Tag Archives: convergence program

Legal grounds for the suspension of EU funding to Hungary now

As always, Hungarian Spectrum welcomes democratic voices from and about Hungary. Today we are publishing an article by Hungarian experts on EU affairs. They asked not to publish their names. The reason for this should be obvious if you have read the study Political discrimination in Hungary.

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More and more high-level politicians are calling for cutting EU funding to Hungary because it does not respect the fundamental values and, in certain cases, even the legislation of the European Union. For example, such statements have been made by Emmanuel Macron, President of the France, Christian Kern, Chancellor of Austria, and Günther Oettinger, Commissioner of the European Commission responsible for the budget. Vivian Reding, member of the European Parliament and former EU commissioner for justice and fundamental rights recently declared: “This would be the most effective way to influence the behavior of a government like the Polish one – making a link with the money. It’s the only thing they understand.” Gajus Scheltema, the ambassador of the Netherlands to Hungary, referring to the Hungarian government in an interview a few days ago, declared: “The argument over what happens with our money is indeed growing ever fiercer. We can’t finance corruption, and we can’t keep a corrupt regime alive.”

However, when speaking about the violations of the principles of democracy and the rule of law in EU member states, it is often said that at present there is no legal ground to suspend EU funding to the countries concerned. The German government started to investigate the possibilities to enable the European Commission to freeze funding for EU member countries that don’t comply with the EU’s standards regarding the rule of law – during the next budget period, i.e. 2021-2027. A recent editorial in The Economist (Stop spoiling Hungary’s prime minister – What to do when Viktor Orban erodes democracy) proposes that “the EU should use upcoming budget negotiations to apply fiscal pressure.” Michael Meyer-Resende, executive director of Democracy Reporting International, proposes in his article in Politico (How to fix Europe’s ‘rule of law’ blindspot – Freezing funding to misbehaving members will arm the bloc to withstand authoritarian assaults on democracy) that after 2020 the multi-year agreements which regulate the paying out of EU funds to member states should stipulate that “funds can be stopped following serious breaches of obligations on democracy, human rights or the rule of law.” All this means that not much would happen until 2021, which is certainly very worrying in view of the tendencies in the countries concerned.

In our opinion, there is no need to wait until 2021, as existing EU legislation provides sufficient legal ground for suspending EU funding to Hungary. Moreover, we are convinced that if the European Commission had acted in accordance with EU legislation, it would have suspended EU funding to Hungary a long time ago.

Article 30 of the EU’s Financial Regulation (966/2012) states, among other things, that EU “funds shall be used in accordance with the principle of sound financial management, namely in accordance with the principles of economy, efficiency and effectiveness.” Also, according to this regulation, “The principle of efficiency concerns the best relationship between resources employed and results achieved.” Let us look at one of the countless concrete examples which prove that the Hungarian government uses EU funds in a way that contradicts this principle. (The readers of Hungarian Spectrum are certainly familiar with the details of this example; however, it seems expedient to summarize it here.)

Lőrinc Mészáros is a simple gas-fitter and mayor of the small village of Felcsút where Hungary’s present prime minister, Viktor Orbán, grew up. After Orbán came to power in 2010, the minor company of Mészáros and his wife suddenly started to get enormous orders from the government to implement investments in a wide variety of fields, almost exclusively funded by EU money. By now Mészáros is one of the richest people in Hungary. Last year the most-read political daily newspaper in Hungary was bought and closed by Lőrinc Mészáros. This move came just after the newspaper published investigative articles about the corruption affairs of two close associates of Viktor Orbán. Lőrinc Mészáros also bought the overwhelming majority of the regional newspapers, which now echo only government propaganda. We are certain that all this contradicts the provision of the Financial Regulation on “the best relationship between resources employed and results achieved.”

Furthermore, according to the Financial Regulation, “The principle of effectiveness concerns the attainment of the specific objectives set and the achievement of the intended results.” Let’s see another striking example of the violation of this principle.

The Hungarian government announced that it will allocate in 2017 and 2018 most of the EU money available for the funding period 2014-2020, and in fact, it has already started to implement this measure. It is clear that the only purpose of this government decision is to help the victory of Orbán and his party, Fidesz, at the national elections in the spring of 2018, without any consideration of what will happen after 2018 when EU funding will be mostly exhausted. Such jerking of the economy is also extremely detrimental to business in general. Furthermore, the rapid disbursement leads to inefficient use of EU money, and greatly increases the risks of corruption. These are just the opposite of the “intended results” of EU funding. Moreover, the use of EU money for party political purposes is not included at all in the “objectives set” by the EU.

