The Hungarian Constitutional Court delivers a blow to the central bank

I would be remiss if I didn’t comment on last week’s news: the unanimous decision of the Constitutional Court regarding the status of the Hungarian National Bank’s recently established foundations.

I have followed and reported on the bank’s highly unusual “business activities,” which included the purchase of valuable real estate with the presumed purpose of making a profit. The best example was the purchase of Budapest’s most valuable office building, the Eiffel Palace.

But the most spectacular venture of György Matolcsy, chairman of the bank, was giving away 250 billion forints to five “educational” foundations. That is a tremendous amount of money, about 2% of Hungary’s yearly GDP. It was especially galling that the National Bank refused to divulge any financial details of these foundations. A year ago, after being rebuffed by the bank on the issue, Bertalan Tóth, an MSZP MP, brought suit against the bank. Tóth won both in the first instance and on appeal: the verdict was that these foundations must give a full account of their operations and finances because their activities are financed with public money. The case then moved up to the Kúria, which agreed with the verdicts of the lower courts.

It was at this point that Matolcsy, most likely with Viktor Orbán’s blessing, made a fatal mistake. With incredible speed a bill was presented to parliament that made the financial details of the foundations a state secret. The reason? Knowledge of the financial activities of an affiliate of the bank might cause financial loss to the National Bank itself. When pressed, Lajos Kósa, leader of the Fidesz parliamentary caucus, explained that the money that had been put into the foundations was no longer public money. It had morphed into private property.

Fidesz’s decision to push this very dubious bill through parliament was in vain. The legislation got into trouble as soon as it reached the desk of President János Áder. He and his legal team decided that the amendments attached to the Law on the National Bank (Law CXXXIX of 2013) were most likely unconstitutional and decided to send them to the Constitutional Court. In cases like this the court has only 30 days to decide. On March 31 they handed down a unanimous decision: the bank’s money didn’t morph into private funds once it was deposited in the foundations. The 250-300 billion forints are still part of the national wealth and as such must be transparent.

The case was so clear cut in my opinion that it would have been close to impossible for the judges, even if most of them are in the Fidesz camp, to give their blessing to this outrageous bill. But the court could have ruled much more narrowly than it did.

The Hungarian media’s primary concern in this case was always the lack of transparency, and therefore the reports that have appeared about the decision usually emphasize this particular aspect of the decision. They rejoice that from here on they will have access to information on these very suspicious foundations without even having to ask for it. From here on these foundations must make all their transactions public on their websites.

I, however, wonder whether some of the Constitutional Court’s observations on the “job description” of the Hungarian National Bank aren’t more important than the transparency issue. The court, among other things, states that the National Bank serves the common good and that it is not part of the private sector. Therefore it cannot pursue commercial activities intended to generate a profit. Whatever extra money accumulates in the coffers of the central bank is the result of changes in exchange rates. But this is not profit in the traditional sense of the word, as Péter Róna pointed out on ATV Friday night. Perhaps the best description of the money thus accrued would be “gain.” In Hungarian, he called it “eredmény.” If, however, a central bank tries to manipulate exchange rates for its own financial benefit, Róna continued, it would most likely be harmful to the country’s economy and would also most likely be illegal.

exchange rate

What is devastating to the present leadership of the Hungarian National Bank is that in its decision the Constitutional Court spelled out the competence of the National Bank: monetary policy and supervision of financial institutions. Its primary goal is the maintenance of price stability. Its capital comes from the state and its shares are also owned by the state. All this makes Matolcsy’s transactions in the last two or three years illegal.

The question is whether there will be any consequences of this reiteration of the mandate of the Hungarian National Bank. It took the bank a long time to chew the verdict over: it was only this afternoon that its spokesman reacted to the March 31 decision of the court. He said that the foundations, even without this court decision, were moving toward greater transparency. But, he added, “these foundations have been separated from the bank and it will be their decision how they will provide the necessary transparency.” This signals to me that the National Bank is planning to continue to play its old games as far as its foundations are concerned.

