It is hard to get used to the Orbán government’s way of handling the truth. It is against my nature to doubt every statement that is released or every word that is uttered. I am not naive enough to think that politicians always tell the truth, but outright lying is not acceptable even in political circles. Or if someone does it and is found out, there are usually consequences. As there should be. Not in Hungary.
So, when a few minutes after noon today the news came that “Hungary’s financial negotiations with the European Union and the International Monetary Fund will begin on July 17 in Budapest” at first I was just surprised. A few minutes later my suspicion grew about the veracity of the news because HVG reported the story differently. It turned out that Olivier Bailly, spokesman for the European Commission, announced only that a joint IMF-EU delegation will arrive on that date, not to begin negotiations but to prepare the ground for possible forthcoming negotiations. That is an entirely different thing, as eventually MTI had to admit. An hour after the initial announcement MTI asked its customers to correct the report from Brussels. The title of the corrected news read: “The EU-IMF delegation will arrive in Budapest on July 17.” In the text they added that “following that date the negotiations may begin soon.”
The reporters must have confronted Mihály Varga , the minister in charge of the negotiations, about the real story and Varga must have been a little annoyed because he claimed that “negotiations begin when we start talking to each other.” However, a few hours later he changed his mind and admitted that “the negotiations will have two phases. The first will start on July 17, to be followed by a short break, and they will continue at the end of August or the beginning of September.” If I interpret this correctly, the timing of the actual negotiations will depend on the success of the talks starting on July 17.
During the last few days an increasing number of people have expressed their belief that Hungary shouldn’t expect quick or easy negotiations. I would go even farther. In my opinion there remains the possibility that Hungary doesn’t want to see the negotiations through to their final phase and is going ahead with the preliminaries only to fool the financial markets. That is, it’s trying to play the Turkey card. If the government were serious, it is unlikely that a few days before the revision of the bill on the central bank the government would decide to slap a tax on the transactions of the Hungarian National Bank. And that they would do that without any consultation with the European Central Bank or with the chairman of the Hungarian National Bank.
If they had consulted, they would undoubtedly have been told that they were once again stomping on the independence of the central bank. The Hungarian National Bank is in charge of monetary policy, which means that it controls the money supply and sets interest rates with a view to promoting economic growth and stability. The government is responsible for the country’s fiscal policy–for taxation as well as government spending and borrowing. By taxing the central bank, the Orbán government is interfering with the monetary policy of the central bank. In the bank chairman’s opinion, if the central bank were to pass on the transaction tax to its customers it would in effect be lowering the current interest rate by 2.5%. Thus, the government is interfering with the exclusive domain of the central bank, setting interest rates.
To be in compliance with its mandate, argues Chairman András Simor, the Hungarian National Bank cannot pass on the approximately 100 billion forint annual loss it would sustain as a result of the transaction tax levied on it. Instead, it turns out, the government has to absorb it. According to Hungarian law, any loss sustained by the national bank in any given year must be made up by the government from the budget of the following year. Thus, whatever the Orbán government would gain by taxing the central bank’s financial transactions, in say 2013, it would lose a year later.
Péter Róna, a Hungarian-born economist who spent most of his life in the United States and the United Kingdom, claims that there is a European Union law that forbids levying a transition tax on central banks. If this is true, I see no way of avoiding a repeal of this particular law, and that again would take ages. That is, if Viktor Orbán is willing to oblige.
There are other serious problems to starting negotiations. For example, the proposed 2013 budget seems to be on very shaky grounds, especially since the government decided on a new plan that would include a 300 billion forint project for job creation. The problem is that the proposed funds to cover the cost of the stimulus package are “mostly fictive,” as several analysts claim, especially if the transaction taxes on the central bank and on the treasury cannot be levied according to the European Central Bank and the European Commission.
All in all, I still maintain that Viktor Orbán is in no hurry to negotiate. How long the Hungarian government will be able to convince the bond market that the IMF and EU will provide a safety net remains an open question.