According to Article 59 (2) of the Financial Regulation, “When executing tasks relating to the implementation of the budget, Member States shall take all the necessary measures, including legislative, regulatory and administrative measures, to protect the Union’s financial interests…”

It would fill many pages just to list all those documents that prove that, since 2010, the Hungarian government and Parliament have transformed the whole legislative and institutional system in a way which makes it much easier for certain political and business groups to steal/misuse EU funds. Here we would just like to refer to the five resolutions of the European Parliament between 2011 and 2017 on the situation in Hungary. The smothering of civil society organisations, repressions against independent media, and the wide-spread political discrimination also means much less control over the use of public money, including EU funds. We are convinced that to suspend EU funding it is sufficient to know that a member state has taken many “legislative, regulatory and administrative measures” to eliminate the means for protecting the Union’s financial interests.

According to the EU’s Regulation on the European Structural and Investment (ESI) Funds (1303/2013), these funds “provide support, through multi-annual programmes, which complements national, regional and local intervention, to deliver the Union strategy for smart, sustainable and inclusive growth.” Accordingly, money from ESI Funds and other European funds has been used, among other things, to improve education and strengthen civil society organisations. However, by now, the EU funding for these purposes does not complement national support but only counterbalances to a minor extent the destruction caused by the Hungarian government.

It is also clear that many other interventions by the Hungarian government also contradicted the aim of “smart, sustainable and inclusive growth.” For instance, as mentioned above, the legislative and the institutional system has been continuously tailored in a way to make it possible to steal enormous sums of taxpayers’ money. Thus, what the EU funding complemented to a certain extent was the money missing due to these thefts. (Such thefts are well known to the readers of Hungarian Spectrum. Just as examples of the numerous cases, we mention the changing of the regulation governing the trading of gas via pipeline in order to fill the pockets of Viktor Orbán’s friend, the colossal swindle about residency bonds, and the transferring of an incredible amount of public money from the Hungarian Central Bank to private foundations.)

According to the EU’s Regulation on the European code of conduct on partnership in the framework of the European Structural and Investment Funds (240/2014), the governments of the member states must closely cooperate with “bodies representing civil society at national, regional and local levels throughout the whole programme cycle consisting of preparation, implementation, monitoring and evaluation.” They should also “examine the need to make use of technical assistance in order to support the strengthening of the institutional capacity of partners, in particular as regards small local authorities, economic and social partners and non-governmental organisations, in order to help them so that they can effectively participate in the preparation, implementation, monitoring and evaluation of the programmes.” The difficult and ever worsening conditions in which civil society organisations work make it almost impossible for them to be meaningfully involved in these processes, and this further contributes to the improper and inefficient use of EU funds in Hungary.

In the Treaty of Accession to the EU, Hungary declared the following: “Our common wish is to make Europe a continent of democracy, freedom, peace and progress. The Union will remain determined to avoid new dividing lines in Europe and to promote stability and prosperity within and beyond the new borders of the Union. We are looking forward to working together in our joint endeavor to accomplish these goals.” In our understanding, this means that after the accession to the EU, Hungary should have improved its legislative and institutional systems as much as possible in order to achieve these goals; at the very least Hungary should refrain from any backward measures. It should be convincing enough for the European Commission to suspend funding to Hungary that during the last seven years the Hungarian government took a direction which is just the opposite to what it legally committed itself.

There is already widespread discontent in Hungary with the way EU money has been used. This is a further reason for applying the related provisions of EU legislation and suspending EU funding to Hungary until the necessary steps are taken by the Hungarian government to ensure the use of EU funds in accordance with the EU acquis. This is all the more necessary because such funding, in our opinion, is indispensable for the future of the European Union. We fully agree with the author of the article One of the first steps after Brexit must be the reform of the EU budget that “it is absolutely necessary to provide EU funds to the less developed member states with the goal of improving their economic well-being as well as their political stability in order to strengthen the EU as a whole and to make it more competitive globally. But EU taxpayers’ money must be used for this purpose, not against it.”

September 3, 2017

Money comes, money goes: European Union subsidies in Hungary

Hungarian newspapers regularly report about widespread corruption in the country, amounting to billions of forints. But people complain that it is almost impossible for an ordinary mortal to comprehend just how large these numbers are. Reporters, they say, should “translate” these numbers into a language that the average Joe can grasp.

