Viktor Orbán bet on the wrong horse

It’s time to turn our attention eastward, to Russia. Yesterday’s dramatic events shook the world despite the fact that people keeping an eye on the Russian economy have known for at least a year that Russia is in trouble.

Putin’s Russia, which not so long ago Viktor Orbán viewed as an ascendant power–as opposed to the countries of the declining west, is close to economic collapse. Viktor Orbán bet on the wrong horse both politically and economically. His scheme to offer Gazprom storage facilities in return for cheaper gas fell through when Putin was forced to abandon his ambitious plans for the Southern Stream that would ultimately reach Italy and Austria. As for Orbán’s grandiose project of adding two more reactors to the already functioning Paks nuclear power plant, there is a good chance that Russia will not be able to fulfill its promise of a 10 billion euro loan to Hungary. All in all, Orbán’s Russia policy is crumbling.

I would like to return to the passages from the infamous Bloomberg interview in which Orbán talked about his foreign policy objectives. Although some of Orbán’s English sentences are well nigh incomprehensible, here’s my best guess as to his intent.

I found it somewhat surprising that he admitted that the original underpinning of his foreign policy is no longer applicable. We all know that in his mind foreign policy is driven solely by commercial and financial interests. His whole Eastern Opening was based on this belief. Hungary may be a member of the European Union, but its economic future lies with the East. Well, he discovered that currently foreign policy “is based on geopolitics … which is a new challenge for all of us.” Well, not for all of us. It is a challenge for members of the new Hungarian diplomatic corps who have no diplomatic experience. It is a challenge for Péter Szijjártó whose only job until now was running around in Asian and Middle Eastern countries trying to drum up business.

When it came to Russia, Orbán was rather fuzzy in this interview. Hungary’s “Russian Doctrine”–whatever ‘doctrine’ means in this context–“is respect for international law while keeping open opportunities for economic cooperation.” This is a simplistic way of looking at the art of diplomacy. Russia did not respect international law and therefore Hungary, according to its Russian Doctrine, should stand squarely with the European Union. But that attitude most likely precludes “economic cooperation” with Moscow at the moment. How is he planning to achieve this acrobatic feat? “Hungary’s national interest on [sic] Russia is that we have to stick to principles of international law and shape economic sanctions depending on the situation. We shouldn’t throw sanctions out of the tool box but the EU should also start talks with Eurasian countries at the same time.” First of all, it is not clear what he means by “Eurasian countries.” Does he mean those countries that belong to the Eurasian Union? Belarus and Kazakhstan? Belarus used to send 80% of its exports to Russia, but because of Russia’s economic collapse those exports now make up only 40-45% of the country’s total exports. President Aleksandr Lukashenka urged his government to seek new markets. The Hungarian government, which complained bitterly about the EU sanctions that affected the country’s agricultural sector, would most likely have seen its agricultural exports to Russia slashed as well, even without the sanctions.

There is another Orbán sentence I found intriguing: “it can be expected of Hungary that it be as loyal as it can to Europe’s common foreign policy and for it not damage its efficiency.” My best guess is that this means that Hungary will be loyal as long as such loyalty does not damage its own interests. That’s not much of a commitment.

 

Vincent van Gogh, Old Nag (1883)

Vincent van Gogh, Old Nag (1883) Source: wikiart.org

The first batch of EU sanctions against Russia expires in March, the next in April, and the most painful ones on Russian banks and energy firms at the end of July. Russia already began lobbying in the capitals of countries most likely to take Russia’s side and thus prevent the renewal of the sanctions. The three countries the Russians are concentrating on are Hungary, Cyprus, and Italy. Hungary and Cyprus are considered to be vehicles of Russian designs–not exactly countries loyal to the EU cause. For the Hungarian prime minister, loyalty to the West only goes so far.

As for the future of Paks, more and more people believe, even within Fidesz circles, that nothing will come of it. Yet on December 9 three contracts were signed by MVM Paks II Atomerőmű Fejlesztő Zrt. and the Russian Joint-Stock Company Nizhny Novgorod Engineering Company. The Hungarian government official in charge of the project claimed that five months of intensive negotiations preceded the signing of the contracts. All details concerning the deals are secret. It seems to me that the Hungarian government is trying to sign all contracts pertinent to the building of the reactors as soon as possible. Of course, these contracts have nothing to do with the loan agreement itself. Contracts with engineering firms will be useless if there is no Russian loan. One can only hope that the Hungarian side had the good sense to include a proviso to the effect that the contracts are binding only if Hungary gets the necessary loan from Moscow.

