The state of the Hungarian economy: Ecofin decision and OECD criticism

As I wrote earlier, the Hungarian government pretty well accepted what looked inevitable a week ago: the Council of Economic and Finance Ministers (Ecofin) at its next meeting on March 13 would most likely endorse the European Commission’s recommendation to suspend about the third of the so-called cohesion funds Hungary would receive for 2013. The original suggestion was that by September Hungary must show what concrete steps it would take to reduce the deficit to under 3% of GDP, as the country is obliged to do. If Ecofin is satisfied, the ban on the cohesion funds would be lifted.

Early yesterday morning the word still was that, although Hungary was trying to block the move, “the suspension decision is going to go ahead” without any serious and protracted discussion. As it turned out, the decision was not easily reached and eventually a compromise was found. Instead of September the review of Hungary’s deficit reducing efforts will take place on June 22.

This decision can be seen as favorable to Hungary, and naturally the Hungarian government interprets it that way. But there are others, especially the Hungarian opposition parties and some economists, who see the decision differently. After all, they argue, Hungary now has less time to offer “additional fiscal effort to meet a deficit target of 2.5% of gross domestic product already this year” and “additional structural measures” to ensure that the deficit in 2013 remains well below 3 percent. And that will not be easy.

As usual György Matolcsy, Hungarian minister of economics, is “100 percent” confident of meeting the June 22 deadline. But, let’s face it, Matolcsy has been 100 percent confident about many issues in the past year and a half and he was wrong every time. Talking to The New York Times, Attila Juhász, an analyst of Political Capital (a research organization in Budapest), said that there are serious problems in coming up with a viable program in such a short time. After all, Hungary at the moment has no such plan worked out. Economic plans in Matolcsy’s ministry are thrown together in a day or two and usually turn out to be unacceptable in Brussels.

The Organization for Economic Cooperation and Development, a group of developed countries, gave a downbeat assessment of the Hungarian economy yesterday. It predicted that the country will be in recession already in 2012. Since the Ecostat economists were working with a GDP of 1.5 percent, achieving the 2.5 percent deficit figure might be even more difficult than it seems on paper at the moment.

OECD

Although Viktor Orbán keeps repeating that Hungary doesn’t need the IMF/EU loan, OECD’s economists think otherwise. Their report says that “an agreement with multilateral organizations for new financial assistance is a necessary step toward restoring confidence.” A financial assistance package would support fiscal consolidation and lower Hungary’s debt burden by stabilizing the exchange rate. The Hungarian government should introduce structural reforms and permanent spending cuts. The OCED report criticized the flat tax introduced by the Orbán government and came out with suggestions to raise taxes on the better-off segments of society and restore some of tax cuts for those taking home only meager paychecks.

All in all, the OECD’s report is very critical of the economic policy of the current government. Kester Eddy, a journalist with the Financial Times reporting from Vienna, called the 150-page report “part wish-list, part gripe.” Among the criticisms is the recent 19 percent increase in minimum wage that “could hinder employment growth and reduce competitiveness.” The authors of the report were also critical of the public works program that concentrates on useless projects instead of “training and skill-upgrading services.”

Kester Eddy echoes the skeptics in saying that, “given Orbán’s stubbornness over IMF/EU negotiations, one wonders why the OECD bothers.”

Only time will tell what the Hungarian government’s answer will be to Brussels’s demands and the OECD’s criticism. If the reaction is the same as it was in the case of the infringement proceedings, I am sure that the June 22 decision will go against Hungary. Faking progress will not work.

