joyously. But, says Tóta, “at the time of the classic fuck-up by Gyurcsány Hungary wasn’t junk. There was the threat of a downgrade but it didn’t happen.”

And if through Tóta we got to Ferenc Gyurcsány, let’s see what he did in a similar situation as opposed to what Viktor Orbán has been doing in the last two weeks or so. Gyurcsány, who has a wall on Facebook, wrote a short article today entitled “End” (Vége). Orbán, says the former prime minister, doesn’t want to face the fact, but “after a while he will have no choice.”

Gyurcsány relates some details of the road he had to travel from October 2008 to March 2009 when he resigned. In October 2008 the forint was in trouble and OTP’s shares began to fall precipitously. The top brass got together and overnight they decided that they will ask for IMF and EU assistance. By the time the IMF delegation arrived in Budapest the government already had a plan for cutting 600 billion forints from the budget in 2009 and a further 1.8 trillion between 2009 and 2011. It seemed to everybody, including the members of the IMF-EU delegation, that the measures offered by the Hungarian government were sufficient. However, by the beginning of 2009 it became obvious that they weren’t and that further austerity measures would be necessary. In February the Hungarian government made another adjustment of 1.35 trillion for the next three years. But in the end even that wasn’t enough. The government was planning to cut another one trillion, but by that time the MSZP parliamentary delegation was not ready to support Ferenc Gyurcsány. He resigned. It fell to Gordon Bajnai to implement the final austerity measures amounting to 1 trillion forints and thus to solidify Hungary’s finances.

Negotiations with the IMF and EU were relatively easy in 2008 and 2009 because Hungary had a plan that could be presented to the members of the delegation. It seems that it didn’t dawn on Orbán and his team that without a plan there will be no agreement and thus no financial assistance. It would be a good idea if they realized that the game is over, says Gyurcsány.

 

Well, we will see whether they will or not. Although MSZP and DK are demanding Orbán’s resignation, I very much doubt that he is ready to make that move now. He might throw Matolcsy to the wolves after a few days as some Fidesz politicians apparently demand. However, I don’t think that the Fidesz bigwigs are ready to dump Orbán himself. When Mesterházy told Lázár to make preparations for the removal of Orbán as prime minister, Lázár’s reaction was that Mesterházy should visit a doctor.

However, my feeling is that the markets will not be satisfied with Matolcsy’s departure. Most analysts know that the policies hitherto pursued came straight from the prime minister. Matolcsy was only his right hand! And in this case, he will have no choice but to leave.

Sort by:   newest | oldest | most voted
Andy
Guest

Eva you seem to forget, that HU is a country without consequences ….

Paul
Guest

“in the end they will dump the whole thing on him”
They surely will.

oneill
Guest
“Again a completely unjustified and uncalled-for attack by the Economist against a small country desperate to defend its freedom. Aren’t you financial vultures ashamed for what you’re doing? What we see is nothing but the revenge of bloodthirsty banks and multinationals, backed by international media and the world-wide web of a Communist-Liberal conspiracy against our tormented Fatherland. Hungary’s economic fundamentals are strong, our budget deficit hits new lows every month, our debt is plunging, the Hungarian economy and agriculture are in a period of intense revival. The System of National Cooperation established by one of the wisest politicians after Christ, Viktor Orban, has demonstrated its ability to invigorate the country, and its economy, a thousand times over. Georgios Matolcsy is a wizard of the economy never seen before on Earth. Why these attacks, why the junk status and the whole calumny of Hungary in the international media then? I tell you why. You pitiful Westerners now encroach upon our booming economy and our beloved Forint driven by sheer envy, greed and lust for profits! You envy our winning streak and our prosperity and are now trying to drag us back into the Western European quagmire of debts, impotence and a… Read more »
dvhr
Guest

A year ago, with his characteristic modesty, Orban called himself and Matolcsy the Hungarian Adenauer and Erhard.

Mutt Damon
Guest

Georgios Matolcsy? Really? Written by a frustrated Greek?

Paul
Guest

Madness of an entirely new order!
My favourite bits:
“one of the wisest politicians after Christ, Viktor Orban”
It had to happen – Orbán being compared to Christ.
and:
“Georgios Matolcsy is a wizard of the economy never seen before on Earth.”
Which, in a way, is actually quite true.