Péter Magyari of 444.hu did just that in a recent article on subsidies coming from Brussels. According to his calculations, in the last twelve years Hungary has received a total of 12 trillion Hungarian forints (approximately 38.5 billion euros at today’s exchange rate) in subsidies. Indeed, the average Joe is right. That doesn’t tell us much. Perhaps it would help if we broke this incomprehensible number down into smaller units. What if we explain that in the last twelve years Hungary received 2.2 billion forints of financial assistance every day? Or, even better, let’s calculate in euros or dollars. This way, the daily bundle was more than 7 million euros or more than 8 million dollars. Day after day for 12 solid years. It doesn’t matter how you slice it, this is an incredible amount of money. And what is sad is that Hungary has so little to show for it. The subsidies have been wasted. A historic opportunity was missed.

Although breaking down the total into daily packages helps us comprehend the immensity of the economic aid, it is important to note that the distribution of subsidies has not been uniform over time. The bulk of this money has been spent since 2012, which has given a temporary boost to economic growth in recent years. The word “temporary” is key here. When at the end of the 2007-2013 cycle the government rushed to spend the money to which it was entitled so it wouldn’t lose it (it had until the end of 2015 to do so), and when, with the arrival of 2016, there would be no more EU subsidies for a while, economic growth stalled.

Hungary must be doing something very wrong even in comparison to the other countries in the region because, although the subsidies came to a halt at the end of last year in other countries as well, the economies of Poland, Slovakia, and Romania, for example, still showed healthy growth in the first quarter of 2016.

Some of the EU money was, of course, siphoned off as a result of corruption. But corruption is not unique to Hungary, although with the possible exception of Romania, Hungary has the reputation of being the most corrupt East European country within the European Union. And so corruption is most likely not the chief reason for Hungary’s less than sterling use of EU subsidies. The primary culprit is probably the allocation of these resources.

Of the EU money that went to the private sector, the construction industry, which employs a lot of low-skilled or unskilled seasonal workers for funded projects, got the lion’s share. Only 10% of small or medium-size Hungarian businesses received any EU money, and the little money they received was spent on equipment they already needed. Therefore, the subsidies did not spur business growth; they only saved the business owner money, money that he could then, as Magyari says, spend on a sailboat instead. This is one reason the sustainable growth the subsidies were supposed to generate didn’t materialize.

money falling

And Fidesz politicians and their oligarchs do carry it away in wheelbarrows

A lot of money was spent on useless frills. Everybody who follows Hungarian politics knows about all those main squares, which towns across the country fixed up on EU money. Also wasteful was money spent to run government institutions. European Union money was used to replace money the government didn’t want to spend on the education of its own citizens. The result is a dysfunctional educational system that has spawned dissatisfied teachers, students, and parents. In brief, a large portion of the money has simply been squandered. According to one estimate, perhaps one-eighth of all the EU investment will have some positive effect on the economy in the long run. It is of little solace that the effectiveness of the EU subsidies is low everywhere.

The best administered financial assistance program was the Marshall Plan, which was very small in size (120 billion in today’s dollars) in comparison to the massive amount of aid going to the lesser developed regions of the European Union. Comparing the Marshall Plan to the EU subsidies, one is struck by a substantial difference in implementation. Today, the government receiving aid makes its own decisions about how to spend the money. It is true that there are certain restrictions and the grants must be approved in Brussels, but oversight is minimal. In the case of the Marshall Plan, in each country there was a representative of the Economic Cooperation Administration, usually an American businessman, whose on-the-spot approval was required. I’m convinced that having a savvy businessman (not an economist) representing Brussels in each capital would have improved matters greatly.

Some people in fact go so far as to say that the East European countries would have been better off if they had received no financial assistance whatsoever. All that money, often coming in spurts, disrupts the normal functioning of the market economy, and it may induce a country to pursue a path that is not the best for its long-run health. There is another problem, which might be even more important. These subsidies keep up the appearance of growth, which in turn leads to indolence on the part of the decision makers. In Hungary’s case, serious economic reforms should have been introduced a long time ago, but the crutches the EU keeps offering have allowed governments to postpone them. And as long as the free money keeps arriving, we can’t expect any major change in economic policy and consequently any genuine economic growth.