Since December 9 not much has been heard about the contracts except for an exchange between Bertalan Tóth, an MSZP member of parliament, and János Lázár, minister of the prime minister’s office. According to Lázár, it was decided that in building the new reactors the government will invite western managers and partner firms. International headhunters are looking for the appropriate partners, according to Lázár. According to information received by vs.hu, two such energy companies might be in serious contention: the French Areva and the Finnish Fortum. This sounds to me like an attempt to sweeten the bitter pill for Brussels. Of course, it is possible that all this effort will be in vain and that Orbán’s dream of being the supplier of energy for half of western Europe will never materialize.

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tinshed (@tinshed)
Guest

Regarding your image of an “Old Nag” I was reminded of János Tornyai painting, “Gloomy Hungarian Fate/Bús magyar sors” that can be found here –comment image.

Very applicable in today’s Hungary!

gdfxx
Guest

I wonder if the Russian loan for the nuclear reactors in Paks is really a problem. Everything is supplied by the Russians and they could be paid in rubles and not euros. So, all they have to do is recalculate the loans from euros into rubles and the deal is doable. After all Putin can print an infinite amount of rubles, lend it to Orban and then Orban can pay the Russian companies with these rubles. The whole scheme reminds me of an old joke from the old country: the Soviet Union and one of the countries from Eastern Europe – let’s say Hungary – announce that the annual volume of trade between them is $10 trillion. When asked about details, the explanation is this: the Soviet Union supplies a dead dog worth $10 trillion to Hungary, and in exchange Hungary supplies to the Soviet Union two dead cats, worth $5 trillion each.

Putting the joke aside, if indeed this kind of a scheme is implemented, Hungary may find itself in a situation similar to those of its citizens who borrowed in foreign currency to buy houses. Except that there won’t be a FIDESZ to save it.

tom
Guest

Some Americans, underestimate the Russians, just like Hitler did.

It is a serious mistake. If the Russians are pushed into a corner they may attempt to fight their way out of it.

They might do a regime change in Ukraine and install a puppet government the same way the US did in Iraq and Afghanistan. Or they might do something worse. Much worse.

If Russia really becomes very desperate…

Then how much money can they make by selling ballistic rockets and nuclear warheads to Iran and other countries? Hundreds of billions or thousands?

gdfxx
Guest

@Tom: Iraq and Afghanistan have democratically elected governments as opposed to the Saddam and Taliban dictatorships that the American troops found there. Why do you call them puppet governments?

Member
The foreign policy of Hungary is simple and vulgar. They sell themselves to the highest bidders, no matter who it is and what it stands for and/or does. In vulgar terms, the Hungarian Government and the neo-fascist viktor became prostitutes of the World. —————– I think, Paks II. will not happen. I trust the ex-ambassador to Russia, who stated it about three months ago. I am guessing, that he still has contacts and he can see the bigger picture, how the Russian Government operates and what are the main priorities there. There is no need for Paks II. There is ample electric generating capacity in Europe and also in Hungary. Actually they buy a large portion of the electricity from the neighbors, it is cheaper, than generation it in Hungary. The Fidesz/KDNP/Jobbik will not be around long enough for the Paks II reactors to be manufactured, at the most, some construction will take place at the site and be a waste and monument to their obstinate stupidity, their greed and their crimes, like Ócsa. —————– With all due respect, one does not have to be a fortune teller, that renewable and “green” energy is what progressive countries will use more… Read more »
Member

@tom:
We may underestimate the Russians, but so are they, us. So far they are the ones who underestimated us more.
Just a reminder: The Russian victory over the Germans in WWII was ONLY POSSIBLE, because the US industrial might helped them with military equipment and materials!!! This is by no means to disrespect the heroism of the Russian soldiers and the concentrated effort and sacrifice of the Russian people. I tip my hat to them!
Any country can only be strong if it has a solid economy, solid industry and banking, so it stands on many legs.
Russia imports raw materials and energy, they have two legs only. It is enough to kick out one and it falls. They are not yet a serious industrial country and they are not integral part of the international finances yet. On top of itt, they have to import food. (Leaders of the Soviet Union used to boast that they are largest producer of wheat, barley, rice and many foodstuff, I wonder what happened?)
Nevertheless, you can root for them, they might win, the next time. If China also lets them.

onlyjustwords
Guest

I bow to your credentials. LOL.

