The IMF, the European Commission, and the U.S. State Department have had enough of the Hungarian government

The whole Orbán government is in denial mode. Thus it is hard to say anything definite about today’s political turmoil, except that the IMF-EU delegation packed up and left a day early. It is also pretty certain that this decision came straight from Olli Rehn, European Commissioner for Economic and Financial Affairs, in consultation with the IMF in Washington.

The only thing Olli Rehn seems to have in common with Viktor Orbán is that in his youth he played soccer for his hometown club in Finland’s top division. He studied economics, international relations, and journalism at Macalaster College (Saint Paul, Minnesota) and received a Ph.D. from Oxford University in economics. So, as opposed to Viktor Orbán, he knows something about economics and finance, and in the last year and a half he has had enough of the “unorthodox” economic policy of the Hungarian prime minister and his right hand, György Matolcsy.

 

Olli Rehn

Through the grapevine I learned that already late Wednesday night (EST) discussions were underway to change the departure time of the IMF-EU delegation from Hungary. Originally, the team was going to stay in Budapest until early Saturday morning, and they scheduled a whole day of negotiations for today. Instead sometime on Thursday instructions came from Washington and Brussels to interrupt the negotiations. And indeed, early Friday morning the delegation left Budapest.

According to the chief IMF negotiator the informal talks were broken off because the Hungarian government with undue speed was pushing through a piece of legislation that would undermine the Hungarian central bank’s independence. The Hungarian government didn’t show “any willingness to delay passage of the law to allow for further discussion.” The negotiators remained in touch “to determine the next steps.”

The new bank law would subordinate András Simor to a new governor who would be responsible for both the Central Bank and PSZÁF (Pénzügyi Szervezetek Állami Felügyelete or the state supervisory body in charge of financial institutions). The Orbán government wants to pass this piece of legislation in a great hurry. Preferably before “real negotiations” with the IMF-EU delegation begin. According to the pending bill the new chief governor would be nominated by the prime minister and appointed by President Pál Schmitt.

It was around noon today that Hungarians found out about the departure of the delegation and the interruption of the negotiations. Although Viktor Orbán had a radio interview in the morning where he talked about the IMF-EU negotiations, he kept the news of the delegation’s departure to himself. About an hour and a half after the official announcement from Washington and Brussels came a spate of lies, denials, and explanations from the Hungarian side.

The first reaction was an outright lie that came from the office of the government spokesman, the newly appointed András Giró-Szász, formerly a strong Fidesz-supporting “political scientist.” According to this first version the negotiations were informal and were completed (ezek a tárgyalások lezajlottak). The official negotiations will start in January. The reporter for MTI had the courage to retort that Olli Rehn’s spokesman said something else: the negotiations had broken off. I cite courage here because rumor has it that the reporters of MTI are under incredible pressure to report news according to the wishes of the government.

The second version, about four hours later, came from Tamás Fellegi who since yesterday is minister without portfolio in charge of the IMF-EU negotiations. Fellegi said that “the official negotiations were not suspended.” After all, the current talks are only informal. In addition he said something that signals to me that the Hungarian government remains under the illusion, or pretends to be, that “the Hungarian delegation is still ready to negotiate a deal without conditions” (a magyar delegáció továbbra is kész az előfeltételek nélküli tárgyalásra). The only thing I can say: dream on!

Fellegi added that the Hungarian government received a communiqué outlining the European Central Bank’s position on the proposed Hungarian bill on the status of the central bank and they are studying the matter. They will try to include some of the ECB’s suggestions into the bill. So, while the IMF-EU delegation insisted on postponing the passage of the bill, clearly the Hungarian government at the moment isn’t obliging. The Hungarian parliament is going ahead. Hence the departure.

Almost simultaneously with Fellegi’s attempt to minimize the importance of the delegation’s departure, János Lázár, leader of the Fidesz parliamentary caucus and a country bumpkin, assessed the situation as follows. “Negotiations with the IMF and the EU will start in January.” What was going on right now was “simply the members of the delegation getting acquainted.” But Christopher Rosenberg, head of the IMF delegation, certainly didn’t need time to get up to speed; he negotiated the 2008 loan. Moreover, he was the one who visited Hungary every three months or so to check on whether Hungary had fulfilled the conditions of the loan. So, no introduction was necessary.

