A sinking ship? Is it time for Orbán’s Hungary to turn westward?

Just as I feared, we will have to return to Azerbaijan, not so much as a diplomatic issue but as a part of the financial plans that may have been behind the decision to release a convicted murderer to Baku. Because surely no one will believe the story the Hungarian Foreign Ministry came up with yesterday, that Hungary was conned by the Azeris. The current claim is that the Hungarians believed in the honesty of the Azeri president and his ministry of justice. And look what happened. Surely, a very unlikely story.

The talk about negotiations with the Azeri government over the purchase of 2-3 billion euros’ worth of Hungarian government bonds turned out to be true. After all, the Turkish bank that was supposed to issue the bonds confirmed it. However, on September 3, the State Oil Fund of the Republic of Azerbaijan issued this statement: “Regarding the news about the purchase of Hungarian debt obligations, the State Oil Fund of the Republic of Azerbaijan publicly reveals that SOFAZ is not considering any investment into debt obligations or other financial tools in Hungary.” Since then we learned that SOFAZ, even if it had wanted to, couldn’t have bought junk bonds in such quantities. Because, let’s not forget, about two years ago Hungarian government bonds were downgraded to junk status. According to Portfolio.hu, SOFAZ’s official investment strategy specifies that only 5% of the fund can be invested in highly speculative assets.

I’m sure that we will never know what was promised. Something had to be, because I can’t believe that Viktor Orbán would be so naive as to let loose a much coveted “national hero” simply as a favor. Just yesterday I heard an interview with Orbán’s old roommate and political ally Gábor Fodor, who knows him well. According to Fodor, to Orbán the notion of making a gesture is a totally unfamiliar concept. He doesn’t even make a secret of the fact. In fact, he boasts about it.

So, I am still going on the assumption that Orbán one way or the other was expecting big bucks from Azerbaijan, the prospect of which now appears to be fading by the hour. Thus it seems that Viktor Orbán is ready to change course yet again. Most likely because he cannot do anything else.

The last time I wrote about the stalled IMF/EU negotiations the prospects for an early agreement seemed grim. The IMF spokesman announced at the very end of August that there was no date fixed for the renewal of the talks that had been interrupted at the end of July. The sticking point was apparently the transaction tax on the Hungarian National Bank, on which Viktor Orbán was insisting. Analysts excluded the possibility of an agreement in the fall and predicted a possible conclusion of the talks sometime next year. Portfolio.hu was even more pessimistic. The economic journalists working for this financial paper were certain that the aid talks will not continue at all. Details of the state of the negotiations a week ago can be found in my August 31 post

So, great was my surprise when I read in the September 3 issue of Magyar Nemzet that the office of Mihály Varga had informed them that negotiations will continue in September. This morning Viktor Orbán himself talked about the resumption of negotiations and expressed his firm belief that a favorable conclusion to the negotiations is  just around the corner. It will occur sometime during the fall. He added that, although there are still outstanding issues that must be ironed out, the negotiations are proceeding well. “The ball is now in Hungary’s court,” he added. As for the transaction tax on the Hungarian National Bank, Orbán indicated that “there is intention on both sides to find a middle ground.” A few minutes later Mihály Varga, the chief Hungarian negotiator, decided to chime in and emphasized that Hungary cannot afford not to have an agreement. Actually, he used the expression “nem úszható meg az IMF-hitel.”

Why this sudden eagerness to talk with the IMF? One reason might be the possibly empty promises of the Azeri government. However, there is another piece of news that most likely reached the Hungarian government sometime in the last twenty-four hours. Bruxinfo.hu reported from Brussels today that the paper had received news from reliable sources that the European Commission may launch an infringement procedure against Hungary on September 27 over the financial transaction tax Hungary plans to introduce in 2013. European Union sources confirmed that, in addition to the European Central Bank, the European Commission also has very strong doubts that this planned transaction tax is in line with EU regulations. As soon as this news hit, the Hungarian forint began to fall. At 2:30 p.m. the euro/forint cross was trading at 284, an hour later at 286.

It is quite possible that Viktor Orbán is becoming desperate. He tried to get money from China, Saudi Arabia, and Azerbaijan and came up empty-handed. He also tried to get out of the obligations that bind Hungary to the European Union. It doesn’t matter how often he tells his followers that Hungary’s economic war of independence against the European Union has been successful, the fact is that without EU assistance Hungary would immediately collapse. Almost everything that’s being built in Hungary is being done with European funds. If these funds were to disappear, Hungary would end up high and dry.