Member

At the main time, Hungary’s current Interior Minister, Sandor Pinter’s ex-company that he sold just after Fidesz came to power and he was offered a very cushy job, received an other substantial government contract. Long and behold there was no competition from any other companies for the contract. True it was not advertised either. There was no tender called for. The company is Civilian Security Service. THis is the eight government contract the company received in the last year and half in a very competitive field. No, they do not give the cheapest offer and it did happen that they gave the most expensive offer. Well, when there are no tenders called, they gave the only offer.
I think Hungarians should start to worry more about these multimillion dollar contracts, and grants for “ex-companies” then the supposed external conspiracy. If something will bring this country down, is the cushy contracts that Orban paddings his friends with.
The next surprise will be when Hungary will show up at the top ten of Forbes’ Most Corrupt Countries list. WHo they will blame then?

oneill
Guest

“Georgios Matolcsy? Really? Written by a frustrated Greek?”
Nah, I am guessing someone with a sublime sense of irony;)

Eva S. Balogh
Guest

Andy: “Eva you seem to forget, that HU is a country without consequences ….
Yeah, Andy, but they are dealing now with the outside world.

Eva S. Balogh
Guest

oneil: “Actually, thinking about it a bit more, it does sound suspiciously like Comical Pete Szijjarto.”
You will find it funny that Szijjartó’s webpage is out of commission. It is under “reparation”!!!!

Paul
Guest
A question for anyone who understands how currencies are traded, etc: I’ve just been checking a sample of currencies from countries in similar positions to Hungary (Poland, Bulgaria, Romania, Croatia, etc) to see if they are having just as bad time with the Euro. And they are, more or less – although none of them as bad as Hungary. So, Fidesz do have a point, there is some general pressure on smaller, developing European economies, which is causing their currencies to fall against the Euro. But In Hungary’s case it’s more than just this, as no other currency is performing anywhere near as badly as the forint. However (and here’s the question), if you carry out the same exercise on the same currencies compared to the Swiss Franc, you get a very different picture. Every other currency has recovered and strengthened nicely against the CHF since the Swiss acted to weaken their currency a few weeks ago. Except the forint. The forint is the ONLY currency still collapsing against the CHF. So why? Presumably it’s linked in some way with the Hungarian Swiss Franc mortgage crisis, but how exactly? Incidentally, have a look at the Bulgarian Lev against the Euro… Read more »
Eva S. Balogh
Guest

Paul: “I’ve just been checking a sample of currencies from countries in similar positions to Hungary (Poland, Bulgaria, Romania, Croatia, etc) to see if they are having just as bad time with the Euro”
Until now the Hungarian forint was doing worse than the zloty or the koruna. But now Moody’s downgrading dragged along all the other currencies as well.

An
Guest
It is hard to see if they (Matolcsy, Orban) are really such idiots and mean what that say, or it is an attempt to shamelessly manipulate public sentiment (and to avoid taking responsibility for what is happening). There is an interesting article in HVG… Orban called a meeting today with 11 economists he trusts. The meeting finished at around 6 and everybody was expecting some kind of major announcement from Matolcsy after the meeting.. like a plan of action or something. Instead. after the 3-4 hour long meeting, Matolcsy gave a press conference and repeated all the nonsense about Hungary being attacked etc…. Now according to one of the economist who was at the meeting, they said no such thing at the meeting at all. In fact, the economists were trying to point out that there is no international conspiracy, but natural economic processes led to the current situation. They were also trying to advise what would be the best course of action. Orban and Matolcsy were nodding, like they understood… then Matolcsy came with the press conference and started to spout out nonsense again. Sounds like they are consciously firing up their fan base so as to avoid responsibility… Read more »
An
Guest

Oops, posted the wrong link, this is the correct one:
http://hvg.hu/gazdasag/20111125_matolcsy_kozgazdaszok_konzultacio

Eva S. Balogh
Guest

An: ” Sounds like they are consciously firing up their fan base so as to avoid responsibility for the mess-up.”
I’m convinced that this is the case. But how long can they play this game?

Ron
Guest

Paul: Obviously it’s tied to the Euro in some way, but how? What happens when it gains or loses against the Euro – is there a computer somewhere in Sofia that constantly watches the Euro and buys and sells currency?
Since 1997, Bulgaria has been in a system of currency board and all Bulgarian currency in circulation has been backed 100% by the foreign exchange reserves of the Bulgarian National Bank (BNB).
Source: http://en.wikipedia.org/wiki/Bulgarian_lev
http://en.wikipedia.org/wiki/Currency_board

Ron
Guest

Eva: Until now the Hungarian forint was doing worse than the zloty or the koruna. But now Moody’s downgrading dragged along all the other currencies as well.
I do not think Moody’s downgrading of the Forint has anything to do with it. I believe it has to to with the failed Bond Auction of Germany. As a result traders are moving towards the USD.
http://www.counterpunch.org/2011/11/25/germanys-failed-bond-auction/

Eva S. Balogh
Guest

If you want to be really frightened read:
http://www.origo.hu/uzletinegyed/hirek/20111125-kozgazdaszokkal-mirol-beszelgetett-orban-es-matolcsy.html
It is clear from the description of one of the participants of the meeting of economists and the prime minister that these guys don’t have a clue how investor services work. Frightening.

