No negotiations with the IMF for a while: The European Commission is not satisfied

Let’s start at the end. The European Commission found the Hungarian government’s answers to its infringement proceedings against Hungary unsatisfactory. The Orbán government had exactly one month to satisfactorily answer questions about recent legislative action concerning the judiciary, the central bank, and the office of the ombudsman in charge of data protection.

Budapest wasn’t exactly in a hurry to answer. It waited until the very last day and almost to the last hour. At that time Viktor Orbán nonchalantly remarked that there was nothing new in the document, which turned out to be 100 pages long. He was convinced that the government’s arguments were sound and “convincing.”

As soon as I heard that the document was that long and that, instead of complying, the Hungarian government was arguing with the European Union’s legal points, I was almost certain that Brussels would not be impressed. One doesn’t have to be a legal scholar to know, for instance, that the new structure of the Hungarian courts cannot possibly ensure the independence of the judiciary. The forced retirement of the judges also seems arbitrary and raises the question of the government’s designs. One cannot help but suspect that the retiring judges are making space for new judges favored by the government.

At that time there was only one newspaper, Népszava, that categorically stated that “the government said ‘no’ to Brussels.” Népszabadság was a great deal more cautious. Eszter Zalán, the paper’s correspondent in Brussels, seemed to think that Viktor Orbán still had some cards left in his hand.

Brussels promised a quick response. Indeed, two weeks later the European Commission was ready with its answer. The Hungarian government already had an inkling, perhaps by the end of last week, that not all was well. Early Monday morning Péter Szijjártó, Orbán’s personal spokesman, made an appearance on MTV’s morning program “Ma Reggel” and casually mentioned that “it is possible that in one thing or two the Commission will move into a new phase of the proceedings either because we can’t agree or because the Commission doesn’t accept our arguments.”

A few hours later in Brussels Viviane Reding, Commissioner for Justice, Fundamental Rights and Citizenship, announced that a decision would be reached on Wednesday and that the Hungarian answers were rather “vague.” MTI learned in Brussels from an unnamed source that “there is at least one problem which the Commission found very serious.” As it turned out, the Commission found two serious problems: the judiciary and the office of the ombudsman in charge of data protection.

The European Commission, Reuters, Jean-Marc Loos

The reporting on the infringement proceedings today was interesting. MTI was surprisingly slow at passing along the bad news. Almost as if they were waiting for word from the government. HírTV was very prompt. They interrupted their regularly scheduled program to bring the announcement by the spokeswoman of the European Commission live to their audience. Index also gave a timely and accurate report with the headline “Brussels is waiting for changes in the law or will sue.” A few hours later HVG announced that “the Hungarian government received a harsh lesson in Brussels.” Then about an hour later MTI appeared with the following news:  “KDNP: Hungary is right in the remaining disputed questions.” Under this headline was the news that there had been a press conference in Brussels and that the news was not the best. Since the reporters of MTI were unable to reach anyone important in the government they had to settle for Péter Harrach, leader of the Christian Democratic Party’s parliamentary caucus, who announced that “even a small success is a success.”

The important news as related by MTI came an hour and a half after the press conference ended in Brussels. Reporting on the event was adequate. It mentioned the “grave concerns” of the Commission as well as Reding’s demands for actual changes in the laws, not just promises. However, MTI reported only later that it was also made clear that as long as the Hungarian government doesn’t oblige there can be no “international financial negotiations.” In plain language, negotiations with the IMF for a loan cannot even begin until Brussels receives a satisfactory answer from Budapest. I might add here that it was only two days ago that János Martonyi announced that negotiations with the IMF can start at any time. Hungary is ready. Too bad that the decision is not Hungary’s.

Twenty minutes after the release of MTI’s belated report came the official Hungarian governmental response. Both Péter Szijjártó and András Giró-Szász announced that “the Hungarian government received with satisfaction the news that the European Commission accepted 90% of the Hungarian answers and thus these matters can be closed.” This is quite a description of what actually happened. The truth is instead that the European Commission gave the Hungarian government an ultimatum: “You change the laws to our satisfaction within a month, otherwise we will proceed to the European Court of Justice. Meanwhile, you are not getting a penny from the IMF and the EU.”

The opposition parties naturally criticized the Orbán government’s attitude toward the European Union and its intransigence when it comes to an understanding with Brussels. LMP announced that it was expected that the reaction from the European Commission would be negative, while DK somewhat naively demanded a change of policy and behavior appropriate to a modern European country. Jobbik was not at all surprised, but not for the same reason as the other opposition parties. The verdict was expected “because Hungary became the colony of an empire with double standards.” MSZP’s Attila Mesterházy repeated his conviction that the Orbán government doesn’t really want to have an agreement with the IMF and is only playing for time.