The potential loss of  revenue from the transaction tax is a problem by itself. Without Orbán’s cherished transaction tax on the Hungarian National Bank there will be an even larger hole in the 2013 budget.  As it is, the budget is more than shaky because it is based on overly optimistic economic growth numbers. Orbán got rid of the Budgetary Council that was supposed to be the watchdog over the government’s handling of the budget because he feared that they would look too hard at the government’s figures. So instead of an office with a staff of forty he appointed three men to oversee the budget. Surely, he thought that these men would not disturb much water. Well, he was wrong. Árpád Kovács, the head of the new Budgetary Council, is demanding reliable data from the Ministry of National Economy; he refuses to accept the figures offered by the ministry. Right now the ministry and the budgetary council are at loggerheads.

According to analysts, as it now stands the proposed budget is short by about 500-600 billion forints.  Without changing course it is unlikely that the country can survive economically. It seems that Orbán might have to give up some of his “unorthodox” policies. For example, the flat tax. Moreover, he seems ready to turn his ship from its eastward course back toward the old, decrepit, tired Europe that is incapable of handling its own problems but ponies up a lot of money for Hungary.

Of course, there are still people who are skeptical about Orbán’s real intentions. Péter Oszkó, finance minister in the Bajnai government, is one of these. In an interview this morning he expressed his belief that because of the forint’s fall this afternoon Orbán and Varga came out with these optimistic stories about the negotiations in order to calm the nerves of the markets. Nothing will come of the negotiations.

I’m a little less skeptical. Mostly because I heard this afternoon that Viktor Orbán will be paying an official visit to Berlin in October where he is going to meet Chancellor Angela Merkel. They will be talking about bilateral diplomatic relations and the further strengthening of  economic ties. These forthcoming negotiations were prepared by Péter Szijjártó in Berlin where he met Christoph Heusgen, foreign adviser to Merkel and a member of the staff of the chancellery; Cornelia Pieper of the foreign ministry; and Peter Hintze of the economic ministry. Szijjártó told his negotiating partners that Hungary agrees with Germany on the necessity of a strong Europe and Hungary will support all German efforts in this direction. According to Szijjártó, there was agreement that “after the crisis is over the European Union’s economic engine will be cooperation between Germany and Central Europe.”

So, is Orbán getting desperate or is this just another one of his typical games? We will see.

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Piroska Markus
Guest

Very informative article, thank you!

LwiiH
Guest

I stated in March that there would be no deal this year… we’ve got less then 4 months left and it appears as if the government is still no closer to a deal.. and that has now cost well in excess of 600,000,000,000HUF.. humm doesn’t seem close to the hole in the budget?

Guest
London Calling! What is a puzzle is that Hungary has no intention of using the IMF loan – it will be there just as a backstop – but Orban will still need to raise an enormous amount of money elsewhere. “No austerity here.” He intends to spend spend spend by nationalising the energy companies – and banks (and waste companies too!) in time for the next election – so he can reap the dividend of concessions to their customers. (Apparently the energy companies are experiencing large outstanding customer’s arrears – so will he buy them off?) So he will issue more bonds – admittedly at a more realistic rate to subsidise this activity. This is the direct opposite of what the EU – the ‘troika’ – is asking (demanding) of Greece. Greece must have smaller government. Hungary it seems must have bigger government. So will they even get the money with this strategy too? (..will the EU pony up the money? – nice phrase Eva!) They brazenly announce these plans which they must know conflict with EU policy. And if the EU reschedules the cohesion funds – simply because (we) they can’t afford it – then Orban will be well… Read more »
An
Guest

“So, is Orbán getting desperate or is this just another one of his typical games?”

That’s the one million dollar question…I have the feeling that they are just trying to survive financially until March next year, when the mandate of the current President of the National Bank expires. Then, after putting their own man there as president, they will have access the forex reserves of the National Bank and ease the financing pressures (at least that’s the idea… a very dangerous one, btw).