An
Guest

@”It is clear from the description of one of the participants of the meeting of economists and the prime minister that these guys don’t have a clue how investor services work.”
I read the origo article… frightening indeed. Maybe I was giving OV and Matolcsy too much credit in my post; maybe they still don’t understand. Or don’t want to, after all, OV is infallible, right? So if something goes wrong, it can only be a conspiracy.

An
Guest

Another piece of news… they are planning to change the law on state budgeting and Matolcsy just submitted a proposal to remove the spending limit on state expenditure that was put into law in 2008 by IMF’s request, if I remember correctly. Way to start negotiating with the IMF… by abolishing a law requested by them to ensure fiscal responsibility. What are these people thinking?
If anybody reads Hungarian and understand economics a bit, there are some other nasty ideas in the proposed law, see the link below:
http://index.hu/gazdasag/magyar/2011/11/25/matolcsy_eltorli_maga_folul_a_plafont/

Paul
Guest

The Origo link didn’t translate too badly.
And, as Éva says, it’s truly frightening.
Not only do they not have a clue what they’re doing, BUT they also believe their own propaganda. I’d always assumed that was just for the proles.
The lunatic children have taken over the asylum sweetshop…

Member

If the article of Index is half true, Hungary is in deeper poop then I ever thought. I honestly believed that somehow Matolcsy has some inclination about how economics, financing, forex, etc works. According to the article Orban and Matolcsy have asked the economists who were present to explain this to them. Well, I am not an economist by any stretch, so I would of never taken on a position like Matolcsy did. If I would of been Orban I would of looked at past performances of professionals in order to select the right person to guide a country from financial hardship versus looking at who is up deepest in my bottom. THe only thing they are left with, and the only talent they actually posses is to keep up the lies, feed the marketing machine (while they filling their pockets too). They will not give that up easy as it was never about the country, it was always about what they can personally gain.

Ron
Guest

An I do not really understand the HVG article, as google translation makes some weird translations and I cannot read the pdf article.
What I am interested in, does this break the 50% rule included in the new constitution?

An
Guest
Ron, not sure what you are asking.. and how that relates to the HVG article. Or you are referring to the Index article on the proposed law on state spending? Well, Matolcsy says that the rule limiting state spending is not needed because they included the limit on state debt in the constitution (putting that in the constitution itself is a stupid idea, btw). But the two are not the same… the state debt is a ratio (debt/GDP), while the limit on state spending is an absolute cap on state spending. So, you see where Matolcsy is coming from: to let state expenditure rise in the hope of raising the GDP along. That’s been his monomania since they came into office, to outgrow the debt. In theory, that would not necessary be a bad idea, but not in the hands of these incompetent people. I may trust somebody with such a policy under certain circumstances if that person knows how an economy works. But I seriously doubt that Matolcsy and Orban have a lot of understanding of economic matters, and on the other hand, OV has the propensity to use state moneys to fund his cronies’ businesses. So what will… Read more »
Douglas Allan
Guest

Dear Éva, I enjoy reading your blog everyday. I found the following article in today’s Népszava, very interesting.
http://www.nepszava.hu/articles/article.php?id=494729

Ron
Guest

An: Thank you very much for the explanation of the articles, and I agree with you that VO will violate its own rule re. state debt.
I wonder if some kind of state of emergency will be called not for this budget, but for the one thereafter. Otherwise, the president has no choice than to reject the budget.

Member

Ron: Which president? You mean the Hungarian one? First of all I have my doubt if he really understand what the New (or the old) Constitution says. I also doubt that he would go against Orban. If anyone, it is the president of Hungary who believes at first whatever these crooks are trying to sell.

Ron
Guest

Some1: Yeah I meant the Hungarian one. Under the constitution he is not allowed to sign off. If he does he commits treason. I wonder what the statute of limitation is?

Paul
Guest

Whatever Orbán wants it to be.
They have no fear of the law – they just change it to suit.

An
Guest

Ron, to be precise, according to the new Constitution, the debt cannot go up higher than last year’s ratio until it reaches 50%. So it doesn’t have to be 50% next year, but it cannot be higher than last year’s. If it goes up higher than last year’s, the government is not allowed to finance the deficit with any more new loans, which would technically lead to bankruptcy.
Now the state debt right now is 82% of the GDP, the same as last year. The problem is that next year the GDP won’t grow with the expected 1.5%, if it grows at all, and that could lead to the increase of the debt ratio. So unless they cut government spending further, just the lack of GDP growth will increase the debt ratio.
Sorry, but again the link is in Hungarian:
http://index.hu/gazdasag/magyar/2011/11/14/mar_jovore_megsertheti_sajat_alaptorvenyet_a_kormany/

wpDiscuz