Lázár then offered the most pathetic explanation for the early departure of the delegation. “I can understand if someone wants to go home for Christmas and wait for the arrival of little Jesus [Jézsuska] elsewhere, not in Budapest.”

Lazar Janos
János Lázár

As for the return of the IMF-EU delegation, Lázár had no doubts. After all, “Hungary owes a substantial amount of money to the IMF. I think that if someone needs the money, he will take all necessary steps to get his money back.” At this point I really can’t find the right words to describe this stupid boor.

The leaders of the opposition parties are aghast. Mesterházy is certain that Viktor Orbán can no longer handle the affairs of state. He even told Lázár that it might be a good idea to change not just course but also the prime minister. In fact, Mesterházy claimed that he had heard about meetings organized by Lázár himself to discuss setting up a government of experts supported by the Fidesz-KDNP two-thirds majority. Ferenc Gyurcsány said that Hungary is close to bankruptcy and the problem is that the current Hungarian government has no partners or friends in the world. He urged Orbán to change his economic policy and announce a new course on Monday. Otherwise there will be another “speculative attack” as Orbán likes to call the markets’ reaction to his misguided policies.

The Greek and Italian examples prompted some Hungarian analysts to play with the idea that Viktor Orbán may not be the country’s prime minister for long. Even my most pessimistic friends are certain that unless Orbán is ready to change his policies an early departure for the prime minister is definitely in the cards. Mesterházy offered the opinion that “if Orbán lost his mind, at least the Fidesz members of parliament should come to their senses” and get rid of him. János Lázár immediately moved into high gear. He considered the very idea “deliberate provocation” and denied the veracity of the news of his meetings with economists about the possible removal of Viktor Orbán. Lázár “suggested to Mesterházy and his party to get accustomed to the idea that Viktor Orbán will be the prime minister of Hungary at least until 2014.” And again, for the second time, Lázár suggested that Mesterházy visit a psychiatrist, especially because since his last warning “his situation has worsened.”

The Orbán government is in bigger trouble than even the IMF-EU delegation’s departure would indicate. Viviane Reding, EU commissioner for Justice, Fundamental Rights and Citizenship, wrote a strongly worded letter to Tibor Navracsics, minister in charge of matters of justice. In it she expressed serious reservations about the new constitution, stating that it doesn’t conform to European Union law. Apparently, Viktor Orbán also received a letter from Washington expressing concern over the new law on churches and religion. And finally, Thomas Melia gave a long interview in Origo in which he used unusually strong language concerning U.S. displeasure with what’s going on in Hungary. I will talk about these developments tomorrow.

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Paul
Guest

Presumably the Forint will now go into free-fall, as Hungary is “attacked by outsiders”.
In “the middle of December”, just as OV predicted.
Is this weird coincidence, or was OV already planning all this when he made that prediction, and guessed this is what would happen?

Eva S. Balogh
Guest

Paul: “Is this weird coincidence, or was OV already planning all this when he made that prediction, and guessed this is what would happen?”
No coincidence, believe me.

Eva S. Balogh
Guest

One more thing, Jano. How can you believe Lázár when just today lied and lied and lied about the breaking off the negotiations. Why would you believe him?

An
Guest

@Paul: “Presumably the Forint will now go into free-fall, as Hungary is “attacked by outsiders”.”
Well, the forint lost some value today, but so far was spared from a downfall (I guess most traders are busy doing their Christmas shopping),so actually, the Hungarian government got lucky and got some time here to sort things out… and better use it. The markets won’t be forgiving very long.

cba
Guest

Hi Eva, you have a typo (Pszáf)

Paul
Guest

An – bearing in mind the collapse in the Forint from July to the recent IMF ‘bluff’, I can’t see it going anywhere other than down – and rapidly – once the implications of the IMF decamping sink in.

