Avoiding a financial storm on Monday: Final vote of the Bank Bill is postponed

Just to remind you. It was almost seven months ago that after a speedy reversal the Hungarian government announced its intention to begin negotiations with the IMF for a loan after all. Since then basically nothing has happened because Hungary has been unwilling to fulfill the requirements set forth by the European Commission. Brussels has a lot of gripes and several infringement proceedings were launched against the Hungarian government, but the real sticking point is the new law on the status of the Hungarian National Bank.

Budapest made a few changes to the law, but last Thursday the European Central Bank announced that “the provisions of the current Hungarian National Bank Law do not go far enough to re-establish the central bank’s independence.” Economics minister György Matolcsy was not moved. He submitted the criticized bill in unchanged form to parliament. The final vote on the bill was scheduled for Monday, June 4, 2012. A change in the law would also require a change in the newly approved constitution, the Basic Laws.

What are the points on which Hungary refuses to budge? First, the Orbán government insists on its right to expand the size of the Monetary Council. The Monetary Council is comprised of outside financial experts as well as the governor and deputy governors of the Bank. The Fidesz government already added a few new members to the Council sympathetic to the current government and obviously is planning to change the composition of the Council in the future if its perceived interests so dictate.

The Orbán government proposed the appointment of a third deputy governor, and this appointment seems to be so important in their eyes that they refused to abandon the idea. With a two-thirds majority the person of this future third deputy-governor would be someone whose independence from the government would most likely be questionable.

Third, there remains the question of the competence of the Monetary Council which currently is the decision-making body on interest rates. The Orbán government wants to expand its competence to include decisions over the Bank’s strategic reserves. Given the rumors about the government’s plans to dip into the Bank’s reserves, it is clear why the European Commission and the European Central Bank oppose this point.

The pay of the governor and deputy governors and whether they swear allegiance to the Hungarian Constitution are minor irritants that remain, but Brussels may not insist on changing these sections of the law.

At this point it may be useful to introduce or reintroduce some of the characters involved here. First, there is our old friend Tamás Fellegi, who was Viktor Orbán’s professor and senior advisor. Fellegi, after getting a Ph.D. in political science at the University of Connecticut, returned to Hungary where he became a fairly wealthy businessman. In May 2010 he was named minister of national development and spent most of his time building economic bridges to China and Russia. His only notable achievement, if you can call it that, was the purchase of a sizable stake in MOL which turned out to be a questionable investment from the Hungarian government’s point of view.

Whether on his own volition or not, Fellegi asked to be relieved of his duties and was appointed minister without portfolio in charge of the impending IMF negotiations. Given the Hungarian government’s inflexibility on the vital issues of the Bank Law Fellegi got nowhere, and on May 11 he decided to resign and abandon politics altogether. Fellegi’s resignation didn’t come as a surprise to Viktor Orbán; a day later he nominated Mihály Varga as Fellegi’s successor at the negotiating table with the IMF.

We haven’t talked much about Mihály Varga although he is an important person both in Fidesz and in the first and second Orbán governments. He joined Fidesz in 1988 and was high enough up on the Fidesz list to become a member of parliament already in 1990. He has been there ever since. For two years (2000-2002) he served as minister of finance, and throughout the eight years that Fidesz was in opposition Varga was the financial expert of the party. Everybody expected that Varga would again be the minister of finance in the second Orbán government. It didn’t work out that way. Although the new government created two ministers dealing with economics, neither of the posts went to Varga. Instead, he was named undersecretary within the Prime Minister’s Office.  His role was to maintain contact between the Prime Minister  and the members of the government. The appointment was viewed as a demotion, prompted by a remark Varga made before the elections that Viktor Orbán considered injurious to the party’s interests.

The parliamentary committee dealing with economic matters easily approved Varga’s nomination and on May 22 the full parliament gave its blessing. Since then Varga has stressed the “very substantial savings and benefits” that Hungary could derive from a speedy agreement with the IMF. He even added that Hungary would need enough credit “to safely finance two or three years.” So, Varga and Orbán don’t see eye to eye. According to Orbán Hungary doesn’t need the IMF money at all; if there’s no agreement Hungary can finance itself indefinitely. A few days later Varga even mentioned the exact figure Hungary would need: 15 billion euros. But when it came to a date for beginning the negotiations he was vague. He indicated that it would most likely be after June 22 when Ecofin makes its final decision on Hungary’s cohesion funds.