So, keeping the investors calm with continuing the talks with the IMF is paramount so that there is no panic and the forint doesn’t start its free-fall again…. I guess Orban is keeping the talks alive with the IMF and is praying for some miracle that they could hold out till next March… very unlikely, since some of the forex debt that is maturing this year needs to be refinanced this year. Orban is definitely getting desperate, but I still can’t see him agreeing to all the stipulations for an IMF loan.

Member

“Orbán one way or the other was expecting big bucks from Azerbaijan,”

I am not worried about Great Victor.
Perhaps, he got those big bucks into his private account or into the account of his party.
With a paraphrase – Hungarian nationalism became “the last refuge of a scoundrel”.

Turkmenbasi
Guest

Great piece, Éva, thank you.

My well-informed contacts insist that Orbán is not ready to make a deal with the IMF, unless there is a global crunch which is then a vis major.

Some 10 months ago Orbán commissioned a study from OTP to investigate the fate of Governments which made a deal with IMF. The study looked into 17 cases. It apparently revealed that out of the 17 governments worldwide, 16 were kicked out by the electorates at the subsequent general election.

This can be one of the reasons why Orbán is so reluctant to enter an IMF deal – unless it is absolutely necessary…

Lutra lutra
Guest

The independence of the Hungarian National Bank is guaranteed by EU treaty and so, even if Orbán does appoint a more obedient head when Simor’s term comes to an end, he cannot simply raid its coffers and fund more lunatic schemes on the proceeds.

He must know this in his more lucid episodes, which is why I agree with Éva that he knows he has no choice except to reach a deal with the EU and IMF

Guest

The market seems to be sympathetic to Eva’s belief that Orbán will turn to the IMF and the EU – after fluctuating wildly, the Forint/@ ratio is back to 284:http://www.xe.com/currencycharts/?from=EUR&to=HUF&view=1W

Guest
London Calling! An Your prognostication about Orban trying to get his hands on the reserves (Forex AND Forint) is very compelling but it has been the elephant in the room during the extended ‘dance’ which has been the whole context of the IMF negotiations. (Excuse the mixed metaphors, please!) The IMF (and ECB and EU!) are keeping a keen eye on Orban’s Central Bank ‘footwork’ simply because they need to protect their current ‘investment’ in Hungary. I’m sure, like any loan facilitating organisation, they are keeping an eye on the credit-worthiness of their ‘client’. Turkmenbas’s observation is a bit late – Orban is already in hock to the IMF (very interesting contribution though T!). Orban is in a scissor trap – The ECB/EU will ensure he leaves the reserves alone through cohesion-fund threats and other means if he doesn’t complete the loan negotiations. If he does proceed with the IMF – then they will enshrine Central Bank protection measures in the loan agreement. The EU must have been watching bemused how Orban has been ‘spivving’ around the world – “Lend us a few bob, for a cup of tea mate?”, “Give us a fag, Guv?” – as we have done… Read more »
MMJ
Guest

The soft reaction of both the USA and the European Union could let us think that the game is a little wider than the one discussed so far.
Azerbaijan is a strategic country in a strategic region. If some ‘friendly’ forces were to attack Iran, Azerbaijan could be a good/convenient/well located logistical platform.
This ‘technical’ assistance has a price.
So don’t you think we could take into consideration the fact that the ‘naive’ Orban found a good way to play with both the US/EU which is (through/with the support of Israel) about to launch attacks against Iran and the azeri government which is full of money?

Guest

London Calling!

MMJ – I don’t think Orban is a strategic thinker at all.

Saforov was just loose change rattling around the bottom of the tin. I think it was probably one of Matolcsy’s crazy creative brain-storming sessions that made them realise they could leverage some cash from the oil-rich Azeris.

But they couldn’t even protect their negotiations properly with safeguards before they released their ‘hostage’.

In addition Orban is an ‘autistic’ National leader – he is oblivious to the ‘noises off’ occurring around him regarding the concerns others have with Iran.

He blindly allows the cosying up of factions within his own country who are sympathetic to Iran – much to the embarrassment of the EU.

No, no strategy. Just lurching from one crazy idea to the next – quickly executed without due consideration – only to find the consequential problems later.

“The essence of strategy is choosing what not to do.”

