Some good news for the Orbán government, but there are still many questions

Viktor Orbán received a couple of nice presents today for his fiftieth birthday. One was from the Hungarian Central Statistical Office (KSH) and the other from Olli Rehn, European Commissioner for Economic and Monetary Affairs and the Euro.

According to the Statistical Office, the unemployment rate ticked lower to 11.0% in the three months ending in April from 11.8% in the first quarter of 2013. On the surface this improvement seems both rapid and substantial. But, as Portfolio.hu points out, “The change in the number of employed shows the same strong fluctuating pattern as in the previous years. The main cause of the fluctuation is the year-end stoppage of public work schemes.”

Hungarian unemployment Another possible reason for the improving unemployment numbers (although this does not address the issue of seasonality and would take more time to be borne out) is that unemployment benefits run out quickly in Hungary. The Orbán government reduced eligibility for benefits to three months, the lowest perhaps in all of Europe. Whether these people simply drop out of the officially tracked work force after their benefits run out or find a job is hard to say, but we do know that the number of employed workers grew by 61,000 over the same period last year. Some of these people may have found part-time work paying below the minimum wage as employees of the public works program that began full-scale under the Orbán administration. Only a month ago, one of the undersecretaries of the Ministry of National Economy boasted about the very high number of people in the program: 300,000 this year as opposed to 261,000 last year. If his figures are correct, almost 65% of the recent job gains come from the public works program. These people don’t produce any real profit. In fact, they are a drag on the central budget–this year a projected 153.7 billion forints. So I think we should wait before passing final judgment on the employment figures.

The other piece of news came from Brussels in the early afternoon, and it was not much of a surprise to anyone. It has been clear for at least a week that it would be very difficult not to recommend lifting the excessive deficit procedure in Hungary’s case. Due to a series of tax hikes, mostly levies on businesses and banks that affected the population only indirectly, the government managed to decrease the deficit to under 3.0%. Naturally, the government considers this a major victory that vindicates Budapest’s economic policy.

Viktor Orbán had single-mindedly pursued the goal of getting out from under the excessive deficit procedure. Some people argue that he was acting out of fear of a cutoff of EU development funds. But there was never any serious threat of the country’s being deprived of funds because of its deficit, which pales in comparison to the deficits of some other European countries. I suspect that what Viktor Orbán really wanted was to stop the EU monitoring that went hand in hand with being under the excessive deficit procedure. After all, he backed away from IMF funding because they would have closely monitored the Hungarian economy. But, I fear, Viktor Orbán is mistaken. The number crunchers in Brussels will continue to monitor Hungarian economic data closely. Viktor Orbán won’t have a free hand. Hungary, being part of the EU, is expected to follow its advice. If it doesn’t, Hungary may find itself under the excessive deficit procedure once again. Such a possibility is not unheard of. After all, this is most likely what will happen to Malta.

Hungarian deficit between 2001 and 2014 / Ecostat, Népszava, graphics by Szilvia Kőszegi

Hungarian deficit between 2001 and 2014 / Ecostat, Népszava, graphics by Szilvia Kőszegi

Unfortunately, Hungary’s unorthodox economic policies aimed at lowering the budget deficit were costly to both the population and the economy. Trying to hide economic austerity from the general population, the government taxed businesses and banks to death and was unable to stave off an economic recession. Yes, the deficit is low at the moment, but how long can the government continue an economic policy that does not produce growth?

The Orbán government was also fixated on reducing the national debt, which was not higher than in most European countries. They confiscated 95% of all private pension funds, in part to lower the debt. Since then that enormous sum of money has evaporated. Some of it was absorbed into general funds and more than half of it went to the bottomless pit of the national debt burden. Because Viktor Orbán was unwilling to accept the terms of a low interest rate IMF loan, the country was forced to borrow at market rates. The sad result is that the Hungarian national debt is higher today than it was in 2010.

Yes, Hungary is off the hook for the time being, but Brussels made several recommendations and suggested specific steps the country should take to achieve sustainable economic growth.

The European Commission was critical of the Hungarian government for concentrating on the revenue side of the ledger.  They suggested restoring the former competence of the Fiscal Council and advocated a return to normal lending by decreasing the bank levies. They criticized the newly introduced flat tax which favors the rich and over-taxes the poor. They maintained that Hungary should concentrate on employment. Hungary has one of the lowest rates of labor market participation in the Union. They called the attention to the social situation that continues to worsen with 31% of the population at risk of poverty.

They suggested that the country “create a supportive business environment, in particular restore an attractive environment for foreign direct investors, by making the regulatory framework more stable and by fostering market competition. Ensure the prompt implementation of measures envisaged to reduce the administrative burden, improve competition in public procurement and take adequate measures to tackle corruption.”  They criticized the measures introduced in the field of education. As opposed to earlier years when fewer people were dropping out of school, this trend was reversed in 2011. They are concerned about the “ongoing education reform” in higher education. And finally they criticized the regulation of energy prices. In their opinion these regulations should be gradually phased out while “protecting the economically vulnerable.” Public transport should also be more cost efficient.