June 9, 2016

Corruption Research Center’s analysis of Hungarian public procurement practices

It might sound like a complaint that an important study on the extent of corruption in procurement practices involving EU funds that was published on March 3 was discovered by the media only today, but I don’t mean it to be such. I actually have a high opinion of some of the Hungarian news sites, especially given their financial constraints. Yes, here and there something is missed, but it might be not their fault. Perhaps the authors of the study didn’t do a good job of publicizing their findings.

The study I’m talking about was done by an organization called Corruption Research Center, established in 2013. Their recent study is the center’s most extensive effort to date. The report examines 127,776 contracts between 2009 and 2015, details of which are available on the website of the Hungarian Public Procurement Authority.

I don’t want to dwell on the details of the study because we have a fair idea of the extent of systemic government corruption in Hungary. We also suspect, as it turns out for good reason, that when the money comes from the European Union, the government-favored “businessmen” become even greedier than usual and the government a great deal more cooperative than when the bills are paid exclusively from domestic sources. There is nothing really new in that, but there are a few interesting, unexpected pieces of information in the report.

One is that “on the basis of statistical research [the authors came to the conclusion] that overpricing in 2009 was negligible.” As we know, Gordon Bajnai was in charge of public procurement involving EU subsidies before he became prime minister, and both he and Ferenc Gyurcsány always claimed that procurement in those days was clean. The public was disinclined to believe them. But it seems that they were telling the truth: the Hungarian government prior to 2010 was not trying to “cheat” the EU. They may not have used the money wisely, but Brussels didn’t have to start all sorts of procedures against Budapest as it does now.

The other surprise for me was that even today overpricing in the construction industry is relatively rare because there are benchmarks for engineering prices which allow pretty accurate calculation of the real cost of the project. This means that for the average overall overpricing to be 30%, in some other sectors overpricing might be as high as 140-320%. The Orbán government in effect encouraged overpricing when it changed the law on public procurement, increasing the opportunities for restricted tenders. If there is no or limited competition overpricing is unavoidable. By now 50% of all tenders are restricted–only firms X and/or Y can apply.

Another fascinating part of the study is the chapter on four Hungarians who have benefited disproportionately from EU grants: Lőrinc Mészáros, István Garancsi, István Tiborcz, and Lajos Simicska. The researchers refer to these four men, who together own 66 different companies, as the MGTS-group. The following graph illustrates Viktor Orbán’s past and present political-economic-familial connections and how he is using European Union money for his own enrichment.

Source: 444.hu

Source: 444.hu

The full study can be found on the Corruption Research Center’s website.

A few months ago I heard an interview with a successful Hungarian businessman, one of the few who is not in Orbán’s inner circle. He can afford to be critical of the present government because his information technology business doesn’t depend on government orders. Most of his business is conducted abroad. During this interview, just as an aside, he suggested that the EU subsidies to Hungary do more harm than good. I tend to agree with him. The state plays a disproportionate role in the Hungarian economy, despite the massive privatizations during the Horn government’s tenure. For instance, it is the largest employer in the country. And in the last six years its role has only increased due to Orbán’s statist economic doctrine and the government’s unpredictable anti-multinational moves, which have retarded foreign investment. The tremendous amount of money that the EU gives to the Hungarian government to use as it sees fit puts a powerful weapon into the hands of Viktor Orbán.

Most of the men whose companies are the chief beneficiaries of the EU subsidies are not real entrepreneurs but ersatz businessmen who came from nowhere and who would be nowhere without the helping hand of Viktor Orbán. Lőrinc Mészáros, the former gasfitter, knows nothing about building roads, railways, and stadiums or raising mangalica pigs. And István Tiborcz would never have made his fortune if he hadn’t courted and later married Orbán’s daughter. These oligarchs are middlemen between the government and the subcontractors. They serve as a conduit for money that comes from overpriced contracts, destined for their and their boss’s pockets.

While all this shady activity is going on, a real Hungarian business class cannot develop organically. Would-be entrepreneurs don’t have the opportunity to establish and grow businesses, especially if they overlap at all with state interests. Yes, all this money coming from Brussels might be counterproductive.

In any case, there is talk about a drastic decrease in subsidies or perhaps even their total abandonment after 2017.  At that time a completely distorted Hungarian economic structure, which is losing its competitive edge day by day, will be at the mercy of international market forces without any assistance from the European Union. The Hungarian “miracle economy” will turn out to have been a sham. As Warren Buffett famously said, “you only find out who is swimming naked when the tide goes out.”