After the Thursday announcement that the European Central Bank doesn’t consider the Hungarian amendments to the Bank Law satisfactory, the Hungarian forint began to fall rather precipitously and the Hungarian media began talking about “the storm that is awaiting Hungary on Monday,” meaning the day parliament will pass the the Bank Bill that will most likely be unacceptable to both the European Commission and the IMF. The markets had been expecting speedy negotiations after June 4 but with the bill as it stands now there will be great disappointment with serious financial consequences. The likelihood of the forint falling further was anticipated.

It was at this point that yesterday afternoon MTI issued the breaking news that Mihály Varga had asked Antal Rogán, the new leader of the Fidesz caucus in parliament, to postpone the final vote on the bill. Knowing the way Fidesz and the Orbán government work, Varga first had to have convinced Viktor Orbán, the sole “decider,” that if the bill goes through, Hungary will be in big trouble. The rest is only theatrical performance. Varga is asking Rogán to consider postponement? Rogán is claiming that he thinks he can convince the majority of the caucus? Ridiculous but a necessary exercise to keep up the appearance of democracy in Hungary. Tomorrow, the Fidesz caucus will vote to postpone the final vote. It will be done. No question.

What does this mean? Does it mean that Hungary will change the law according to the wishes of Brussels? In my opinion it doesn’t. I think that another round of negotiations is in the offing. Rogán today elaborated on the plan: “The Hungarian government considers it necessary to postpone the vote in order to give an opportunity for an agreement between the IMF and the government on the still open and disputed questions. Of course, if such an agreement comes into being between the government and the IMF, we are ready to include these points of view in the bill.”

Will that appease the markets tomorrow? Perhaps. In the past we saw how easily the Orbán government managed to manipulate the international markets with its repeated promises of speedy negotiations and its flexible attitude. It worked in the past six months and perhaps it will work again. For a while. But what about months of further negotiations on some fine points after which the Hungarian government puts together a new bill that is still unsatisfactory? I think the likelihood of such an outcome is high.

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nyaripal
Guest

Nice to see the old 200 Ft note is still alive and well! Not to mention the 2 Ft coin…

nyaripal
Guest

Completely OT – a message to all those watching the coverage of the Queen’s river pageant this afternoon and thinking how typically awful the weather is…

Well this time last week we were having a picnic in the local park with blazing sunshine and the temperature in the upper 20s.

So ner!

LwiiH
Guest

“Will that appease the markets tomorrow?”

This makes them look as incompetent as we know them to be. If the vote on a bill the the ECB and the IMF have already complained about then you have to ask how serious they are about the IMF. If they hold off on the vote then you have to ask why didn’t they get the bill into order before taking it down to the wire and then having to pull back.

That said, if the market sees a way to make money….

oneill
Guest

The main market where forints are bought and sold is (afaik) London and it will be closed or at least very quiet for the next two days. So, if anything dramatic. were to happen it would be Wednesday. I think we have seen a classic Janus-faced Orban here- both him and mad-man Matolcsy telling the simpletons in their own voter-base and the even more thick ultra-nationalists that Hungary will stand alone, doesn’t need the foreigners, 1000 years, no surrender etc etc. While whispering through the other side of the mouth…”now what exactly do you want changed in this law? Leave it with us.” The postponement of the vote will buy them a bit more time until at least the 17th of June when post the Greek result most probably all hell will break lose in Europe anyway and it won’t matter.

nyaripal
Guest

Entirely off topic, yet again, but this might amuse the ex-pat Brits.

It’s cold and wet here in dear old Blighty, but people have arranged ‘street’ parties, so , by golly, they’re going to have them!

The party for our little estate was moved into the car park underneath our block of flats – a horrible, dank, dark, smelly place at the best of times. But this hasn’t deterred them – the barbi’s alight and the music playing. Only in Britain…

And, just to add badly needed irony to this bizarre scene, I just heard them playing the Pistol’s ‘God Save the Queen’!

This is what you need, Hungary, to be a Top Nation – a monarchy, insane behaviour, awful weather, absolutely no sense of style – and irony.

One out of five just isn’t good enough.

Odin's Lost eye
Guest
@Paul Of course the rain was sent to us so that none of us get ‘big headed’. Well she has reigned for 60 years so perhaps HE sent her a bit more rain. It rained on the day of her marriage, on her coronation and on her 60th Jubilee. I was planning, which is something which is a fatal thing to do in Hungary, to watch the business on T.V. and drink tea and later Tokai. At about 10 the whole place was taken over by visitors who had come to see my Hungarian step folk. It was not a nice experience; it seldom is, as they often ‘go shopping in my fridge and larder’. This time they threw away my ‘lunch’ which was roasting in the oven as they wanted make cakes. They took over the Main T.V. for a child’s game and my T.V from my room to watch videos etc. At the bottom of it was my step daughter’s ‘ex’. The quarrelling amongst them was horrendous. They missed one thing. I have a VCR so I recorded it all from CNN. Actually the planning and control for the river procession was magnificent. It included two weeks ago… Read more »
Zoobulz
Guest

OT, but good news!