Marcel Dé (@MarcelD10)
Guest

Eva S. Balogh: The Hungarian government, which complained bitterly about the EU sanctions that affected the country’s agricultural sector …

You mean the Russian sanctions (or counter-sanctions).

googly
Guest

gdfxx,

You might have forgotten that the bulk of the money spent on Paks II would be for construction labor and materials (concrete, steel, etc.),which would mostly not be supplied by Russia, necessarily. I don’t think that the Hungarian government is foolish enough to import a large force of Russian construction workers (lock up your daughters and your vodka!), and the concrete and steel would be bought on the open market (probably), from the supplier who charges the least.

Okay, maybe that’s naive of me, but anything else would definitely anger Hungarian businesspeople, who expect to get a slice of the pie, and Hungarian workers, who would like to have jobs to replace those lost to the Sunday closings.

gdfxx
Guest

googly,

I don’t claim to know what Orban’s and Putin’s plans are, I am just guessing. By the way, Hungarian subcontractors and workers may also be paid in rubles. Maybe Hungary is going to join the ruble-zone ;-).

Also, to assume that materials would be supplied by the lowest bidder is an exaggeration (in this case). The suppliers would probably be those who are closest to the government (maybe Orban’s father’s company ;-).

Finally, I doubt that people who lost their jobs because supermarkets close on Sunday are qualified to build nuclear reactors.

Paul
Guest

“One can only hope that the Hungarian side had the good sense to include a proviso to the effect that the contracts are binding only if Hungary gets the necessary loan from Moscow.”

Hope based on what – previous experience, Hungarian business competence, Orbán’s native economic intelligence?

I’d be VERY surprised if they’d included such clauses!

Paul
Guest

At the time it was negotiated, that 10b Euro loan was equal to about 400b roubles. As of tonight, it was equal to nearly 800b roubles.

At the time it was negotiated, Russia could afford it fairly easily. As of tonight, Russia is about to enter its deepest recession since 1980, and can barely afford to feed itself.

It may turn out that fate has given Orbán a very lucky break on this.

Sylvia Kling
Guest

Danke, Eva und den anderen hier , dass ich an der Entwicklung in Ungarn teilhaben darf. Ich bin ungarischer Abstammung und liebe Ungarn sehr. Ich hoffe, Ungarn bleibt ein STOLZES LAND. Liebe Grüße und ein frohes Weihnachtsfest,Sylvia Kling und Sohn Ferenc

Sylvia Kling
Guest

🙂
Részt vehet Köszönöm, Eve , és a másik tettem itt a fejlődés Magyarországon . Én magyar származású és magyar szeretem nagyon. Remélem , hogy Magyarország büszke ORSZÁG . A legjobb kívánságait, és boldog karácsonyt , Sylvia Kling és fia Ferenc – kérlek bocsáss meg a rossz magyar

Kolja
Guest
gdfxx, googly: for many years the mantra was Hungarian businesses will provide only 30% of the Paks 2 budget, given that Hungary has no real local technological know-how on the field (compared for example to the Czechs who do, so they could reach a higher domestic input in a nuclear construction project). Se we could provide concrete (Közgép, Market etc.) and human labor, but not machines and sophisticated stuff. Now, when the secret agreement to do the deal with Russia (instead of doing it via a tender) was announced it turned out the Hungarian portion will be miraculous 40%. Which simply means that 10% was added, which will be duly stolen. But if push comes to shove this 10% be taken off (however the project is long and Russia might become stronger during its tenure so the Hungarians will have ample time to steal and the budget will only increase anyway). In any case, I agree that most of the deal can be financed via rouble and the rest by HUF (via the National Bank of Hungary). Once more: Paks 2 is absolutely sacrosanct for Orban and he would cut his limbs before abandoning the project. The Russians also want… Read more »
Kolja2
Guest
gdfxx, googly: for many years the mantra was Hungarian businesses will provide only 30% of the Paks 2 budget, given that Hungary has no real local technological know-how on the field (compared for example to the Czechs who do, so they could reach a higher domestic input in a nuclear construction project). Se we could provide concrete (Közgép, Market etc.) and human labor, but not machines and sophisticated stuff. Now, when the secret agreement to do the deal with Russia (instead of doing it via a tender) was announced it turned out the Hungarian portion will be miraculous 40%. Which simply means that 10% was added, which will be duly stolen. But if push comes to shove this 10% be taken off (however the project is long and Russia might become stronger during its tenure so the Hungarians will have ample time to steal and the budget will only increase anyway). In any case, I agree that most of the deal can be financed via rouble and the rest by HUF (via the National Bank of Hungary). Once more: Paks 2 is absolutely sacrosanct for Orban and he would cut his limbs before abandoning the project. The Russians also want… Read more »
gdfxx
Guest