These are precisely the steps that the Orbán government doesn’t want to take. But if they do not follow this sound advice, it is unlikely that considerable economic growth can be achieved in the long run.

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cheshire cat
Guest

I think if the deficit is lower than 3%, the EU would be breaking the law if it didn’t allow a country out of the EDP.
Also, 5 member-states now leaving the procedure is a powerful message to the world about the Eu economy “stabilizing”. It is good news.

But you are right, Eva, Hungary will still be monitored. This is the link to the press conference where a Hungarian journalist (HVG, I think) asks Rehn about what it is that a country can do now, once out of the EDP.

Rehn answers at 14.00-17.40
http://ec.europa.eu/avservices/video/player.cfm?ref=I078808

In short, the country will be in the “preventive arm of the stability and growth pact”, it has to show that the medium-term fiscal sustainability is achieved. If it isn’t, the country gets back into the EDP (see Malta). But I think he explains is better than me.

This hasn’t got much to do with Orban’s political style, but this way Orban’s argument about the EU being unfair and using double standards against Hungary will not be justified. At least not in this context.

NWO
Guest
Orban scored a huge victory politically, even if the long term economic benefits to the Country are AT BEST modest. First, he can boast that he “won”, and he got the EU off of the country’s back and has restored some level of sovereignty for Hu. Second, he can claim that all the pain he has inflicted on the public and business was for a good long term cause. Third, he will have marginally more budget flexibility (and is assured of the flow of EU money) up through the election next year. BTW, to top off the good news for the PM, the OECD revised their projections for Hungary and see the country now growing modestly in 2013. Whatever one judged his chances of getting relected the day before yesterday, they increased considerably yesterday. Long term of course, the changes in the politics he has implemented and the increased role of the State in the economy will continue to have a disasterous affect on the Country. But as all that matters is winning elections, the PM seems for a change to have outsmarted his adversaries in Europe and to greatly improved his chances for being around to celebrate his 55th… Read more »
Kirsten
Guest
NWO: ” to have outsmarted his adversaries in Europe and to greatly improved his chances for being around to celebrate his 55th birthday in power as well.” I think there is some misunderstanding here about the interests of the EU. I know already that “Hungarian cleverness” and “outsmarting” has some particular place in the Hungarian self-image. But perhaps people could be reminded of that Ceausescu also was able to repay Romanian debt and build huge palaces – while the rest of the world looked amazed how average people had to live in Romania. So I wonder who is outsmarting whom. The EU made perhaps a political move, but most likely not to please Hungary (this is still not relevant enough in current circumstances) but because of other considerations related to the euro area and too strict austerity in some countries there. To judge everything from the standpoint of who is the most “clever (Hungarian style)” and who is being “outsmarted” can prevent people from grasping the essence of a matter. In the end the average Hungarian will have to emigrate or live in poverty, but of course knowing that OV “outsmarted” the EU in particular will be a huge consolation.… Read more »
tappanch
Guest

World Competitiveness Scoreboard

Hungary’s ranking:
1997: 37th
2010: 42nd
2013: 50th

http://www.imd.org/uupload/imd.website/wcc/scoreboard.pdf

tappanch
Guest

After the introduction of the tobacco concession, the Orban government plans to do the same with the alcohol sales.

Just politically connected friends and relatives can be retailers of the most profitable products – alcohol & tobacco.

http://magyarnarancs.hu/belpol/nemzeti-italbolt-85019

tappanch
Guest

The Orban government outsources the selling of residence permits to offshore companies.
These companies will gain more than 24% profit.

Applicant —> [unknown sum for an offshore company voucher] —–> Offshore company

Hungary —-> [ 275,000 euros for a 221,000 euro investment in a nominally 250,000 euro bond, i.e. 24.4% guaranteed profit] —–> offshore company

http://index.hu/kulfold/2013/05/30/nem_is_allamkotvenyt_kap_a_letelepedo_kulfoldi/
http://atlatszo.blog.hu/2013/05/24/megkaptuk_a_letelepedesi_allamkotveny_szerzodeset
http://zsiday.hu/blog/70-leped%C5%91-leteleped%C5%91

Ron
Guest

tappanch :
After the introduction of the tobacco concession, the Orban government plans to do the same with the alcohol sales.
Just politically connected friends and relatives can be retailers of the most profitable products – alcohol & tobacco.
http://magyarnarancs.hu/belpol/nemzeti-italbolt-85019

I understand that he is also planning to do this for Icecreams. So what is next, candy?

tappanch
Guest

@Ron

Do not give them ideas! You can buy ice cream in non-Fidesz stores too, but you will have to go to Fidesz stores to buy cigarettes & alcohol.

