János Lázár, in addition to being the leader of the huge Fidesz parliamentary delegation, is also the mayor of Hódmezővásárhely. Don’t think that Hódmezővásárhely is exactly a metropolis. It is a small town with a population of 40,000. The population might be small but its debt load is enormous. In fact, in the last three years it has grown from 16.3 to 20.7 billion forints. That means that every inhabitant of Hódmezővásárhely owes half a million forints. The Government Accounting Office (Állami Számvevőszék), which just lately looked over the city’s finances, recommended that János Lázár devise “a program that would immediately remedy the financial situation of the town.”
Under the circumstances János Lázár needed a lot of assistance, and he figured that the softest touch was the lender itself. After all, banks agreed to modify individual mortgages, so perhaps they would help out municipalities as well. He wrote a letter to Radovan Jelasity (Jelašič), CEO of Erste Bank, to which the town owes the bulk of its debt. The town’s association with Erste Bank began in 2006 when Hódmezővásárhely issued 694 municipal bonds each worth 100,000 Swiss francs. That means a whopping 69,400,000 francs. At the time one Swiss franc was worth 173.41 forints; at the end of 2011 the exchange rate was 251 forints to 1 franc.
János Lázár pretty well told Jelasity that his bank either shares the losses the town incurred as a result of its exchange rate hit or else. He gave Jelasity one month to make an “offer.” “If there is no cooperation,” he threatened, “the leaders of the municipality will turn to the Hungarian parliament for assistance.” Lázár made no bones about it: if necessary, parliament will change the law in order to force Erste Bank to share the town’s losses. And considering that Lázár is no ordinary lawmaker but the most powerful man in the current parliament, the threat was anything but idle.
I read two noteworthy comments in connection with this letter. The first was by Mátyás Eörsi, earlier an SZDSZ member of parliament and now a member of DK (Demokrata Koalíció), who compared Lázár to the leader of a gang (egy külvárosi gengszterbanda feje) who dictates his terms. The other commentator, Zsófia Mihancsik, editor-in-chief of Galamus, was certain that what Lázár did in this letter amounts to the misuse of office (hivatali visszaélés) which according to the Criminal Code is punishable by a three-year prison term.
Radovan Jelasity took his sweet time and wrote an answer on the very last possible day, January 31, 2012. It seems that the head of “the gang” didn’t frighten the CEO of Erste Bank. He offered János Lázár a deal that he had to know the town couldn’t honor. If Hódmezővásárhely is willing to pay ten billion forints in one lump sum, he is willing to negotiate about the fate of the other ten billion.
Lázár was outraged and complained that “this ultimatum is a clear signal that Erste Bank doesn’t consider the citizens of Hódmezővásárhely partners but only debtors.” In his opinion, under the present circumstances the banks must assume their share of the losses and they must work together with the municipalities. May I ask: what are the citizens of Hódmezővásárhely if not debtors?
Today Lázár also gave an interview to the far-right Magyar Hírlap which ran the article under the headline “Implacable banks.” By that time Lázár claimed that “foreign banks are initiating a coordinated attack on the municipalities because their goal is to force the central government to consolidate municipal debts.”
Simultaneously with Lázár’s interview in Magyar Hírlap, Napi Gazdaság came out with an interesting article. It turns out that the municipal bonds Hódmezővásárhely issued in 2006 brought in 69,400,000 Swiss francs worth 12,034,654,000 forints. The interest rate was low and the exchange rate was favorable. A year later, in August 2007, Lázár himself proudly announced that the town had invested the money in currency transactions and as a result had received a handsome profit of 1 billion Hungarian forints. The town, that is, engaged in a series of currency carry trades, a strategy in which an investor converts the currency of a country whose bonds have a relatively low interest rate into the currency of a country whose bonds yield a higher interest rate. The investor buys the higher yielding bonds with the “cheap money” (usually using leverage) and will make a profit amounting to the difference between the interest rates as long as the exchange rate between the two countries remains constant.
According to Napi Gazdaság the town of Hódmezővásárhely played this high risk game for a number of years. The city council entrusted Lázár to continue the carry trades as long as he found them profitable and advantageous. And he did. In 2009 the Government Accounting Office reported that during 2007 and 2008 Hódmezővásárhely received another 1.611 billion forints as a result of these transactions.
But then came the fall of 2008 and with it the financial crisis. Hódmezúvásárhely lost as much money in its carry trade activities after that date as it had gained in the prior two years.
In his interview with Magyar Hirlap Lázár was still in a belligerent mood. He is planning to sue Erste Bank. In addition, he will ask the council to consider asking for help from the government and from parliament. Thus, he still hasn’t given up on his idea of changing the law in order to save his skin in Hódmezővásárhely.
I don’t know how successful Lázár will be in convincing Viktor Orbán to endorse his law-changing plans, but I’m rather skeptical about his luck there. Viktor Orbán would find it mighty difficult to defend such a move just before his negotiations with the IMF and the EU. He has enough trouble as it is. As for the courts, if we still have an independent judiciary by the time the case is heard, I somehow don’t think that Hódmezővásárhely would win against Erste Bank.
So, here is poor Hungary, attacked not only by those hateful foreign speculators but also, it seems, by speculators from within the government party ranks.