Regards

Charlie

petofi
Guest
tappanch : “Orbán one way or the other was expecting big bucks from Azerbaijan,” I am not worried about Great Victor. Perhaps, he got those big bucks into his private account or into the account of his party. With a paraphrase – Hungarian nationalism became “the last refuge of a scoundrel”. Outside of you and I, no one is willing to hazard this hypothesis, yet when one puts together the parts of the puzzle…. Part 1: Orban creates a special ‘roaming foreign minister’ for Szijjarto Part 2: Szijjarto goes hopping around the world and we ought not to mention his trips to a special banking capital called Cyprus Part 3: Some months back, there are discussions with floating a government bond on the Turkish market in manat–the Azeri currency Part 4: Orban (once) and Szijjarto (several times) visit Azerbadjian Part 5: Both the Ministry of Foreign Affairs and the Ministry of Finance are totally excluded from talks with Azerbadjian Part 6: Orban releases the axe murderer without consultation. Part 7: Orban goes to the media to declare that Hungary has been lied to. Oh, yes, and one last thing. Orban declares that the matter is closed and has been dealt… Read more »
Paul
Guest

“…because of the forint’s fall this afternoon Orbán and Varga came out with these optimistic stories about the negotiations in order to calm the nerves of the markets. Nothing will come of the negotiations.”

This would normally be my reaction as well, but this is the first time I’ve heard Orbán admit that “the ball is now in Hungary’s court”, so maybe it really is a final recognition of reality?

Paul
Guest

“I have the feeling that they are just trying to survive financially until March next year, when the mandate of the current President of the National Bank expires. Then, after putting their own man there as president, they will have access the forex reserves of the National Bank and ease the financing pressures (at least that’s the idea… a very dangerous one, btw).”

Knowing OV as we do, this has a frightening ring of probability about it. But, even by OV’s standards this would be a desperate, if not insane, act – it’s effectively eating the seed corn.

But is OV just a cunning and dangerous politician, or has he crossed his personal Rubicon and now become just a desperate despot who will do anything to hang on to power – never mind the consequences?

I fear it is the latter.

Paul
Guest

“He must know this in his more lucid episodes”

Wonderful phrase – quite made my morning!

petofi
Guest

Paul :
“I have the feeling that they are just trying to survive financially until March next year, when the mandate of the current President of the National Bank expires. Then, after putting their own man there as president, they will have access the forex reserves of the National Bank and ease the financing pressures (at least that’s the idea… a very dangerous one, btw).”
Knowing OV as we do, this has a frightening ring of probability about it. But, even by OV’s standards this would be a desperate, if not insane, act – it’s effectively eating the seed corn.
But is OV just a cunning and dangerous politician, or has he crossed his personal Rubicon and now become just a desperate despot who will do anything to hang on to power – never mind the consequences?
I fear it is the latter.

And what if Orban is a Russian mole…

An
Guest

New developments: press reports leaked the “IMF condition list”… which is brutal and politically impossible to commit to. Analysts are highly skeptical that the list is authentic and is coming from the IMF. They argue that the list would result in a 1000 bn HUF adjustment in the budget, while Hungary only needs 300-400 bn adjustment. They think that the “list” was leaked and fabricated by the government, to make the government look better when they finally agree to the much less strict, actual IMF conditions.
http://www.napi.hu/magyar_gazdasag/bloffol_a_kormany_hamis_a_brutalis_imf-kivansaglista.530319.html

So, maybe Orban is in fact getting ready to strike a deal with the IMF, but wants to come out looking good…it is a possibility. I’m still skeptical and on the opinion that we won’t see an IMF deal while he is in office, but I maybe wrong. He may get desperate enough to sign, and this alleged “list” could be one indication of that.

spectator
Guest

My guess is that the alleged IMF list is for the party – Orban feels, that he needs reinforcing.

After all, there is a limit what even the most seasoned FIDESZ soldiers conscience can take.
OK, I may exaggerating a little, but still, there must be a few decent people who can see, where the country is heading under Orban’s rule and may think, that time has came to change, before they run out of options totally.

Guest
Guest
Guest

London Calling!

……In English! (3rd attempt! – apologies if I’m duplicated!)

http://www.portfolio.hu/en/economy/analyst_view_leaked_imf_loan_conditions_confirm_complicated_talks_ahead_citi.24799.html

Guest

London Calling!

I’ve tried to post the Portfolio.hu link article in English – without success – not even awaiting moderation!

The leaked list is there if you need to see it in English.

Regards

Charlie

Guest

London Calling!