Paul
Guest

Just checked the Forint’s performance today and it’s a bit odd. There was a sharp drop about the time the news would have broken (from 300 Ft to the Euro to 306), but then it rallied to close on 304 – 3 Ft better than it was a few days ago.
Does anyone on here understand how these things work? For instance, how can it ‘close’ at a particular time? Presumably the Forint is traded all round the world, so there is always a major exchange trading somewhere, whatever the time of day?
And what happens at weekends? I always assumed that trading ceases for two days. But if you check you’ll find that, although there is less movement, the Forint still rises and falls.
And I’ve just realised that tomorrow is Saturday (actually NOW is Saturday here!), so will the expected Forint collapse have to wait until Monday morning?
And what happens at Christmas? Do they trade right throgh the holiday?

Gabor
Guest

I guess what’s important is trading ‘volume’, Paul, and since there is hardly any forint-related trading in Asia or the US/AMRS markets what really matters from the forint’s perspective is the close of the European markets in general and the Budapest exchange in particular. There may be slight fluctuations prior to and following the open/close of these markets though, as you rightly pointed out.
There is practically no trading in the world after the last big exchange (Chicago) closes and the first big ones (Sydney and then Tokyo and then HK/Singapore) open.
Although Asia opens on Monday while it’s still around midnight (Sun/Mon) in Europe, we will have to wait until the European markets open on Monday to see any tangible movement in the forint FX rate. And based on these latest news, it is most probably not going to be pretty …

An
Guest
@Paul: They don’t trade on weekends and holidays. They normally trade during regular work hours(9-5)but that goes around the globe… so after European trading closes, they still trade in the US,and then after US trading closes,very soon they start to trade in Asia. The forint indeed reacted odd today, but it is mainly because of two reasons…one that is usually influenced by what’s going in with the Euro…let’s say if investors turn away from the Euro, (what happened for example,at the height of the Greek debt crisis),they are turning away from the Forint as well…when they more positive about the Euro’s fate,the forint(and all other Eastern European currencies)start to do better. Now this week the markets were kind of positive about the Euro and thus were less wary of investing into “riskier” countries, including Hungary. The second reason being is that trading was slow today, because today was a Friday at the start of the holiday season. It is possible there would be more reaction on Monday, but it is also likely that most forex trading will be kind of slow during the holiday season,unless major things happen. So, the Hungarian government may have a grace period until January to… Read more »
Paul
Guest

Thanks, Gabor and An. It will be interesting to see what happens on Monday.
If I were a trader holding Forint (which is surely a risky currency at the best of times), I think I would be giving up on Orbán by now and selling at the best price I could get. After all, there’s got to be a limit to the amount of messing about OV can get away with before traders give up on him altogether.
Presumably this is going to affect his chances of selling any bonds next time as well?

Jano
Guest

Eva: I promise you on everything that’s dear to me in this very world, I do not believe Lázár. If only I knew why you keep saying I do.

Gábor
Guest

Here is the letter adressed to Orbán concerning the law on religion:
http://nol.hu/media/file/attach/24/14/00/000001424-3075.pdf

NWO
Guest

Finally a good day. Finally some serious people standing up just a little to the nightmare that is Hungary. Sadly, nothing short of a collapse of the economy will more the dial politically. Sadly, nothing short of offical EU sanctions against Hungary is likely to slow down Orban. He is detached from reality (even many of my close FIDESZ supporting colleagues acknowledge this now). The problem, however, gets worse from there. Who is capable of replacing him. In early elections, the only group to benefit will be Jobbik. Things are terrible now, but don’t fear they are only going to get worse (a lot worse).

Ron
Guest

Off topic, but not really.
Please find below a very good speech by Peter van Ulm (a Dutch four star general) on TEDx Amsterdam regarding violence, constitution and check and balances, and most importantly why he choose the gun as his instrument.