Kolja2

“the budget will only increase anyway”

That’s right, government projects always come in substantially over contract, regardless of which government we are talking about. Change orders are the rule!

Member

Faera Lane (@FaeraLane)
What are YOU “yacking” about? Using slang words is rarely a sign of high intelligence and refinement. Do you have something more intelligent to say, which is related to the article?

Webber
Guest

@tom – Russia is in financial difficulty because the price of oil is low, so Russia will attack the West, which buys that oil?
That sounds insane.

Guest

@gybognarjr:

FaeraLane = justwords … is just trying to get our attention for its ramblings on twitter etc …
Please ignore it!

Back to topic.

It really will be “interesting” to see what happens in Russia in th next months/years.
Btw Russia is not that “big” – it has less people than Bangladesh (or Germany plus France plus Italy), so its economic power is really negligible – of course the oil and gas make a little difference right now.
And its atomic arsenal is rotting away – though I don’t know if that’s a good thing …

Member
WOLFI: I try to answer to your poetic question with my fortune telling. I think Putin will change directions in his policy and we will be stupid to let him keep the Crimean peninsula. The sanctions will expire and business will be as usual. It is nice for the Saudis to stay with us on the oil price, but cannot be kept up forever, because they are loosing tens of billions a month. We made some concessions regarding Syria and Iran, perhaps even on Israel, but that is not much of a payment, it will keep the Saudis “happy” only until March or June. With the low oil prices we turned upside down many other countries annual budget, there will be a choir of unhappy US haters by Spring. The viktor will get a 1 hour crash course on foreign policy from Angela Merkel in the Spring, the jest of it will be, that he is but one voice in the EU choir where she is the conductor. If he wants to get paid, he has to sing the same tunes, no more falsetto solos. Paks II. will never be built, only some construction will start and become a monument(al)… Read more »
PWT
Guest

Kolja2 wrote: “Se we could provide concrete (Közgép…”

Knowing what we know about Közgép and contracts, does anyone seriously believe that we can trust Közgép to deliver concrete of the quality required for a nuclear reactor installation? and knowing about the oversight which the present government has given to Közgép, namely none, do we trust the present government to properly inspect such concrete? Know fear.

Guest

@Eva:

If FaeraLane aka onlyjustwords returns – please delete her/them!

Some background info you find here (This is not a joke – it’s horrible reality …):
http://www.dilbert.com/blog/entry/my_stalker_returns/?CmtOrder=Rating&CmtDir=ASC

Member

I am not sure where the information regarding the Rubel loan of Paks is coming from.

According to an interview from February 20th with Mihaly Varga, Minister of National Economy since 2013 the loan is in Euro.
“11-12 milliárd euró lesz a paksi beruházás, ennek 80 százalékát adják az oroszok, 20 százalékát kell fizetnie a magyar félnek”. The investment in Paks will be around 11-12 milliard, 80% will be given by the Russians, and 20% shall be paid by the Hungarians. It is a ‘bit confusing because after all, the whole some will be paid by the Hungary but not at once.
http://www.napi.hu/magyar_gazdasag/varga_a_paksi_projektrol_jol_jartunk_ezzel_a_devizahitellel.576895.html
http://www.napigazdasag.hu/cikk/13778/

According to the conservative Mandiner:
“Magyarország a hitelt euróban törleszti Oroszországnak.” Hungary shall pay the loan in euros to Russia. “10 milliárd eurót”
So if we borrowed 10 euros it is still 10 euros but the forint is weakening. The loan is not tied to the Rubel but to the EUR.
http://mandiner.hu/cikk/20140313_mar_iden_fizetunk_kamatot_a_paksi_hitelert_az_oroszoknak

There is no mention of rubel anywhere.