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Paul
Guest

Slightly OT – BKV could go bust on Monday:
http://www.portfolio.hu/en/economy/budapest_transport_company_bkv_may_go_bust_already_on_monday.23959.html
I say only “slightly OT”, because the very fact that this mess is being allowed to go this close to the wire is surely sending out a very strong negative message about the country’s economy to anyone thinking of investing in Hungary.
As well as the problems with the delay of the IMF loan, and Orbán’s childish outbursts against the EU and the ‘Hungary haters’, we now have Malév going bust, Budapest airport closing one of its terminals, AND the possibility of all public transport in the capital grinding to a halt because BKV owe a staggering 54bn Ft and don’t have a fart in a hurricane’s chance of repaying it.
The message is loud and clear – not only is the Hungarian economy in a mess, but the people ‘in charge’ of it don’t have the slightest idea of how to sort it out (or possibly don’t even care about sorting it out).

Bowen
Guest

@ Paul. Never mind One Million for Press Freedom, or another Million Peace Marchers for Hungary. If BKV goes under, then the government is going to have 2 million extremely annoyed Budapesters to deal with.

Penny Sue Oswalt
Guest

@paul & bowen:
Surely there has got to be money in a pocket earmarked for Public Transportation overhaul. I assumed that the government was responsible for PT financially? Someone talk to the banks and check to see if there is money set aside in the Public Transportation account? Its a long shot, but it would not hurt to ask!!!!!!

Member

Paul: “BKV could go bust on Monday”
Oh c’mon, that was always the plan. Who needs public transportation when all kids will be using horses to commute? Did you forget Orban’s genious plan about the “horse curriculum”. People from the First and Second district will be using horses, while residents from the poorer districts will arrive by literally piggybacking. To clean up all the manure, the government will have their forced labourers shipped in.

anecdote
Guest
@Paul : well said/point taken! > especially “don’t even care about sorting it out”. @Bowen: point taken! But not only Budapesters. If you look at a map of Hungary, in a few moments you can find many small/medium settlements you’ve never seen or heard about (nor have most Hungarians). What’s going on in those settlements (with respect to employment)? ….Nothing. A total nothing. Many thousands of people commute to Budapest from the Hungarian hinterlands (in which OV claims to have so much pride). They will also be severely affected by any negative goings-on in the transport system (see below). @ Penny Sue O.:A few weeks ago the journal ‘Figyelö’ reported that one of the issues the IMF wants to discuss with the HG will focus on the financially parlous situations of the heavily loss-making BKV, Máv (railways) and Volán (regional bus transport). What sort of measures do you think the IMF would suggest? You know better than me: (i) cut ‘inessential’ services (ii) raise fares (iii) redundancies. (Yet the redundancies will not just hurt those in the transport companies but also vast numbers of people for whom the cost of travel to work will make them a burden to their… Read more »
enuff
Guest

Paul: “BKV could go bust on Monday”
Someone1 : “Oh c’mon, that was always the plan.”
Indeed, read this
http://www.reuters.com/article/2012/03/14/hungary-idUSL5E8EE3YP20120314
The ringleader and his people are looting the country left and right behind the scene; while blindsiding the citizen with crap like peace march.
Will the citizen wake up to a terrible headache come Monday? will they wake up at all?
Going for my 2nd morning caffeine! Geez, I don’t know why I care so much…

Csoda. Kegy
Guest

Enuff: interesting article. Puts the BKV moneyshortage into a different light: squabbling over the honey pot …

Kingfisher
Guest
I’m glad people are beginning to ask questions about Simicska. I can always remember a friend of mine’s face when he heard that Simicska had been appointed head of the tax office in 1998. My mate’s accountant used to buy fake invoices from Simicska (to nullify profits for clients … sadly a very common procedure in Hungary at that time.) This wasn’t a secret transaction. Simicska would hold court in some downtown restaurant and people would wait their turn, give him the cash, and he’d give them the invoice that would wipe out their VAT or income tax or whatever! And no doubt, Simicska’s company was eventually “disposed of”, leaving the tax payer to pick up the debts. And this guy was put in charge of the tax authority!!! Incidentally, does anyone remember the allegations of computer abuse? What is true is that one Friday afternoon, shortly after Simicska took office, his own private security guards turned up, kicked everyone out of the tax authority office, and no one was allowed in again. A friend of mine’s mother worked there, so that is certainly true. Also, during that period, the computer system was suddenly unobtainable (to the people who were… Read more »
Guest