Mesterházy may be right. Gabriella Selmeczi, spokeswoman for Fidesz, announced that the legislative work of the Hungarian government is in line with European laws and the party will support the government’s plans for the renewal of the country. Moreover, Giró-Szász tonight announced that in the two disputed cases the Hungarian government is “willing to consult” with Brussels. That is a far cry from the answer the European Commission is expecting.

Meanwhile Viktor Orbán received a friendly warning from Joseph Daul, leader of the European People’s Party in the European Parliament, when he asked the Hungarian prime minister to “assure the correction of all problems that are not in accord with the common norms of the European Union.”

Late in the afternoon the cabinet got together and put their stamp of approval on some of the changes the Commission demanded with respect to the independence of the central bank. Details will be known only later.

If I were forced to make a prediction, I would say that Viktor Orbán at the moment is not contemplating total compliance and in a month the European Commission may be forced to turn to the European Court of Justice. Unless, of course, the financial markets wake up. The weakening of the forint today might be just the beginning.

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An
Guest

The government acted on the issues pertaining the national bank with surprising speed today… probably in the hope that that’s the only thing they really have to fix to calm the markets after the forint started to sink again. And it did seem to work,the forint strengthened a little bit after the announcement.
http://www.napi.hu/magyar_gazdasag/visszavonulot_fuj_a_kormany_matolcsy_levet_irt.512858.html
The question is, will this be enough to get the IMF talks started? Or the EU will want to see the other two issues fixed before the talks?

Paul
Guest

Just what is the ‘long game’ Orban thinks he is playing?
If he keeps this childishness up much longer, Hungary will be on its uppers. Does he seriously think that he can find enough money elsewhere? Or does he think that he can get away with calling the EU’s bluff?
If it wasn’t so desperately bloody serious, trying to understand OV would be a fascinating study.

Paul
Guest

An – currencies often recover briefly after sudden falls (I think the markets call this ‘profit taking’?), so I wouldn’t read too much into that.
They either think OV has things under control, or they don’t. If the latter, then the forint is in for another collapse like the pre-Christmas one.

An
Guest

Paul: “currencies often recover briefly after sudden falls (I think the markets call this ‘profit taking’?) ”
Yes,I am aware of that. Also, could be other reasons (risk-on vs. risk-off sentiment).Hence I used the phrase “seemed to work”.

Living with it in Hungary
Guest
Living with it in Hungary
The markets are starting to react. Predictions are 290-305 to the Euro unless a shock comes. Analysts are now saying don’t expect anything ’till the 3rd quarter and there is more noise about going directly to the markets. So OV’s guys must be out beating the bush looking for people interested in buying the bonds. If the yield is high enough and the insurance is good… For a bond to be a loss you’d have to believe that the HUF rises about 330. If economies improve and the HUF returns to 270 that would be a huge win so they might be able to sell some bonds based on this. That said, 15 billion worth is a very hard sell. I don’t think ruling was the shock needed. BKV might be if things are as dire as some think they are. They have a large load coming due on the 17 and if they don’t make it and Budapest can’t cover it, it will land on OV to save the day but that will be at the cost of everything else. The problem here is that everything is in such a fragile state that it’s very likely that something’s going… Read more »
tigerente
Guest

Recalling Paul’s comments on the previous post, how I wish that teaching Orbán a lesson didn’t involve dragging all of Hungary into the mess…
Anyway, I appreciate that the European Commission has stuck to their guns so far and has not dropped the subject.

Paul
Guest

“The problem here is that everything is in such a fragile state that it’s very likely that something’s going to break and when it does, a whole bunch of other things will break with along with it.”
But it’s felt like this for so long – without it actually happening, that it makes you wonder if our analysis is correct. Does OV really know something we don’t, or is he just as stupid (and lucky) as we think he is?
I can’t see any other result other than all this ending in catastrophe, but I still can’t believe that even OV and his chums are this mad or incompetent.

cheshire cat
Guest
I found a video in which Olli Rehn, the EU commissioner of financial affairs talks about the “sanctions”, answering a question coming from Szapary, the US embassador of Hungary (after a university talk of some kind). It was filmed last autumn. Here, between mins 41-45 Rehn explains to Szapary exactly how the sanctions would work – not only because withdrawing the money would be significant – but because it would give a clear message to the markets, that “Look, this country is not on a sustainable path in fiscal policy, target that country” and it would draw in automatic market discipline. (Here Rehn says he hopes he would not have to use it, but if necessary he will not hesitate to do so – and we know what happened.) I wonder if the Hungarian government has fully understood this, and is this partly what is happening to the forint? That the possibility of the sanctions has drawn the attention to Hungary? And if it’s true, what’s the point of playing this game of buying time and not really wanting to negotiate a loan with the IMF at all? Yes, the IMF would demand austerity measures and we know Orban wouldn’t… Read more »
An
Guest