Anna Bayer Washington DC
Guest
Anna Bayer Washington DC

Other Topic: A moral question

The Orban government erected the shameful German occupation memorial, included nazi authors in the curriculum, changed history (see preamble of the new constitution).
Poor Jewish communities inside and outside of Hungary rejected government funding, including communities in Transylvania, Slovakia etc…

In the meantime the government propaganda goes full speed in Washington and New York. Let’s mention those artists and groups who serve the Hungarian government in this effort. Shame on them!!!

December 14, 2014 – Washington DC – Washington Hebrew Congregation
December 16, 2014 – New York – Bar in the Village
NIGUN KLEZ-JAZZ BAND
https://www.facebook.com/pages/Embassy-of-Hungary-in-Washington-DC/102507676462147

(Leaders of MAZSOK and MAZSIHISZ also attended the event in DC – see photos above on the embassy’s facebook page)
” Our guest of Honor, Deputy State Secretary Csaba Latorcai (Prime Minister’s Office) introduced the program. Among many guests András Heisler (President of the Federation of the Hungarian Jewish Communities), György Szabó (President of the Hungarian Jewish Heritage Public Endowement), Gábor Gordon and Márton Székhelyi (March of the Living, Budapest) also attended the concert. ”

December 16, 2014 – New York – Consulate
TALES OF TELEKI SQUARE – GABOR BARAT, ANDRIS MAYER, GABOR MAYER
https://www.facebook.com/events/891542204203358/?pnref=story

Shame on them!

MagyarazomBizonyitvanyom
Guest
MagyarazomBizonyitvanyom

Anna Bayer Washington DC is right.

To many Jewish groups are guilty of collaboration with the enemy.

No decent person should accept any support from the Hungarian embassies, or attend their parties.

Let us refrain from all contacts with the diplomatic circles of Hungary.

LwiiH
Guest
@gybognarjr, I fear that the Russian situation isn’t driving the Saudi’s to maintain current oil prices. The root of the problem is that the US gradually over time because an oil exporting country. This is because of energy independency policy changes that came shortly after 9/11. It took almost 10 years for the policy changes to take effect and today we can see that it’s produced a glut of oil on the market and hence low prices. Now the picture from this point is a bit complex but… In what looks like it’s a problem for the Saudi’s is the US interest in talking to Iran because of ISIS. With those talks comes the possibility of lighter sanctions on Iran. Those sanctions are a bonus for the Saudi’s so of course they want them to remain in place. They certainly don’t want to cut production to give Iran room to sell in their absence. Which leads to the next point that everyone is playing chicken with the prices As we all know, The way to higher prices is to cut supply. But unless all cut and cut equally those that do cut will be unable to regain market share once… Read more »
Member
LwiiH: I maintain, that the US cannot dictate policy around the World withoutthe influential help from other major political and economic powers. We were successful lining up Germany and the EU and we needed the Saudis to keep OPEC from dropping production. For the Saudis we had to pay a price and I am sure our policy toward Israel was one of them. Our energy policy is far more than 10 years old, it started after the second oil embargo. The production of US oil and gas is largely dependent on the price, and because the existing fields were producing oil far more expensively than the Arab oil, we bought the cheap energy from them. Meanwhile the technology was developed to produce oil and gas cheaper and with different methods, horizontal drilling, steam and water pumping and the shale oil and gas production. The goal is to be 100% self sufficiency in energy production by 2025, also the laws of each state dictates that by then, 25-27% of the energy must be from renewable resources. I think we can make it. There are various tax incentives which help development of green energy until then. Despite of all the criticism of… Read more »
LwiiH
Guest

I should have added that the US has been pressuring the EU to take the same steps and their estimate is that if the EU started on a path of energy independence today it would take about 10 years for it to have an effect… so Putin is will continue to have Europe in his back pocket via Gazprom for quite some time.. and if he’s effective in thwarting EU efforts to diversify away from Russia.. well….

gdfxx
Guest

LwiiH,

The US is not an oil exporting country. Actually there is a ban an oil exports from the US, ban imposed by the US government during the Arab embargo of the 70’s. However, the fact that the US imports much less oil does have the same effect.

Also, there some move to stop the ban, see below:

http://www.wsj.com/articles/bhp-to-sell-texas-oil-overseas-without-formal-u-s-government-approval-1415140850

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