London Calling!
Kingfisher! – careful..I’m sure you know the sort’s of people you are dissing!
I hope the email addy Eva has for you is sufficiently anonymised.
You are very brave!
Regards
Charlie

Living with it in Hungary
Guest
Living with it in Hungary
@anecdote, if employers actually paid workers a living wage, they wouldn’t need to subsidize their transportation costs now wouldn’t they? Great summary from Reuters. @kingfisher, they might have cleaned up the visible record but I doubt they could have scrubbed the backups. And even if they did scrub the backup, it’s highly likely that the data is still readable. Take your email for example. All email clients work the same. They give each incoming email a “serial number”. That information is kept in one file. The header and body of the email goes into another file. If you delete the email all you’ve done is delete the serial number. No serial number means that your email client has no route to it. But if you yourself look directly into the data file, you’ll find the email is still there. It’s there until you perform some operation that compresses the live emails together. But even then you can still get it back. Compressing your email simply rewrites the live data to a new file and deletes the old one. And guess what, disk files systems work the same way email does in that they have an index and the data. Delete… Read more »
Living with it in Hungary
Guest
Living with it in Hungary

@CharlieH
1) Eva for some reason uses session tracking and she keeps a log. The log will contain the IP address you’re using which was assigned to you from your ISP. IOWs, Eva has enough information without your email address to track you directly to you house.
2) All ISPs have this information and it’s logged. In fact, they will tag your MAC address. Every single network device has a unique MAC address. Networks wouldn’t work without them.
3) Hungarian ISPs are now required to provide the government with access to all this data.
Conclusion is; if you’re writing something in this blog you had best know that it’s very easy to sort out who you are.

Member

It’s not Eva who’s tracking your IP it’s a TypePad feature to store it. Unless you use a proxy server, like this: http://www.freeproxyserver.ca
If the “authorities” will be interested they will just hack Eva’s TypePad account. That’s what I would do 🙂
With a little skill you can be anonymous. There are a few tips on the atlatszo.hu in MagyarLeaks section if you want to pass on some info.

Eva S. Balogh
Guest

Mutt Damon: “It’s not Eva who’s tracking your IP it’s a TypePad feature to store it.”
Correct. And it is not that easy to track down people to their houses. From the IPA one can only find out where the author is geographically. Let’s say Budapest or London or Frankfurt. But otherwise any phony name can cover the real identity of the person.

An
Guest

enuff, thanks for the link! Very interesting article from Reuters.
Well, if those companies close to Fidesz milk BKV that badly, Fidesz can’t let it go bankrupt, can they? Or they are too incompetent even to keep a cash cow alive? (On taxpayer money, of course).

Guest

London Calling!
Yes I know! – I am in the field too. – (for a government regulatory authority!) I acquire this information all day – computer forensics – and present it to court.
I just want him to be careful.
Regards
Charlie
Charlie

An
Guest

Kingfisher, interesting post! I have always thought Fidesz resembled more of a maffia-type organization rather than a political party. I am not saying it has links to any maffia, only that the way they operate makes them similar to such organizations in some ways (the level of organization for stealing public money, intimidating opponents and dissenters, protecting “their business”, maintaining a close-knit circle, etc..). I just call them the Fidesz-mob 🙂

Guest

London Calling!
Please note Paul!
Eva likes to know (probably!) geographically where we all respond from too!
Regards
Charlie

Lutra lutra
Guest

FIDESZ couldn’t organise a pissup in a brewery, let alone a criminal conspiracy. The reality is that BKV will either go broke over the weekend or (more likely) the government will throw it a financial lifeline but continue to reject any new proposals that would secure its long term-financing, in which case the EU will class it as illegal state aid and the Malév fiasco will be repeated.