Our ‘New National Consultation 2012’ letter finally arrived! Personally signed by Viktor Orban himself.

You already know the questions, but just to confirm, yes it does have a barcode on it. Actually, a QR code. And it also has a large, full-colour and particular smug photo of Orban’s face on it – in case you were in any doubt whose questions you were required to respond to.

Member

Yes. I got it too. So reassuring that he cares.

Kirsten
Guest

I thought you live in Canada. Are they sending these questionnaires also to Hungarians living abroad…?

Louis Kovach
Guest

What is the problem having newly appointed (elected) officials swearing to uphold the constitution? It is done also in the USA.

Member

Louis Kovach :
What is the problem having newly appointed (elected) officials swearing to uphold the constitution? It is done also in the USA.

I wish this would be the only problem.
I would not want any representatives in Hungary to swear to THAT constitution or to anything that misses basic human rights, has a lot to do with the bible and Christian (or any religious) values.
The last few months maybe you missed it, but a very few International institutions as well as many Hungarians, constitutional experts, religious experts, etc expressed their concerns about the iPad Constitution.
I diid not know it is possible to miss the uproar, but you did, so I encourage you to do some search regarding the issue. As for the USA Constitution, I yet to read any issues regarding its shortcomings. Please, kindly direct us to the sections you are concerned about officials swearing to uphold.

Louis Kovach
Guest

Earlier I have stated that in my opinion it would have been better to translate the US constitution into Hungarian. I have never stated that I agree or would haveI have not stated anything regarding the Hungarian C. However, all countries have only ONE constitution and it is not obligatory to be a government official.

Member
Lousi Kovach: ” all countries have only ONE constitution and it is not obligatory to be a government official.” “What is the problem having newly appointed (elected) officials swearing to uphold the constitution? It is done also in the USA.” Am I missing something? You said in the USA people swear to uphold the constitution. Didn’t you? What I said that it is easy to swear to uphold a constitution that is legitimate as it represent the interest of all its citizens. You also say ” all countries have only ONE constitution and it is not obligatory to be a government official.” Tanks for letting me know about the one constitution/country. I would like to bring into your attention that government officials should represent the people of the country. THe constitution is something that expresses the common interest of all citizens. The current Hungarian iPad mush-up does not do that! Simply speaking it was not 2/3 of Hungarians who wanted this crap. THere were no consultations, it is against human rights, there was no consensus. Orban took advantage from his position that he got elected into because of a series of lies “Do not listen to what I say [in… Read more »
GW
Guest
Mr Kovach, There is, in the case swearing allegiance to the new Hungarian constitution, a potential — if not actual and urgent — conflict of conscience for those citizens who disagree with all or part the constitution and who did not vote to elect the current government which wrote and ratified, using its 2/3 parliamentary majority (on the basis of 52.73% of the popular vote.) Yes, the new constitution was written and ratified according to the rules of the previous constitution and the 2/3 majority was duly elected. But it is equally clear that the fact that a 52.73 percent vote of those participating in the election (in the two rounds 64% and 47% of the eligible voters) could lead to a 2/3 majority, and thus the right to change all laws, including the entire constitution, suggests that the existing constitution was, in this dimension, flawed, and potentially flawed so fatally that the new constitution, new laws, and long-term political appointments would reflect the tyranny of a single party more than the ideal of a deliberative democracy. (May I make it clear that all ratification procedures are problematic, but Given this flaw, requiring an oath of allegiance to the constitution… Read more »
Ovidiu
Guest

The oath (of fidelity to the country and its interests) text is problematic because the Governor of the MNB is also a member of the General Council of the ECB (thus making decisions how money flow throughout EU)

It would be like Orban taking first a oath to always put first his family’s interests (or of his party’s) and then go on an rule Hungary. What is best for Orban’s family, or for his party, is not always what is best for Hungary.
Let’s not forget that in EU some countries are donors while others (as Greece or Hungary) are sucking up money, though those sucking have no fewer rights than the people giving the money.
If a strict “national interest first” policy were to be followed by each EU member country such an situation would not be possible and EU would fall apart.

Louis Kovach
Guest

Re Dr Balogh above.No it does not, Wikipedia is not the best source for this. There are very different criteria for Euro zone and non-Euro zone National Central Banks. The best reference is :http://www.ecb.int/pub/pdf/other/guideconsultationecb2005en.pdf

Reviewing the cited document does not lead to the percieved requirements.