April 10, 2016

Is the Hungarian economy in trouble?

Being no expert on economic matters, I have been hesitant to comment on the state of the Hungarian economy, but for a long time I have had the sneaking suspicion that, despite the self-congratulatory reports of the government and the fairly good numbers, something is awry. Something doesn’t add up. Every day we hear about 45 billion for this project, 35 billion for that project, 50 billion for something else. Most of these projects are frivolous, the classic being a train taking non-existent fans to the Felcsút Football Academy’s fancy stadium. Almost all of the projects are being paid for, at least in part, by money Hungary receives from the much-hated European Union, money that János Lázár, who is in charge of the convergence funds, is trying to spend as fast as possible. These are the investments that were behind the surprisingly good economic growth in 2015. Lázár, who is often quite blunt in his public statements, admitted that Hungary’s economic growth depends on how much money he can “squeeze out” of the convergence funds. Since in the next few years less money will be coming from Brussels, unless the Hungarian economy picks up steam, future economic growth will slow. Under the present circumstances, if the flow of money from Brussels were to stop the economy would simply collapse.

At least this is the assessment of the Institute of Budgetary Responsibility (Költségvetési Felelősségi Intézet). This institute serves as a watchdog over the government’s economic policies. It is a non-governmental organization that was formed in 2011 when Viktor Orbán abolished an official government office, the Budgetary Council, that served the same purpose. The Budgetary Council came into being at the insistence of Fidesz, which, when it was in opposition, was very keen on holding the government accountable. After winning the election in 2010, Viktor Orbán found the Council burdensome, especially since its head, George Kopits, an American-Hungarian who formerly worked for the IMF, severely criticized the government’s budget proposal for 2011. I suggest you read my piece “Goodbye, Mr. Kopits” from November 2011. Here you will meet a rare specimen: a man of integrity. Kopits is a conservative, but by 2013 he was quoted in The Wall Street Journal calling Viktor Orbán’s regime “a constitutional mob rule.” Supporting the work of the Council was a research team of economists. Some of them went on to found KFI.

The Haza és Haladás Alapítvány (Homeland and Progress Foundation, established by Gordon Bajnai) commissioned KFI to prepare a study on the “technical outlook” for the years between 2015 and 2019, which is available online. Without going into the details, let me just say that Balázs Romhányi, the director of KFI, described the Hungarian economy “as a car without an engine that is being pushed and only its windshield wipers work.” Those who push it obviously reside in Brussels.

How heavily is Hungary dependent on the European Union subsidies? As Hungarians nowadays like to say, “brutally.” Here is just one example. The government is hoping for an economic growth of 2.7% in 2016 based on receiving 1,988 billion forints this year and 1,105 billion forints next year in subsidies from Brussels. According to Romhányi’s calculations, however, Hungary would need an extra 600 billion to achieve this goal.

Since Hungary’s GDP depends so heavily on these subsidies, it is of paramount importance for the Orbán government to spend the money as quickly as possible, even if not wisely. Index uses the phrase “throwing the money” when it describes Lázár’s efforts to get projects underway. Although, according to KFI’s calculations, the larger Hungary’s economic growth is in 2016 the smaller it will be in 2017, the study talks about 3-4 “good years.” So if Brussels continues to push the engine-less car, it will help Viktor Orbán’s far-right regime win the 2018 election. Perfect timing, I must say.

economic growth2

Even though the government is under budgetary constraints from Brussels, its spending continues unchecked. “Whatever money comes in [from domestic sources] is immediately being spent.” As an example, when the government received 450 billion forints more in tax revenue than anticipated, “they happily spent the windfall.” Nothing was put aside for a rainy day. In fact, it seems that they spent not only the unexpected revenue but even more.

The government is standing by its call for a 2.4% budgetary deficit. But it seems that without additional revenue it will be hard to meet this target. At the end of October the Magyar Nemzeti Vagyonkezelő Zrt. (Hungarian National Asset Management) sold 14 million OTP shares  for 75 billion forints. As a blog writer described it, the government was selling the family silver.