I think “Living with it in Hungary” is right, something is ought to break, sooner or later. OV only takes care of issues when he absolutely has to (as in the case of the BKV),so this government ends up putting out fires all the time. Fires that shouldn’t have started in the first place, if they have attended to the matter in time.
There is a lot of reasons for this modus operandi. One is OV’s belief in his infallibility… whatever he thinks is not important; is not important. The second is his self-deception, that things will workout in his favor (as they should because he is infallible), and when they don’t, he doesn’t acknowledge that fact in time (if ever).That means he cannot act in time,so he has to act hastily,which doesn’t bring the best results. Lastly, he surrounds himself with incompetent people, people who cannot come up with intelligent solutions to problems. This is my short list; I am sure it can be continued.

cheshire cat
Guest

To answer your question, Paul:
“Does he seriously think that he can find enough money elsewhere? Or does he think that he can get away with calling the EU’s bluff?
If it wasn’t so desperately bloody serious, trying to understand OV would be a fascinating study.”
Good question…
I think he really does believe in their idea of “introducing the flat tax will put the economy on a grow path eventually”, and using “kulonadok” will make up for the difference while he is waiting for that to happen. Then he can avoid the major austerities the EU/IMF are trying to force him to introduce.
There are several problems with that – the fact that this boost is not happening is the biggest one.
Another one is that the EU demands fiscal changes NOW.
On the whole, my guess is that Orban thinks he can outsmart the EU in most things. At the same time, judging from his letters and speeches, he and his ministers don’t seem to know enough (or often even the basics) about economy, diplomacy, democracy, foreign policy, how the EU work etc., so “outsmarting” seems rather unlikely.

Paul
Guest

I’m afraid I think An’s second para pretty much sums it up.
I’m back to my pre-Christmas depression – I just can’t see how this can end in anything other than a disaster. In fact, worse than that, a disaster with OV still ‘in charge’.
By the summer, it won’t just be the dinnye that is görög.

Paul
Guest
Penny Sue Oswalt
Guest

Thanks Paul for the EU Press release!

Member

The FIDESZ goebbels squad is probably waiting for the Peace March 2.0 (1.60 without VAT). Another 400k conservative political zombies protesting the EU. They probably want to show that the “people of Hungary”, whoever they are, (plus the Poles) want what Orban the 5th is trying to do. I hope the guys in Brussels don’t fall for it.

Joseph Simon
Guest

Many people in Hungary, perhaps the majority, like to see Orbán stand up to the EU. A recent legal opinion from Brussels agrees with the Slovak decision of barring the entry of the then President of Hungary into Slovakia. So much for free border crossings.

Member

@Joseph
Do you think that the majority of the Hungarians want to replace 300 judges with FIDESZ members? Or give up on the Ombudsman? Now why would they want these? Do you want these? What do you think? What is Hungary’s interest?
The “border crossing” news is interesting. Do you have any links?

riviera1
Guest

@Matt..”…Brussels..falling for it..”
I think they’ve got our boy Victor figured out. There’s no winning with him. When they zig, he’ll zag: seemingly impossible to figure out what he’s up to. Everytime the EU softens towards his position, he makes sure to muddy up the works. Seems to prefer the present state of affairs. He had wanted a resolution, he would’ve corrected the laws by now.
He wants the state of friction to continue. Maybe he wants to find employment for the ex-Malev workers by re-staffing the borders?

Penny Sue Oswalt
Guest

When the IMF loan was taken before Viktor got back in power, what did Parliament use for collaterol? Why was the IMF dumb enough at the time to take Hungary’s collaterol? If that payment is not made, Hungary will be in default!Hungary already has a Junk status with all 3 agencys. Who am I? Common sense!!

GDF
Guest

Mutt Damon:”The “border crossing” news is interesting. Do you have any links?”
I found the following:
http://en.wikipedia.org/wiki/2009_ban_of_Hungarian_President_from_Slovakia
http://www.courthousenews.com/2012/03/06/44459.htm

GDF
Guest

Amd here is the EU Court of Justice document:
http://curia.europa.eu/juris/document/document.jsf;jsessionid=9ea7d0f130ded57e751c563e454fa22c8853bb5b90d9.e34KaxiLc3eQc40LaxqMbN4Oa30Te0?text=&docid=120050&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=112964
One can use the pull-down menu in the upper left corner to read it in Hungarian (or some othe EU languages).