Bowen
Guest

I’ve noticed that there are suddenly CBA shops everywhere (as good as a Fidesz store, no?). On one side of Madach Ter in Budapest, there used to be a Rothschild supermarket until one or two years ago. On the other side there use to be a Match supermarket until earlier this year. Now they are both CBAs, within about 100 metres of each other.

Member

@Bowen

Thanks to the preferential tax treatment, CBA, proud supporter of both Fidesz and Goy Motorcyclists, became an almost monopolistic grocery chain in some neighborhoods. The French chains Match and Profi left Hungary last year and sold to CBA.

Member

I am very curious if Fidesz would loose the next election, how the incoming government would be able to undo the preferential treatment received by Fidesz opportunists? Will they lease back the land to those who it belongs to? I just read yesterday that a farmer must sell his cows as he lost the land lease deal. He was sure he would get it as he lived and farmed in the region forever, but someone with no ties to the community got it, and since the land is just left unused. Clearly someone was speculating with no intention to farm but most likely to sublease. In the farmers market (piac) where my parents are shopping is a traffic. The man is there for twenty years with no complain and he lost the tender, even though he lives a block away. At the same time Orban’s friend is keep sweeping all the tenders supported with EU money.
I think the next government (if not Fidesz) will have to spend years and enormous money on legal experts to figure out how to undue the damage, and how to get the money, lands, stores, contracts, and positions back from the “under qualified”.

LwiiH
Guest

tappanch :
@Bowen
Thanks to the preferential tax treatment, CBA, proud supporter of both Fidesz and Goy Motorcyclists, became an almost monopolistic grocery chain in some neighborhoods. The French chains Match and Profi left Hungary last year and sold to CBA.

I believe Match is Belgium owned but yeah, they were forced out last year. Tesco pays the piper so….

Johnny Boy
Guest

“CBA, proud supporter of both Fidesz and Goy Motorcyclists, became an almost monopolistic grocery chain”

Well, at least they are Hungarian. All others (those who are being sold to CBA) are foreigners.
I wonder how many countries would allow the basic goods stores to be in foreign hands.
(Not speaking of how many “Hungarians” prefer foreigners to natives – they accumulate here on this blog.)

Member

Fidesz makes a second attempt to restrict the right to vote:

http://nol.hu/belfold/megis_megfosztatnak_a__vadbarmokat__a_valasztojogtol_

Guest

Johnny Boy :
“CBA, proud supporter of both Fidesz and Goy Motorcyclists, became an almost monopolistic grocery chain”
Well, at least they are Hungarian. All others (those who are being sold to CBA) are foreigners.
I wonder how many countries would allow the basic goods stores to be in foreign hands.
(Not speaking of how many “Hungarians” prefer foreigners to natives – they accumulate here on this blog.)

A free market allows competition. Competition minimizes prices. The Hungarian consumers will pay dearly for the anti-competition policy of the Orban government.

Bowen
Guest

Johnny Boy :Well, at least they are Hungarian. All others (those who are being sold to CBA) are foreigners.I wonder how many countries would allow the basic goods stores to be in foreign hands.(Not speaking of how many “Hungarians” prefer foreigners to natives – they accumulate here on this blog.)

I avoid CBA if possible. Grim customer service and a lousy range of products (unless you just want to buy alcohol and tinned stuff).

Member

Maybe is some other Hungarians received the preferential treatment (taxes, location, competition removal) from Fidesz, there would be other Hungarians could compete.
It is more likely that Orban thinks “at least CBA is Fidesz supporter”. When a government wants to allow competition it would create equal playground.

cheshire cat
Guest

Kirsten

“The EU made perhaps a political move, but most likely not to please Hungary (this is still not relevant enough in current circumstances) but because of other considerations related to the euro area and too strict austerity in some countries there. To judge everything from the standpoint of who is the most “clever (Hungarian style)” and who is being “outsmarted” can prevent people from grasping the essence of a matter. ”

Very true.
The EU have become more lenient re fiscal deficit and are allowing more time to achieve deficit targets because growth in the eurozone is still negative, and unemployment is catastrophically high.

Apart from loving to “outsmart” in the short-term, Hungarians usually fail to see the whole picture and tend to misinterpret things. They think it’s only about them – if you watch the whole press conference, you can see the Poles are also saying how come the Commission is so “generous” with Poland. It is not about generosity or outsmarting, it’s about laws and rationally thought through policies.

Member

Orban is thinking about how to tax Google, Facebook, Apple alongside the large media companies, because they make “enormous” profit in Hungary.

http://index.hu/belfold/2013/05/30/orban_lesznek_meg_piacokat_atszervezo_lepeseink/

Member

In Hungary, thousands of companies go bankrupt every year. Their creditors may go away empty-handed.