Eva S. Balogh
Guest

Paul: “Just checked the Forint’s performance today and it’s a bit odd. There was a sharp drop about the time the news would have broken (from 300 Ft to the Euro to 306), but then it rallied to close on 304 – 3 Ft better than it was a few days ago.”
Maybe they heard that Lázár is negotiating about the removal of Orbán. Smiley, naturally.

Eva S. Balogh
Guest

Jano: “I promise you on everything that’s dear to me in this very world, I do not believe Lázár. If only I knew why you keep saying I do.”
Because you indicated that Mesterházy is just claiming that for some strange political reason and you added that Lázár denied it. Putting the two together sounds as if the whole thing is simply not true.
Indeed, at the moment we don’t know whether it is true or not, but not because Lázár says it isn’t true. He is the biggest liar on the face of the earth. But even if he weren’t it is naturally that he denies it. Can you imagine, Orbán’s best man in parliament conspiring behind the boss’s back?

littlelambfound
Guest

Trying to analyse the Orban mindset…. might it not be beneficial to have the HUF drop off the face of the earth in the short term, so that Fidesz could then introduce a currency peg. After all, 400 HUF/Euro might improve exports and instantly deduce debt. And we could then all go back to changing our cash via dodgy guys on Vaci utca.

Member

Dr Balogh,
You missed the fourth and the best government reaction, the one from my particular favourite, Comical Pete Szijjarto, who said that remarks by the spokesman of the EU’s financial commissioner concerning Hungary’s draft central bank law were “totally incomprehensible”.
For someone of Pete’s towering intellect I guess they probably were, despite the fact that the rest of us grasped pretty well what the commissioner was saying.
So, 4 Fidesz poodles giving 4 differing explanations and when a government’s media response is so awry you know that the rot has well and truly set in.
But hurrah for the EU and the IMF. Finally the kind of reaction being delivered that a dictatorial thug like Orban can understand- it’s just a pity that it has taken “outsiders” to show the Hungarian citizens the best way to sort out a bully.

GW
Guest

Littlelambfound:
A large drop in the value of the HUF might indeed be useful, but only in combination with a personal bankruptcy law allowing a full discharge of debts and a clean credit slate after some years time in order to clean up the foreign currency loan problem. Of course, this would mean a massive amount of real estate going into bank ownership, but as the banks would have an interest in not having the value of these assets decrease, it is possible that most of these properties would instantly become rentals. This might effectively solve the loan problem and it is quite possible that Hungary will be immediately better off as a nation of tenants, but it’s certainly not the kind of relief voters were expecting from Fidesz.

Odin's Lost Eye
Guest
Ron thank you for your link. It was a very impressive speech. His reasons for taking up the gun were not the same as mine (I took up war ships), but was similar. Mine was probably a lass my father employed when i was a little boy. She was always very kind to me. When I had been naughty and was told off she comforted me. When I grazed my knees or hurt myself she patched me up. We had a lot of buildings which were converted into billets. Ours were full of Poles, Czech, a few French, Danes, and Dutchmen who were all were being taught English. They all wore Sergeant’s stripes and pilot’s wings. The Lassie had taken a shine to one of them. They could have only known each other for a few weeks before he was posted. A few weeks later a police man called with a telegram for the lassie. Her friend was dead and he had named her as his heir. The bottom fell out of her world. I sometimes think about these young men who flew, fought and died above a strange land, with strange food, with strange place names, and a language… Read more »
Member

I must agree with previous posters. I am not sure if Orban does not want to bankrupt. Do not forget that less then a month age he has predicted that shortly before Christmas there will be an other attack on Hungary. Well. he is not little Jesus or Nostradamus, and a prediction like that for the time when market usually slows down make suspicious of “insider trading”. He has known something that many did not. By forcing Hungary to bankruptcy would allow him take extreme measures politically, and financially. The dismissal of Laszlo Bajtai, director general of the secret service (Constitution Protection Office) also point to the direction that Orban is cooking up something.