GW
Guest

Mr Kovach, you asked specifically about whether national banks were subordinate to the ECB or not, and yes, as Dr Balogh has documented, they are, whether they are in the Euro at this time or not, thus this includes the 10 non-Euro national banks. This is, indeed, a problematic construction — particularly in that states with the Euro see their own currency being governed, in part, by the ten governors sent by those non-Euro states, which include states that have signaled that they do not intend to join for the foreseeable future and others — like Hungary — which will be ineligible for the foreseeable future. Yes, the performance criteria are different for EU and non-EU states, but that was not your question, which Dr. Balogh took the time to answer correctly, and even if it was your question, Hungary remains unable to meet even those lower criteria.

Guest

@Louis, have you read that paper you referenced ? It’s about
“The ECB shall be consulted:
– on any proposed Community act in its fields of competence;
– by national authorities regarding any draft legislative provision in its fields
of competence, but within the limits and under the conditions set out by the
Council in accordance with the procedure laid down in Article 107(6).
The ECB may submit opinions to the appropriate Community institutions or
bodies or to national authorities on matters in its fields of competence.”

How is this relevant for this discussion ? Please quote the relevant parts of this guide or at least give the page numbers. It seems to me you’re obfuscating the issue again with irrelevant links.

@all:

Interesting that the law was postponed in parliament today – so someone is thinking, it seems

LwiiH
Guest

nope, no one was thinking ‘cos if they did they wouldn’t of had to postpone the vote.

oneill
Guest

“And it also has a large, full-colour and particular smug photo of Orban’s face on it”

Looking remarkably confident young, tanned and line-free- didn’t Hir TV accuse the Economist of touching up a photo of the fuhrer- last year? Think something similar was done here. Anyway we played a little game with the questions at the weekend, Ms O’Neill read out the first choice (eg “Some people agree with Mr Orban that our old folk should be cherished and provided for” whilst I guessed at what I thought was the alternative (“While others say they should have their houses taken away by the nasty foreign banks and thrown starving into the street….what do you think?”.
I got about 90% correct.

Louis Kovach
Guest

Re Wolfi,Yes I have read the document. Please check Section IV which spells out the “competence” issues of 98/415/EC. Additional info can be gleaned for the actual consultations performed so far.

Louis Kovach
Guest

Sorry Section III is the most relevant.

Guest

London Calling!

Has anyone sussed out Louis Kovach yet?

What are his politics? They seem to be all over the place.

It seems he has an enormous chip on his shoulder – some sort of inferiority complex – masquarading as a superiority complex.

I’m fed up with his humourless non-sequiturs!

Regards

Charlie

Guest

“the minimum reserve requirements of NCBs of non-participating Member States.” This is described in section 3.2 as one of the points where National Central Banks should consult first the ECB – Fidesz surely doesn’t like that. So is that what Louis means – I don’t get it ???

If Fidesz thinks that they are right and the ECB/IMF/EU in general are wrong – why don’t they say so and good riddance!

Fidesz has been doing nothing here for so long now – still “waiting for the talks to begin” …

Louis Kovach
Guest

Re Wolfi above. Ai least what I have read and heard of the “objections’ they are not specific and do not relate to reserves or anything that is clearly defined in the ECB guide. The objections related to wages of the HNB president, the impact of the Monetary Council and its possible turf war withe MNB. The oath to the constitution. The divergence of single individual or council based decisions. Some of these may be covered by the ECB guide however, many have nothing to do with it and were politically driven. Another part of it could be plain turf war.

Member

@ Louis Kovach, Regarding your concerns , please get it to your head that most westernized people welcome and want to protect democracy versus the close-minded fans of ” “the “rightist, nationalist, and Christian” government of Viktor Orbán” [as per Orban’s quote by Eva Balogh].
I think you live in a great country (USA) but it looks like that you are taking for granted the freedom the country you selected to live in assures to all its citizens, or simply you try to deny the same from Hungarian citizens in their homeland. Such a pity.

Louis Kovach
Guest

Re Some1 above; I consider that democracy also means that one has a right to disagree and does not have to follow any individual or group opinion. I am not defending the current H governments policies or actions, I am only commenting on blog contents.Yes, the USA is a great country and was even better when the Federalist Papers were newspaper articles…..but that is not a subject here, except for the civility of discussing erstwhile political disagreements.

Paul
Guest

After a fairly major collapse for no apparent reason, the forint has rallied over the last two days and recovered quite rapidly. And still for no apparent reason!

At times there seems to be almost an inverse relationship between what OV’s ‘government’ is doing and the strength of the forint.

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