Kingfisher
Guest

I don’t think state subsidy to a local transport network would fall foul of EU laws because it is not an equivalent situation. If MALÉV is supported with state money, it puts a non-subsidised competitor like Lufthansa into a difficult position which goes against the notions of a free market. The Budapest transport network is not an open market, not could it be.

Living with it in Hungary
Guest
Living with it in Hungary

@ Mutt, technically correct, it’s typepad that’s doing it but Eva does have access to the logs which is fair game. I use this information to vet leads.
I know the IP address of Eva’s typepad server. I know my address. The network must know these bits of data in order to be able to route traffic. It’s contained in an IP header of the network packet. From inspecting the packet sniffed off of the network I can track all packets heading to that server. From ISP records I can quickly tell who the originating IP address was assigned to (billing information). So traffic originating from Hungary is accessible to Hungarian authorities and by law the ISP is required to give them a direct line into this information.
try traceroute http://esbalogh.typepad.com/
don’t want to scare anyone but if you don’t want to be tracked use a service that Mutt suggested.

Living with it in Hungary
Guest
Living with it in Hungary

darn, that should be try
traceroute esbalogh.typepad.com

Kingfisher
Guest

It does rather stick in the craw hearing Orbán today railing against the EU and its colonial nature, while being only too glad to accept its money. Sadly, this sense of entitlement is not just limited to Fidesz but permeates many aspects of Hungarian society, not least people who want social services but don’t feel obliged to contribute themselves (i.e. barely more than 2 million people pay tax in Hungary)

Gábor
Guest

Kingfisher, I would be glad to know your sources, according to the Tax Office 4,4 million people used to submit a tax declaration ever year. I fear it is nothing else than an evil rumor, spread deliberately in order to create enmity against certain sections of society.

Kingfisher
Guest

Gábor, I’m sure you know as well as I do that the practise in Hungary is to register on the minimum wage, meaning you make a minimal contribution. A family member used to earn in excess of 10 million a year. They paid tax at the minimum wage rate, which is totally unrealistic and unfair. And standard practice.
My figure of 2 million making a meaningful contribution is if anything a wild exaggeration.

Guest

@Kingfisher:
Absolutely correct!
and:
Many people are officially only on a part-time job (like my wife who used to work in a ladies’ boutique), so often half their wage is “black money”, which means of course that their pension will also be on a much lower level …

tigerente
Guest

Found this in Presseurop’s Twitter timeline: Viktor Orban speech, Budapest, 15.03.2012 – http://orbanspeech.pen.io/

Mutt Damon
Guest

Jus finished listening to Orban’s speech. I had a bucket next to me, just in case I need it …
Horror.
“We have eliminated the obstacles to the reunification of the nation over borders.”
Was he high? No wonder there were no Rumanian or Slovak fellow freedom fighters. Northern Transylvania, here we come (again) …

Guest

London Calling!
Wolfi – You are correct!
These are the official (latest) stats released by the Central Statistical Office:
“The number of full-time employees in the economy as a whole dropped 2.3pc to 2,355,400 in December from a year earlier but the number of part-time employees rose 8.0pc to 307,700”
I find this surprisingly low in a population of 10M – London’s population is stated as 10M!
Regards
Charlie

Bowen
Guest

@ Mutt Damon
This time round, the international press have all, without fail, concentrated on Orban’s speech. And how utterly insane it seems within the context of Hungary also holding out its hands for some more EU money. Little mention of numbers, or Milla.
Orban may have boosted his self-esteem a little bit today, but I’d say he’s put his foot even more firmly in a mess of his own creation.
e.g. http://www.guardian.co.uk/world/2012/mar/15/hungary-prime-minister-orban-eu?newsfeed=true

Kingfisher
Guest

In a perverse way, Orbán’s uncovenanted stupidity gives me at least some hope. Imagine if his basically malign intent was coupled with competence? If he’d put capable people in charge of the economy (and he could have avoided the current mess with ease with some more intelligent strategic decisions in 2010)? It is tragic to watch, but one does get the feeling he is going to bring the roof down on his own head.

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