In assessing the economic health of Hungary, economists pay particular attention to employment figures. But there are serious questions about the accuracy of the data being released by the Central Statistical Office (KSH). The concerns are explained quite well in portfolio.hu, so here I will merely summarize the results. Hungary, like the United States, has two measures of employment: the institutional or establishment survey and the labor force or household survey. According to KSH’s own labor force survey, “the entire growth of employed people in the business sector (without employees in public works and those working abroad) totaled 294,000 between 2011 and 2014 [while] the institutional surveys came up with merely 3,000 people.” Surely, KSH is doing something very wrong.

All in all, we have no idea about what’s really going on in the Hungarian economy. I suspect nothing good. I am almost sure that if the Orbán government were to fall tomorrow, the new government would be in a terrible financial predicament. And the majority of Hungarians, in their total ignorance of what’s going on, dream of hosting the Olympic Games in 2024. In fact, 70% of them would be mighty proud.

Highway robbery made lawful

A few hours ago Nyugati Fény (Western light), a relative newcomer on the Hungarian blog scene, published an outraged post about a well-hidden change of wording in a bill that allows close relatives of members of the government, the president of the Kúria, the president of the Hungarian State Audit Office, the chief prosecutor, the chairman of the National Bank, and several other dignitaries to participate in bidding for state tenders as long as they live apart from the officeholder. The author of the post predicted that this “brazen robbery” will one day seal the fate of “this gang of college buddies.”

The ruse was discovered by another blogger, who called the new law Lex Tiborcz after Viktor Orbán’s son-in-law, István Tiborcz. I devoted several posts to the highly suspicious business activities of this young man, who recently married Orbán’s eldest daughter Ráhel. Tiborcz’s company won a suspiciously high number of tenders offered by municipalities that had received EU money to modernize their city lighting. Often his company was the only bidder, or the city councils simply favored the son-in-law of the prime minister. Tiborcz’s company, as it turned out, also grossly overcharged the municipalities, or more accurately the European Union, for his services. Currently, the company is under investigation by the European Commission Anti-Fraud Office. Once Viktor Orbán got wind of the investigation, he suggested that his son-in-law sell his share in the company.

The changes in the law that was adopted today are minor on the surface. Just a couple of words: in three places “close relatives” was changed to “relatives living in the same household.” But if before these changes no close relative of a government official could participate in government procurement, how could István Tiborcz win all those tenders that made him a rich man in less than two years? The answer is simple. Since 2011 this is the third set of changes to the law on public procurement. The first one stated that only those who “issued the invitation to tender” and their close relatives were barred from bidding for a public project. Since it was not Viktor Orbán in person who issued the tender, his son-in-law could legally bid for government work.

At the beginning of last month, however, the government decided to tighten the rules governing conflicts of interest. Perhaps an overzealous public servant made the rules far too tight for the taste of this government, which by now many Hungarians consider to be a gang of thieves. The new law excluded all close relatives of the prime minister, members of the government, the president of the parliament, etc. That would have barred István Tiborcz from ever getting another job through public procurement. But someone noticed this egregious error and changed the wording of the law in such a way that relatives–including wives, sons, daughters, sons-in-law, parents, in-laws–as long as they don’t live under the same roof as a member of the government or any of the high dignitaries listed in the law can take part in the public procurement process. So, for Tiborcz and others in his position, the doors are again open to acquire lucrative government business, 90% of which is funded by the European Union.

conflict of interest

At first glance this new legislative package looked as if it dealt only with the reorganization of the National Tax and Customs Office. But, in fact, about 100 articles out of 30 different laws deal with public procurement and other matters. Members of parliament had one day to read the 58-page document, which was only one of several pieces of legislation adopted that day. I’m almost certain that no Fidesz MP bothers to read any of the legislative proposals because, almost without exception, the Fidesz caucus votes unanimously for government or individual Fidesz member proposals. As far as opposition MPs were concerned, they didn’t have to think hard about voting against a law that placed the National Tax and Customs Office under strict political control when András Tállai, a Fidesz MP, undersecretary, and deputy minister of the ministry of national economy, was appointed to be its head. And indeed, MSZP, Jobbik, and LMP MPs voted against the bill. But to everybody’s surprise Gábor Fodor, the sole member of the Liberális Párt, and the four members of Demokratikus Koalíció, apparently by mistake, voted for it.