So far only LMP made public its party’s reaction to the Constitutional Court’s decision. Erzsébet Schmuck, LMP PM, today demanded “the liquidation of the foundations” and expressed the party’s opinion that in view of the Constitutional Court’s verdict the Hungarian National Bank in the past few years has been operating illegally. LMP earlier submitted a proposal which would obligate the central bank to return all gains accrued over 20% or at least 10 billion forints of the total to the central budget. Apparently this is the German practice.

I find LMP’s suggestions logical and appropriate. They most likely reflect the opinions of Péter Róna, who has been active as an economic and financial adviser to the party. It would be a good idea for the politicians of the other opposition parties to support the LMP position.

April 3, 2016
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tappanch
Guest

Summary of the activities of the state-owned Eximbank to convert public money into private money of people close to Fidesz leadership, especially to propaganda minister Rogan.

http://nol.hu/belfold/milliardos-allami-segitseg-az-offshore-tarsasagnak-1609307

I guess Mr Matolcsy did not want to give a nice enough cut to other fideszniks from the $1 billion of public money he wanted to stash away, that is why his plans were scuppered.

Member

“From here on these foundations must make all their transactions public on their websites.”

And, just wondering, what happens if they don’t?

petofi
Guest

In Fidesz hands, the Law is malleable: ‘we apply it to YOU, not to us…’

csuporka
Guest

Actually it wasn’t a unanimous decision.

Firstly, in Hungary judges don’t have to write a dissenting opinion (it’s not a custom, not a requirement) so we don’t really know the size of the majority.

Moreover Bela Pokol és Andras Varga Zs. who are probably the most hard-core fidesznik, hard-core anti-democratic, anti-liberal members of the court actually wrote dissenting opinions (ok, dissenting in part, concurring in part in the case of Pokol, but the bottom line is that they would have essentially affirmed the “outsourcing”/”privatization” of the funds of the central bank).

The interesting is that the parties just don’t react (except for LMP. It’s astonishing how lazy opposition parties are and how they seemingly have no opinions about major political events, developments (this decision is just one such event, most opposition parties remain silent, day after day).

webber
Guest

csuporka, which Hungarian papers are you reading??? Only Fidesz ones?? That’s the only way you could think that the opposition has not reacted.
If you read opposition papers, you’d discover that the whole affair was started by the opposition parties, that they have reacted and are reacting.

Member
In addition to the dubious business activities and the insatiable hunger for prestigious real estate, which are regrettably routine practices in today’s Hungary, there is the most worrisome intrusion of Matolcsy’s foundations into the intellectual sphere. The Parliament approved the creation of Pallas Athene University last November, with non-existent justification for the act (http://www.parlament.hu/irom40/07405/07405-0014.pdf): it will start on July 1. Second, the PADA foundation’s doctoral school that moved into the old Buda city hall in the Castle is not simply occupying a convenient place but is actually replacing one of the most promising scientific institutions launched after the fall of the “People’s Democracy”: the Collegium Budapest Institute for Advanced Study. This is where György Korniss was permanent fellow at the turn of the millennium, and hundreds of superb foreign scholars came for shorter or longer sabbatical stays from diverse disciplines. For instance, when I was there in 2007/08, there was a workshop on the origin of the genetic code led by Eörs Szathmáry, Hungary’s most famous evolutionary theorist, and Yale’s Howard Bloch was visiting. Despite its excellence, the place was not very popular with Hungarian governments (from Gyurcsány to Orbán), and was never given the financial support it deserved, which… Read more »
tappanch
Guest

The ONLY candidate to the post of the “rector” (president) of the Economics University “Corvinus” (originally named after Karl Marx) is the leader of the Fidesz think tank and money laundry called “Századvég”.

If he is “elected”:
SHAME on this country and its super majority of spineless unintelligentsia.

tappanch
Guest

Let me repeat without the automatically censored word:

Today, the only candidate to the president of THE Economics University “Corvinus” (formerly Karl Marx) is the leader of the Fidesz think tank and money laundry “Századvég”.

If he is elected, …. on this country and its spineless unintelligentsia.

tappanch
Guest

Let me repeat without the automatically censored word:

Today, the only candidate to the president of THE Economics University “Corvinus” (formerly Karl Marx) is the leader of the Fidesz think tank and money laundry “Századvég”.

