First, I should report on the reaction to Gordon Bajnai's reappearance on the political scene. Népszabadság and Népszava simply summarized the fairly lengthy study. Not so Magyar Nemzet, whose reporter András Kovács was perhaps too surprised yesterday and therefore neglected to attack the former prime minister with the usual right-wing force. He noted only that there was a suspicious resemblance between Bajnai's program and the alleged IMF demands. I guess Kovács thinks that Bajnai in his spare time makes weekly visits to Washington and sits down with the officials of the IMF to discuss the agenda of the future possible negotiations. Since this is the underlying assumption it's no wonder that the title of Kovács's article is "Did Bajnai announce himself at the IMF as the next prime minister?"
By today Kovács wasn't satisfied with a possible Bajnai-IMF connection. He came up with the usual story that Gordon Bajnai is no more than an agent of Ferenc Gyurcsány. How does Kovács know that? Because in the last twenty years or so the two men worked together closely and even last summer Bajnai gave a couple of lectures at the Gyurcsány-led Táncsics Academy of MSZP. The title of the piece is "Bajnai crawled out from Gyurcsány's academy." I suspect that this will not be the end of the attack on Gordon Bajnai coming from the right.
ATV immediately arranged an interview with Bajnai on "Egyenes beszéd," and yesterday's Újságíró Klub (János Avar, György Bolgár, and Tamás Mészáros) spent quite a bit of time on the contents of Bajnai's program. György Bolgár in particular viewed it as an important event given the very shaky state of the Orbán government and the Hungarian economy.
But let's return to the "program" itself.
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Economy. Bajnai considers the Hungarian economy to be in much worse shape than it was in the fall of 2008. The exchange rate of the forint, the sovereign debt, and the yield on government bonds looked better at that time than now. Therefore the government has only one choice. Either a stand-by loan with serious conditions or bankruptcy. This crisis situation is the result of an incompetent economic policy that was ''subordinated to political considerations."
In 2010 Fidesz won in a landslide because its promises were supposed to satisfy two groups of people with opposing interests. Viktor Orbán promised immediate and radically lower taxes to the economically active members of the middle- and upper-middle classes. At the same time he assured the low income people or those who were economically inactive, for example the pensioners, that their social benefits would be assured in the future. Clearly, fulfilling both promises could have been accomplished only if the deficit were raised. But in the very first week of the Orbán government it became clear that Brussels would not agree to the 7% deficit Orbán proposed to José Manuel Barroso.
At this point the government, if it wanted to follow a prudent economic policy, would have changed its plans. But Orbán was not ready to abandon his original idea. Instead he levied very heavy taxes on banks and some multinational companies and when that amount of money turned out to be insufficient he emptied the coffers of private pension funds. This money was supposed to cover 25% of the private investors' future pensions. Instead, he used some of that money to pay off part of the sovereign debt. Because of the subsequent weakening of the forint, however, that reduction of the debt was only temporary. By now the sovereign debt is higher than it was a year and a half ago.
A very serious problem of long standing in Hungary is the low rate of employment. That could be remedied somewhat by lifting some of the tax burdens on employers. Hungarian payroll taxes are extraordinarily high. The government did not lower payroll taxes. Instead, in order to compensate for the losses that people with lower wages suffered as a result of the introduction of the flat tax, the government forced employers to raise wages, including the raising of the minimum wage. Employers that were hard pressed already will have to let some of their workers go. Thus the unemployment will only grow.
The levy of extraordinarily high extra taxes on banks resulted in a scarcity of credit. For a 1% GDP growth there must be a 4-5% growth in credit. The result not surprisingly is very low economic growth and the prediction is that next year there will be an economic recession.
For a whole year the Hungarian people were relatively patient and waited for a favorable outcome of Orbán's economic policies, but if possible the economic situation has worsened. Orbán promised great things, at least for 2012, but this year looks worse than 2011 was. By now, patience is running out and in the last few months those who oppose the government regularly march out to demonstrate. They demand Orbán's resignation. The prime minister seems to be totally unprepared for this kind of active hatred instead of adulation. The anti-terrorist group set up at a great expense is no more than a very large group of bodyguards whose sole job is Orbán's safety.
So, what does Gordon Bajnai suggest?
(1) For the sake of equilibrium the government must embark on permanent and real structural reforms. For example, it will have to radically change the present setup of public transformation, stop subsidies to state-owned companies, and rationalize education and health care.
(2) For the sake of economic growth the government must reverse some of its recent decisions. Specifically, it should get rid of the flat tax, decrease payroll taxes, and stop the practice of extra levies on banks and multinationals.
(3) It must offer institutional guarantees that it will not return to its former irrational economic policies. Bajnai specifically mentions the status of the Hungarian National Bank, the Fiscal Council that is supposed to be the watchdog over the budget, the prohibition against introducing retroactive laws, and decreasing the number of cardinal laws requiring a 2/3 majority.
Such steps could restore the credibility of Hungarian economic policy and they would ensure the financing of the country. But that means a political change that will be very difficult to sell to the population. That's why Bajnai thinks that an agreement with the IMF and the EU is unlikely. But if there is no agreement Hungary is facing bankruptcy within a few months.
To be continued tomorrow