Jano
Guest

Eva: I thought about two scenarios that made a lot of sense to me, one of them was MA making it up, the other one was Lázár lying so please pleas read me a little more carefully, it’s so frustrating.
Btw, Lázár denying it is natural, he can’t say: “Yes, Mr. Mesterházy, I’m conspiring against my boss, but please don’t tell him…”
I’d like to turn this around. Suppose MA learns from some source that Lázár is indeed trying to put OV aside. What on earth does it possibly achieve for him to mention that in a parliament other then 1, calling attention to it -> LJ fail 2, creating confusion amongst the Fidesz line -> probably LJ fail
I’ve never suggested you to believe LJ but MA is not necessarily the holy knight of truth either.

littlelambfound
Guest

Can Lazar really be implying that the IMF need to return to the table or they will not be seeing the outstanding loan paid back? Pretty ballsy if so. I feel that Orban is being sorely tempted to default on the existing loan. Sure, the HUF would be toilet paper, but the Nationalist would love him. And I don’t believe that large investors (ie Audi or Bosch) would leave the country, as labour costs would fall.

Odin's Lost Eye
Guest
Some 1 There are several questions which have to be answered. These are as follows: – Why should the Viktator wish to bankrupt his nation? What good would it do? Why did a deputy Prime-minister do a ‘Runner’ and ask for asylum in Canada? What does he know? What went on in Iran? Why did the Viktator sack his spy chief? Was it because he could not find any conspiracy against the Forint, or was it that he could not make one up? Why did a man with no known prophetic powers predict that there would be a big problem for Hungary on the foreign exchanges just before Christmas? How did he know? Was it to warn his ‘chums’ to get out of the market or to go short on the Forint? Why did Olli Rehn, European Commissioner for Economic and Financial Affairs -a man with a Ph.D. from Oxford University in economics (you do not get one of those degrees by collecting soap coupons!)-, suddenly ‘pull the plug’ on the negotiations?. There is more to this than the new banking bill. Who warned Olli Rehn, about the details of what is going on? I think that it is big,… Read more »
Eva S. Balogh
Guest

Jano, The problem is that I know that MA didn’t make up anything. I read the Hungarian press almost all day long. Here is one article about which MA might have spoken:
http://www.nepszava.hu/articles/article.php?id=501534

Eva S. Balogh
Guest

littledumbfound: “I feel that Orban is being sorely tempted to default on the existing loan.”
If Hungary defaults on one loan all the others must be paid off immediately. Not a very smart idea, I would say.

Jano
Guest

Eva: “I read the Hungarian press almost all day long.”
That makes the two of us, but that doesn’t mean we can know anything for sure. I find my first scenario a lot more plausible than the second. But again, can you answer my question at the end of my previous comment?

Eva S. Balogh
Guest

Jano “I find my first scenario a lot more plausible than the second.”
Well, I don’t. I can’t answer your question now because I’m working on my article.

Paul
Guest
As far as I can see, Orbán has just three options: 1) Play along with the IMF/EU and try to salvage as much as possible of his political programme (and credibility). 2) Call their bluff and try to make Hungary financially self-sufficient by raising taxes and cutting spending to the bone. 3) Ignore them and let Hungary crash and burn. A sane man would opt for 1), and hopefully Orbán still has enough grip on reality (and/or enough belief in his tactical ability) to go for this. But it depends just how far down his personal road towards megalomania he has travelled. How much loss of face will be involved in allowing the IMF/EU to dictate his policies? Too much? Is he mad/desperate enough to go for 2), or even 3)? If he does, is there anyone in Fidesz capable enough and strong enough to oust him? Until yesterday, I thought he was still sane/self-confident enough to play along with the IMF and see just how much he can get away with. But it now seems that, even in the very early days of discussion, he knew that his plans for the Central Bank were going to scupper negotiations. Is… Read more »
Paul
Guest

A bit OT:
A rare appearance of Hungary in the Guardian (the only significant non-right UK daily, for those who aren’t up with the UK press) – an optimistic piece on the reaction of young people to the Orbán regime: http://www.guardian.co.uk/commentisfree/2011/dec/17/young-hungarians-viktor-orban
It would be good if this were true, but it reads like it’s based more on his personal optimism, than cold fact.
Still, I hope he’s right.

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