How could that happen? As I said, several–perhaps as many as twenty–laws were adopted on that day, which were listed as they came up for a vote. László Varju, who was in charge of ensuring that the DK members voted in accordance with an earlier party decision, skipped a page and thought they were voting for an innocuous bill that had something to do with Kazakhstan. Gábor Fodor claims that he just pressed the wrong button. Such a mistake is embarrassing even if Ferenc Gyurcsány pointed out that a simple majority was enough to pass “this disgraceful bill.” In fact, 117 MPs, including the full Fidesz and KDNP caucuses, voted for the bill, which was more than enough to pass it.

The truly peculiar and suspicious aspect of this bill is that it will not become effective as of January 1, 2016 but retroactively from November 1, 2015. The suspicion lingers that there is some “good reason” for that unusual backdating. More than likely some business venture of a relative of somebody important in the government is already underway. Perhaps one day we will find out who the lucky fellow is.

One final comment. Although Zoltán Kovács, the government spokesman, insisted that this law conforms to EU legal norms, I don’t know how this new piece of Hungarian legislation will appease the European Union’s OLAF, which is currently investigating István Tiborcz’s business ventures. Or what OLAF will think when one well-placed relative after the other gets a lucrative job, mostly financed by the European Union. Somehow I don’t think that Brussels will be impressed and applaud the mental acuity of the Orbán government. I can’t believe that it will close its eyes to the incredible corruption of Viktor Orbán and his friends.

Transparency International: Systemic government corruption in Hungary

It’s time to recall what U.S. Ambassador Colleen Bell had to say about corruption in her much discussed speech: “Corruption stalls growth, stifles investment, denies people their dignity, and undermines national security…. Wherever systemic corruption has effectively undermined fair governance, it creates an environment ripe for civil unrest, resistance to the government, and even violent extremism.” It looks as if the U.S. government came to the conclusion that corruption in Hungary is no longer the ordinary “garden variety” of corruption where government or municipal officials offer favors for cash but the kind of corruption that affects the entire body politic.

A case in point is the corruption that surrounds the disbursement of European Union subsidies, which the government tolerated and perhaps even encouraged. Or at least this is the conclusion we can draw from the latest Transparency International study titled “Corruption Risks of Union Sources in Hungary.” In this study there is a telling table that lists reports of alleged corruption cases in connection with EU subsidies in 2014. While in Belgium the authorities reported 28 cases of the possible misuse of Union funds (compared to 25 private actions), in Hungary all 28 complaints came from individuals and none from central or municipal governments. Even in the very corrupt Romania there were four instances in which the authorities themselves turned to OLAF, the organization that investigates corruption cases.

burning euros

One of the important findings of the study is that the abundance of money coming from the EU is a major reason for the systemic corruption that exists in Hungary. The second Orbán government in 2010, right after the elections, stopped all projects that were underway and began reorganizing the agency that handled EU funds. As a result, for almost two years nothing happened, even as the country was nearing the end of the seven-year budgetary cycle. The money had to be spent and in a great hurry. As a result, in the 2013-2014 period the government wasn’t terribly fussy about what project would be funded or how much it would cost. The only aim was to spend the money before Hungary lost a large chunk of it. Just to give you an example of the superabundance of money during this period, here is a shocking figure. The amount of money that was spent during 2013-2014 was 10% of the Hungarian GDP. That is an enormous amount of money. Almost three times the amount that Hungary normally receives yearly, which is 3.5% of the GDP.

It is a well-known fact that 95% of all government investment comes from Brussels, without which there would be no economic growth whatsoever. In 2014 the Hungarian government could boast an economic growth of over 4%, which was hailed as a turning point and the beginning of a soaring economy. As if from here on growth would be consistently over 4%. Orbán at times even talked about 5-6% economic growth, which would make Hungary the leading economic power of the region. If you consider, however, that the Union subsidies during that period were 10% of the GDP, then the 4.2% growth is not at all impressive.

This period’s overabundance was unusual, but even the average amount of money that comes from Brussels is substantial. And unfortunately most of it seems to be wasted, at least as far as trying to lay the groundwork for sustained economic growth is concerned. Just to give you an idea of how much money we are talking about, here are a couple of figures. During the budgetary cycle between 2007 and 2013 Hungary received 26 billion euros, a large chunk of which was spent in the final few years. In the next cycle (2014-2020) an additional 19 billion euros can be used. What does Hungary have to show for all this capital infusion? The results are pitiful.