I’ve tried to post the Portfolio.hu link article in English – without success – not even awaiting moderation!

The leaked condition list is there if you need to see it in English.

Regards

Charlie

konga honga
Guest

The transformation of Hungary is on hold.
Like in 56, in 89. it was a quick push forward to civilized liberal democracy, but the conservative forces beat it back. The Soviet supported fundamentalists won in 56, and the national old alliance won now.
Orban is just an actor. A perfect Hindenburg. Without power. The real leader is waiting in the dark, to come out on a white horse. He will get a crown, he will be king for 50 years.
Teheran and Cairo demonstrated that the Islamists are the power there. They are the professional oppressors.
Hungary is textbook case of lost liberty, as long as a sordid alliance of the politicians and churches can rule.

Guest

London Calling!

An Orban has rejected the apparently authentic condition list as “Too high a price to pay” and “A horror list”

http://www.portfolio.hu/en/economy/hungary_pm_orban_to_talk_imf_conditions_to_credit_on_monday.24804.html

Regards

Charlie

oneill
Guest

“He Who Must Be Obeyed” has just announced that it is “no to the IMF deal at this cost”; forint has reacted accordingly and dropped 5 against the Euro in the space of a few minutes.
Time to get your savings out asap…
http://www.portfolio.hu/en/economy/hungary_pm_orban_says_no_imf_deal_at_this_cost.24804.html

An
Guest

The theater is on… Orban announced that Hungary does not want the IMF deal at this “price”. The government is going to come up with an alternative list that they are willing to consider and present that to the IMF….
http://index.hu/gazdasag/magyar/2012/09/06/ujrakezdene_az_alkudozast_az_imf-fel_orban/

They are trying to put IMF in a very bad light so that the government can come across as the “successful negotiator”

As I said earlier, analysts are highly skeptical of the presented “IMF condition list”. They say that what the IMF left behind after the July talks was an assessment of the situation and areas where they suggest something needs to be done, expecting the government to come up with specific suggestions to address the problem areas… so there was no specific list of conditions. And since July, the ball has been in the Hungarian government’s court.

Zsuzsa
Guest
konga honga : The transformation of Hungary is on hold. Like in 56, in 89. it was a quick push forward to civilized liberal democracy, but the conservative forces beat it back. The Soviet supported fundamentalists won in 56, and the national old alliance won now. Orban is just an actor. A perfect Hindenburg. Without power. The real leader is waiting in the dark, to come out on a white horse. He will get a crown, he will be king for 50 years. Teheran and Cairo demonstrated that the Islamists are the power there. They are the professional oppressors. Hungary is textbook case of lost liberty, as long as a sordid alliance of the politicians and churches can rule. I find this a very astute observation. But can we honestly believe, no that is the wrong word, could we actually hope that Hungary was ready for democracy? I have been thinking for a while now that perhaps Hungary could fare a little better under a soft dictator? No? Not like Orban of course, he has no direction, he plays the people against each other, no, someone “on a white horse” with a vision and clear cut perimeters for civilized conduct.… Read more »
Louis Kovach
Guest

Considering that both the EU and the US economies are in shambles, the Euro/$ ratios are vacillating daily (sometimes more then the HUF/Euro) and an 0.7 % oscillation of the HUF is not an earthshaing event. The EU couldn’t come up with a reliable solution to the PIIGS crises for more than a year, and even the Northern economies growth is faltering. The USA is 16 trillion in debt… and merrily spends more every day. The current regime’s comparative economy does not look as bad as it is painted here. It is certainly not clearly defined, but pray tell me is the EU’s or the ECBs or the IMFs is consistent with the crises they face?

The facts are not showing improvement on Hungary, and maybe Orban will use the Obama slogan give me four more years to improve the economy the first four was not enough.

I have read here more guessing on what is going on with the Hungarian economy than facts.

But I like the sinking boat with the $ on the flag…..

Guest

London Calling!

ZsuZsa – I have always thought that ‘the new saviour’ of Hungary would be someone who we have not yet considered – a sort of candidate from left field.

But only as circumstances evolve – and time has elapsed – A Long Time.

Orban has stitched up all the components of power and democracy.

I don’t think there will be riots – The King will emerge from a ‘velvet’ revolution – eventually.

But only after a long time

Regards

Charlie

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