It's time to return to Viktor Orbán.
Earlier I discussed his shifting response to the European Commission's decision to withdraw part of Hungary's cohesion funds as of January 1, 2013 if Hungary doesn't comply with the Union's strict rules on the size of its deficit. I summarized the changes that took place in the Hungarian government's attitudes during one week. From questioning the legality of the decision and embarking on soliciting support from the Economic and Financial Council (Ecofin) of the European Commission, Viktor Orbán within a week completely reversed himself and by March 2 almost seemed to welcome the decision or at least tried to make light of it. After all, a little adjustment of 0.25% takes no real effort. Hungarians can be assured that the country will not suffer any loss of the cohesion funds. By the time Ecofin gets together in Denmark on March 13 the completely reworked budget numbers will be in front of the twenty-seven finance ministers. No problem.
Before I return to an entirely new phase in the life of the mercurial Hungarian prime minister I should mention that meeting the target may not be as easy as Viktor Orbán thought last Friday. The number crunchers in Brussels took a second look at the state of the Hungarian economy and came out with new predictions. Instead of the hitherto projected 2.75% deficit they changed their estimate to 3.0%. As for 2013, it is no longer 0.25% that has to be remedied but 0.60%. I might add that the Hungarian government's estimate for 2012 was 2.5% and for 2013 2.2%. But the problem might be even greater. In February the country posted a budget deficit of 393.3 billion forints ($1.74 million), taking the deficit of the first two months to 294.8 billion, or 32.1% of the full-year deficit target, adjusted for one-off measures, the ministry said in a release.
So, while a week ago Viktor Orbán was all smiles in Brussels, looking like a team player, the very next day came the bombshell: Viktor Orbán gave an interview to the Frankfurter Allgemeine Sonntagszeitung in which, among many self-contradictory statements, he emphasized his own overwhelming support and therefore great legitimacy, adding: "But who elected the European Commission? What is its democratic legitimacy? And to whom is the European Parliament responsible? This is a very serious problem in the new European structure." A complete Hungarian translation of the interview can be found in Galamus.
One's first reaction is, or at least mine was,"Is this man out of his mind?" He is trying to get a loan from the International Monetary Fund. Negotiations about that loan cannot even begin until the European Union gives its blessing, and yet he makes a frontal attack on the very institution whose favor he is seeking. But that is not all. It was already known that the European Commission's decision about the accelerated infringement procedures would become public on March 7, Wednesday. So what was going on here? Was this some kind of inadvertent misstatement? I doubt it. I'm afraid all these attacks on the European Union are carefully planned.
A day after Budapest received the bad news from the European Commission, Orbán made a speech at a conference organized by the Hungarian Chamber of Commerce and Industry in which he launched another attack on the European Union. According to the Hungarian prime minister the EU doesn't assist member countries in overcoming the economic slump because "it punishes those who behave well and rewards those who perform poorly. With this kind of mentality one couldn't even run a village five and ten cent store (vidéki kóceráj)." As for the IMF negotiations he said: "I have been sitting at the conference table for two months but they are nowhere." Only someone who has no intention of negotiating with the IMF and consequently has no pressing need to oblige the European Commission can speak this way.
Unfortunately Brussels listened. President Pál Schmitt paid a visit to Brussels a couple of days ago and, after talking to José Manuel Barroso, he admitted at a press conference that the president of the European Commission "resented" (rossz néven vette) Orbán's words on the illegitimacy of the Commission. Schmitt apparently assured Barroso that "the Hungarian government considers the Commission, the Parliament and the Council legitimate and important decision-making organs." At that time they still hadn't heard the quip about the village five and dime.
Although all important members of the Hungarian government keep repeating how keen Viktor Orbán and his team are to begin negotiations, there is increasing suspicion that this might not be the case. Viktor Orbán just lately announced that in his opinion the country will be able to finance itself from the markets for at least one or perhaps even two more years. Moreover, the market currently is assuming that negotiations with the IMF will begin soon, and therefore the forint has strengthened lately and Hungary has had no problem selling its sovereign bonds. My suspicion is that Viktor Orbán is counting on this trend to continue and praying for the economic climate to improve in the coming months. Some people suspect that in case there is a shortage of funds, the government will put its hands on the billions that remain in pension funds, money belonging to those who refused to submit to governmental pressure and didn't allow their funds to be incorporated into the common budget.
Although investors have been somewhat sanguine in the last two months, the mood might shift at any moment. One cannot count on a rapid European recovery either. Most analysts are talking about recession in Hungary instead of economic growth. So, Viktor Orbán is rolling the dice. In fact, according to some economists Orbán's economic policy is "suicidal." László Békesi, for example, thinks that the markets' trust may end next week when Ecofin decides on the fate of the 2013 cohesion funds.
Martonyi gave an interview in The Wall Street Journal in which he emphasized the Hungarian government's eagerness to begin negotiations. Tamás Fellegi, minister without portfolio in charge of the negotiatons that refuse to start, mentioned at the conference yesterday that he is visiting the headquarters of the IMF in Washington on March 16. However, Iryna Ivaschenko, IMF representative in Budapest, stressed that "at present no negotiations can be expected." Whatever Fellegi is doing in Washington, he's a little early for the Cherry Blossom Festival (that begins on March 20) and way too early for formal talks.
I don't think that Orbán will buckle under pressure from the European Union. I doubt that the Hungarian government's answers to Brussels's demands will be satisfactory from the point of vew of the Commission. I think everything will depend on the mood of the currency and bond markets. Orbán cannot outfox them forever.