If he is elected, …. on this country and its spineless unintelligentsia.

Member
It is very clear that Orban and his gang tries to find “clever ways” to filter Hungary’s money into programs that would directly or indirectly would allow their own enrichments. There is no way that anyone with clear conscience could believe even for a moment that there is any benefit of not sharing the data about where, and when Hungarian taxpayers money is being distributed. There is no benefit for the nation not to know what the National Bank (for goodness sake) spending money on. Through the years we always blame Orban for being this little clever person coming up with the most outrageous ideas, but I wonder if it is truly him, or he simply a puppet of something. I not want to go into the conspiracy theories that Jobbik and Fidesz is so good about when talking about he opposition., the “forces” that supposedly pumps money into the left… I start to believe that Orban was bought out to begin with, and now things became so intertwined and complicated that he is sucked deeper and deeper in. Thank goodness for the Panama Leaks. It will open up some very interesting data, because the one name we came across… Read more »
Guest

OT

For the entertainment of those who read Hungarian, here is a link to an article with a humorous presentation of what actually goes on in the mind of a typical Orbán supporter in a small Hungarian country town:

http://ujkelet.live/2016/04/01/fodrasz-juliska-a-zsidok-es-a-migrancsok/

Such places in the Hungarian countryside are the very heart and soul of the Fidesz support base. One can laugh or cry about it, and either or both responses would be equally appropriate.

Guest

And speaking of those small towns, I think this is the song Fidesz and the PM has been singing for quite awhile to those ‘Juliskas’ out there…;-)…

http://youtu.be/ZOoh81htGD4

Guest

Real good pictorial metaphorical interpretation of fiduciary oversight by the overseers. A teetering and tottering balancing act. With Magyarorszag seemingly nothing is at it seems. Almost as if it exists as one Russian doll with each nestled continually inside the other. In that ‘democracy’ Sam Spades and Philip Marlowes have a lot of work in the wings. If they can get it.

Guest

Wurzburg Calling!

Utterly Completely O/T!

Due to unforseen circumstances I have been detained by the Wonderful Wonderful Wonderful People of Wurzburg – running from the Hungarian Health service (anyway I didn’t have any A3 btteries) after a holiday, and bumping into some HS friends.

I have internet – as you can see but – Google won’t let me into my email – the least of my problems!

Found Observers observations very interesting – well done Obs!

Normal serice will be resumed as soon as possible – in the meantine here’s some classical music…………..

Regards

Charliie

Member

Anything in the Panama Leaks about Orban?

Member
“Hungarians also involved in world’s biggest offshore record leak http://www.portfolio.hu/en/economy/hungarians_also_involved_in_worlds_biggest_offshore_record_leak.31120.html “The Hungarian Connection” “While analysing the documents Direct36 come across the name of Zsolt Horváth a former politician of Hungary’s ruling Fidesz party. Horváth withdrew from politics two years ago, after representing the town of Kecskemét in Parliament for 16 years. He is the only Hungarian politician actually named in the files, but not the only Hungarian. There are several dozens of Hungarian or Hungary-linked companies and people, including influential businessmen and people indirectly linked to politics, in the files. Direkt36 will publish detailed reports about these in the following days. “Horváth denied to journalists that he had any offshore interest, but when he was asked about specific companies named in the files he asked what they want to know about these. Then he once again denied having to do anything with these firms and asked the questions again in writing. He did not reply to these written questions, though, local news portal index.hu reported on Monday. “Horváth’s asset declarations do not suggest a more serious business background or larger savings. Yet, in October 2013 he was appointed Director of Excelle Media International, a company registered on the Seychelles Islands,… Read more »
spectator
Guest

Try something like “Azerbaijan” if you try to figure out the Orbán investents instead.
Remember, there was that train trip from Switcerland, about in time before they disclosed some of the accounts.
Coincidence, of course, but still…

Look up the definition of “streetwise” or “shrewd ” and you’ll get nearer to Orbán’s mentality.
Not because it will help to get nearer tothe goal, only to understand, why it isn’t working.
Already something, won’t you say?

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