Although the forint stabilized and the cost to insure Hungarian bonds receded somewhat, Fitch Ratings, the third credit rating company, downgraded Hungarian government bonds to junk status. The government spokesman was instructed to inform the world that Viktor Orbán’s team was terribly surprised about the move. The Ministry of National Economy headed by György Matolcsy, the right hand of the prime minister, announced that there was no reason whatsoever for the downgrade because the fundamentals of the Hungarian economy are solid. Analysts, of course, were expecting the downgrade. After all, as long as negotiations with the IMF and the EU are hanging in the air one couldn’t expect anything else, especially since Fitch had already announced before Christmas that in the new year it would decide on Hungary’s fate.
The optimists took it as a good sign that the prime minister, flanked with his closest economic advisors–György Matolcsy, János Varga, and Tamás Fellegi, met with András Simor, the governor of the Hungarian National Bank. The optimism of some of the observers was based on what Viktor Orbán had to say after the meeting. For example, Bloomberg‘s reporter took Viktor Orbán’s words at face value. She reported on Orbán’s statement at a press conference he held alone after his meeting with Simor. He claimed that “it’s our joint position that the government and the central bank must cooperate in the closest possible way for the sake of confidence in the forint.” He added that the government will support the central bank “in everything” that does to ensure the forint’s stability. Orbán, who has been doing his darndest ever since the elections to get rid of András Simor, suddenly became outright chummy with him. Simor “can count on the support of the government, including his [Orbán’s] personal support.”
He also said a couple of other things Bloomberg didn’t report. For example, that “the Hungarian government has done everything in its power to make sure that the negotiations [with the IMF-EU team] may begin and be completed as soon as possible.” He also announced that he saw the possibility of successful and speedy negotiations.
Well, as usual, Viktor Orbán isn’t telling the truth, the whole truth, and nothing but the truth. Either about the talks with András Simor or about Hungary’s prospects for successful and speedy negotiations with the IMF-EU delegation.
Let’s start with the meeting. As it turned out, the meeting was held at the request of the governor of the central bank who was mighty upset at what János Lázár, head of the Fidesz parliamentary delegation, had to say about Simor and the Hungarian National Bank. Lázár claimed that it is Simor who is the obstacle to the country’s economic growth, and he accused Simor of acting as if the central bank were his own personal bank. The Hungarian National Bank immediately published a communiqué in which they denied Lázár’s charges and emphasized that the central bank’s cooperation with the government strictly follows the duties prescribed for a central bank.
Then came a more detailed description of the meeting in Magyar Nemzet, which is usually a good source for information about the government. Apparently, Orbán asked Simor to do what the U.S. Federal Reserve and the Bank of England are doing, specifically, to supply Hungarian banks with liquidity. From the description it seems that no agreement was reached. Simor promised only to think about it. Not much was said about the controversial bank law. The question of the central bank’s reserve of 35 billion euros didn’t even come up although earlier the government had talked about the use of these reserves to jumpstart the country’s economic growth.
Simor left the meeting early and there was no joint press conference. Later a very brief communiqué was issued by the Hungarian National Bank that said practically nothing about the meeting. But the picture taken as Simor was leaving is telling.
Varga standing at the door, Fellegi looking out the window, Matolcsy looking on
In addition to the prime minister’s optimistic announcements that took a successful outcome of the negotiations with the IMF-EU for granted, the government spokesman gave the impression that Fellegi will go from Washington to Brussels “to negotiate.” Later in the day it turned out that this wasn’t true either. Fellegi is going to meet with Ollie Rehn but, as Rehn’s spokesman said, it will be a courtesy call where no specifics of the negotiations will be discussed. We know that the European Commission’s staff is busily studying the text of the Hungarian constitution and the cardinal laws, but the full Commission will meet only on January 11, at which point some decisions might be made. In brief, there will be no early beginning of or early conclusion to the IMF-EU negotiations.
Viktor Orbán’s face belies his feigned optimism. Here is a man who is deeply worried, although I suspect that he refuses to see the real causes of his and his country’s troubles.
What is going on in Viktor Orbán’s head?
It is becoming obvious that Viktor Orbán has completely lost credibility. Moreover, however slowly, it is sinking in west of Hungary that Viktor Orbán is leading Hungary away from the democratic principles on which the European Union was built.
Very few people outside of Hungary realized in the spring of 2010 that Viktor Orbán’s acquisition of such an overwhelming majority in parliament signaled trouble. One of them was Jacob Kirkegaard of the Peterson Institute who put it as kindly as possible: Orbán “is not your arch-typical European democrat. He is no Václav Havel, let’s put it that way.” Zoé Chase of National Public Radio now calls him a megalomaniac which, given the difficult economic environment, makes for “a classic European disaster story.” To drive home her point Chase used a recent picture of Orbán in front of one of those nineteenth-century romantic canvases depicting Hungary’s greatness.
Prime Minister Viktor Orbán stands in front of a bloodbath
Indeed, Orbán has managed to create a political and economic bloodbath, and by now he has no friends who could help him out. Until now at least the European People’s Party to which Fidesz belongs tried to defend him. As of today Wilfred Martens, chairman of the party, and Joseph Daul, the leader of the party’s parliamentary delegation in Brussels, jointly announced that they will support the decisions the European Commission reaches on the fate of Hungary. That is very bad news for Orbán because the Christian Democratic People’s Party is in the majority in the European Parliament.
Meanwhile, Figyelő learned what the IMF will most likely want from Hungary in return for a standby loan. In the first place, a decision about the negotiations will not take place until January 18. So, the IMF is definitely not in a hurry. Apparently, those in charge of Hungarian affairs at the IMF are thinking in terms of a thorough undoing of some of the Orbán government’s sweeping and undemocratic changes. The Budgetary Council that was created to be a completely ineffectual body of three men without a staff will have to be strengthened, giving it real teeth. The IMF will apparently demand a substantial decrease in the “crisis levies.” They want an end to unpredictable ad hoc economic decisions. The structural reforms which the Orbán government refuses to tackle must be introduced. They are expecting a complete reorganization of public transportation (MÁV, BKV) which piles up incredible debts every year. The government should also put in place a bankruptcy law for individuals, which still doesn’t exist in Hungary.
But that’s not all. The IMF document at Figyelő mentions the real possibility of the European Union depriving Hungary of the very substantial subsidies it receives from Brussels. These subsidies amount to 2% of the country’s GDP yearly.
In brief, Orbán’s situation is dire. There are still many observers who claim that he will weather this crisis, but I’m less convinced that the deliberately slow-moving IMF and the European Commission will be merciful. The financial pressures in the coming weeks might be so substantial that Orbán’s “friends” will have to put out feelers to ascertain whether the IMF and the EU would be perhaps more comfortable with a more moderate Fidesz politician as prime minister. Although as István Vágó, the television personality, said on Facebook, having Mihály Varga instead of Viktor Orbán would be like having Ernő Gerő instead of Mátyás Rákosi. Gerő followed Rákosi as party secretary in July; the Hungarian Revolution broke out on October 23. Not a nice prospect.