Penny Sue Oswalt
Guest

@ GDF…Thank YOu for the EU Court of Justice document.

Eva S. Balogh
Guest

Cheshire cat: “Here, between mins 41-45 Rehn explains to Szapary exactly how the sanctions would work – not only because withdrawing the money would be significant – but because it would give a clear message to the markets, that “Look, this country is not on a sustainable path in fiscal policy, target that country” and it would draw in automatic market discipline.”
It couldn’t have been clearer. I don’t know why Szapáry is surprised now.

GW
Guest

Penny Sue,
Collateral is not an issue per se with the IMF. As the international lender of last resort, they are automatically the first lender to be repaid and they WILL be repaid if the borrower has any need whatsoever to conduct international financial transactions, whether state or private. Repayment is, in effect, guaranteed by the oversight of every other member nation of the IMF and any financial or monetary agency doing business with the IMF. In the past, both Ecuador and Venezuela have made large noises about leaving the IMF only to discover that leaving would be essentially impossible, tantamount to economic suicide.

Joseph Simon
Guest

Thanks for the links regarding the aborted visit by Sólyom to Slovakia. The EU legal reasoning is nothing but sophistry. You wonder why the EU stance is popular in Hungary?

Living with it in Hungary
Guest
Living with it in Hungary

@Joseph Simon, The EU legal reasoning is quite correct. Heads of state are *not* normal individuals. You do not see any other head of state visiting another country without an invite. This is normal diplomatic protocol. At any rate, any country has the right to not allow individuals into their country. I should direct to you to DeGaulle’s infamous speech that got him kicked out of Canada.

Eva S. Balogh
Guest

Living with it in Hungary: “The EU legal reasoning is quite correct. Heads of state are *not* normal individuals.”
At the time of the incident I wrote an article for Népszava in which I argued exactly the same as the European Court argues today. I can’t find the article on the internet but if anyone is interested I will be glad to send it as attachment privately. Or perhaps I can publish it as comment although it is in Hungarian.

Bowen
Guest

OT. Just been for a walk around downtown Budapest. Among all the closed-up shops there are more and more Bekemenet-2012 posters. Big ones. I wonder who’s paying for this.
The slogan on these posters, along with a giant photo of the crowds walking down Andrassy, is “Hiszek egy hazában”.
I’m far from an expert, but wasn’t this part of a Horthy-era prayer?
What are they trying to do here?

Living with it in Hungary
Guest
Living with it in Hungary
So, I’m just back from the debt crisis conference. Very interesting indeed. Fellegi made an appearance, did his dog and pony show and then *conveniently* begged off of the discussion panel thus avoiding all questions. Not much substance to his talk though he did have to say something interesting given the importance of the people in the room. The rest of the speakers didn’t paint a pretty picture. They all agreed that a deal with the IMF wasn’t something the OV government should put off. All pretty much agreed that they were playing the Turkey game. That said, it may have worked for Turkey but the group pointed out the major differences in climate that made it work but don’t exist anymore. So OV maybe playing this game but without a deeper appreciation of the bigger threat. And that is capital flight (deleveraging) Without the IMF deal there weren’t many tools to slow it down. Julia Kiraly felt that some deleveraging was necessary to help repair the economy but the general feeling in the room was that the best that we can expect for the next year or so is stagnation. All of the people presenting suggested that all but… Read more »
Living with it in Hungary
Guest
Living with it in Hungary

Bowen, Wow, I just drove down Andrassy ut. and I must admit, I saw signs but missed the message. Mostly focusing on getting out of dodge with an incident.. avoiding taxi’s and cars suddenly parking and all the other crazy stuff that goes on.
Eva, I also should have said that I felt the Slovakian handling of the situation was horribly mismanaged. It’s amazing that none of my Slovakian friends like their current government either. what’s going on? Did someone pour something into the Duna?

Mutt Damon
Guest

Meanwhile on Planet Hungary …
“there are more and more Bekemenet-2012 posters”
Well, posters is one thing, but what about the hordes of Poles they want bus over from the land of kielbasa.
“Polak, Węgie, dwa bratanki, i do szabli, i do szklanki.”
“Polish, Hungarian, two brothers fighting and drinking together”.
Now we can expect 2 thousand of these “bratankis” on the peace march. Who the hell pays for it? They are even promised a stipend.

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