But now the Orban government will compensate the creditors of Hajdu-Bet Inc. that went bankrupt 9 years ago.

The reason? The bankruptcy had something to do with Wallis Inc, where now opposition leader Bajnai was one of the bosses at that time.

The message? Bajnai was heartless nine years ago, but Orban feels for you.

What about the creditors of the thousands of other bankrupt companies, Mr Orban?

http://www.kormany.hu/hu/videkfejlesztesi-miniszterium/agrargazdasagert-felelos-allamtitkarsag/hirek/valodi-gyors-es-hatekony-megoldas-a-hajdu-bet-karosult-gazdainak-megsegitesere

http://magyarnarancs.hu/belpol/a_hajdu-bet_rt_felszamolasa_testkozelbotildel_egy-egy_szarnyat_combot-54525

petofi
Guest

Being removed from the deficit procedure is hailed as a great victory for the Victator, according to Magyar Nemzet. Stories to the effect that ‘our Victor’ has outsmarted Brussels abound. But I think Orban is celebrating with a sour taste in his mouth: in actual fact, he has lost…he’s lost his greatest weapon–EU instransigence and unfairness to Hungary–in his fight
to remove the country from the EU.

He’s been ‘wrong-footed’ by the boys from Brussels and Victor knows it.

Member

Johnny Boy :
I wonder how many countries would allow the basic goods stores to be in foreign hands

If you want bad service and high prices for your own, kill off all the competition. Great idea! But do it right: ban all of them so there will be no comparision (yours will be the best).

Guest

Re CBA:

I can second Bowen, we never go there! Their prices are much too high, the selection and quality are no good (says my Hungarian wife …).

Aldi, Interspar, Tesco and Lidl are our favourites – and of course we buy as much as possible in the local market and from our neighbours – eggs, hens (make a wonderful soup), honey ((tomorrow we’ll buy the new Akác honey …), pumpkin seed oil, potatoes – other vegetables and fruits we often get as presents from our neighbours.

Yesterday (the one day when it wasn’t raining) we plucked all the cherries from our neighbour’s tree – he said we should take as many as possible before the birds eat them …

Without foreign capital and effort(!) Hungarians would live like in Kadar`s time – anyone remember the Magyar Narancs from “A Tanú” ?

Guest

I forgot:

Aldi is also very successful in the USA (and the UK ?) while the English Safeways is retreating there.

Walmart tried in Germany but cut its losses and disappeared again many years ago.

So of course we need international competition – anyone remember the car industry from years ago, when US cars were years behind in technology but changed design every year, Germans believed the Beetle was the best car in the world – and Hungarians could choose between the Trabant and the Wartburg ??

petofi
Guest

In the civilized world–almost anywhere but Hungary–I’ve seen laws that favor a particular industry but never laws that favor a particular chain or a segment of an industry. Of course there may be preferential tax breaks for chains that hire handicapped or ex convicts but that’s not the same thing. Certainly, in the modern world, I’ve never seen government involvement in reducing the competition the way it’s been done in Hungary with the grocery chains.

Another great novelty from Victor and the brilliant Hungarians who support him!

Guest

What happened today ?

The Forint has weakened alarmingly: now it’s 294.9 HUF/€

Two days ago it was 286.7 ????

cheshire cat
Guest
Wolfi, apparently it was the euro that has got stronger. OFF About Aldi & Lidl in UK: since the recession, their previous 3% market share has gone up to 10%, which is still far off the 50% these discount shops cover in Germany – but not bad! Often the tendency is that someone loses their job or gets into other financial difficulties, can’t afford shopping anywhere else, finds out Aldi is good, then sticks with it even after the financial situation stabilizes = challange for big supermarkets (said The Economist). Aldi was chosen “the best supermarket” last year by “Which”, a huge customer analyst group. They are opening new shops every month. The loser of the recession is Tesco at the moment, which is the biggest supermarket chain. They are constantly losing customers to Aldi / Lidl. Waitrose, the poshest, most expensive supermarket is also getting more popular. Where do you shop when you are in Germany, Wolfi, do you go to Aldi? I seem to remember in Germany, there is a Netto or Lidl everywhere in 5-minute-distance, and then posh supermarkets in the city centre. 🙂 ON Orban has always been keen on interfering with the markets, even in… Read more »
Guest

@Cheshire Cat:

To continue OT, our main shopping place is REAL (a chain owned by METRO) because they have the biggest selection – so usually we got to the ALDI first to look for special offers and then buy the rest at Real, they’re conveniently located on the same road …

Lidl is rather crappy, especially with their “fresh” stuff (vegetables)is very and my wife is very touchy there so we only go there when they have something at a good price that we absolutely want …

Back to the Forint:

Portfolio.hu has a very good analysis of the Forint’s plunge – some people must have made good money by that short spike, I wonder who it was ?

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