Transparency International found that, on average, companies that win contracts for EU projects overprice their products by 25% and that the authorities know all about the practice but don’t complain. It is considered to be the normal way of doing business. Dickering over price takes time, which the government, in its rush to spend, doesn’t have. Checking on wrongdoings is also time consuming. Of course, the overpricing of products and services can sometimes be staggering. Ákos Hadházy of LMP, the vet from Szekszárd, has ferreted out some such extraordinary cases. In one instance the contractor billed five times the market price for pieces of machinery.

During his research the author of the study, László Kállay of Corvinus University, noticed that the rate of the overpricing doesn’t seem to grow over time. “As if there is some kind of control in the system.” As if there was some kind of understanding between the government and the providers of the services. As long as they are not too greedy and stick to the 25% overpricing, the government will not raise objections.

Meanwhile OLAF is investigating 13 of the 28 complaints coming from individuals. With this number Hungary is in second place in the list of countries whose handling of EU subsidies is suspect. Only Romania has a worse record with 36 questionable cases.

And now a piece of news I spotted in The Financial Times back in September. According to the article twelve EU member states might be in trouble for failing to meet the required standards for public procurement: Bulgaria, the Czech Republic, Greece, Croatia, Italy, Latvia, Hungary, Malta, Poland, Romania, Slovenia, and Slovakia. If EU procurement standards are not met by the end of 2016, the auditors said, “the [European] Commission should use its powers consistently to suspend payments to member states, until such time as they have rectified the shortcomings.” Some of the monies have already been withheld, as was reported by the Hungarian media back in August and September.

Of course, the Prime Minister’s Office simply doesn’t understand what Transparency International is talking about. There may have been problems in the past, but since August 2013 János Lázár himself has been supervising the disbursement of EU subsidies. He has been the foremost advocate of transparency and clean hands. His new deputy, Nándor Csepreghy, announced the other day that there was nothing new in the study published by Transparency International. I’ll bet that most people will disagree with him and will find plenty of new information in László Kállay’s study on systemic corruption in the Orbán government.

Viktor Orbán’s system is already   in ruins

In the last few weeks several analyses have appeared predicting a change of government, perhaps even before 2018 when under normal circumstances the next regularly scheduled national election would be held. A year ago most commentators foresaw a very long period dominated by Viktor Orbán, who is after all only 51 years old. They pointed out the weakness of the opposition and the practically impenetrable edifice the regime managed to create. But things seem to be changing. There is a strong feeling among certain political observers that the Orbán government’s current problems can no longer be remedied by ad hoc measures aimed at turning public sentiment back toward Fidesz and its regime. Something fundamental went wrong. Observers suggest that there may be a direct connection between the Simicska-Orbán falling-out and signs of the impending collapse of the regime.

The most interesting analysis of the current political situation comes from Attila Ágh, a professor of political science, who is certain that “the fall of Orbán is nearing.” His approaching political demise would explain “the hasty and self-damaging decisions by his associates and advisers in which it is not difficult to discern the hysterical signs of an aging dictator’s last days.” A transition phase has begun. The question is how long this period will last. “What will happen before Orbán fails not only in people’s souls but also in politics?”

The Simicska-Orbán system

According to Ágh, the “Orbán regime already collapsed on April 7, 2014, a day after the victory achieved by the complicated system of subtle fraud, and since then we have been seeing only the regime’s last agony.” On that day Viktor Orbán and Lajos Simicska ended their quarter-century cooperation, which was the most important pillar of the whole Orbán system. Ágh is convinced that “the system was built by Simicska, in which the authoritarian world of the economy, the media, and politics fit snugly, with engineering precision.” Orbán, by throwing the engineer overboard, “smashed the system that had worked relatively well during the four years of the second Orbán government.” According to this interpretation, with which I sympathize, without Simicska the system cannot be maintained.

A much young Viktor Orbán and Lajos Simicska on their only picture together

A much younger Viktor Orbán and Lajos Simicska on their only picture together

Many political observers write off Simicska’s quarrel with Orbán as simple greed. According to this scenario, Orbán no longer wanted to cut Simicska into his business deals. Simicska was not going to get a piece of the action in building Paks II’s two new nuclear reactors and he was sore. I have never shared this view. I am convinced that Lajos Simicska’s anti-Russian sentiments are genuine. But Ágh takes another speculative step. He argues that Simicska “did not want to follow Orbán in further building the still half-finished dictatorship. Not only the billions of Közgép fell out with Orbán; the two men parted ways somewhere at the dividing line between managed democracy and hard-core autocracy.” Admittedly, a brave claim, but one that I don’t think is far-fetched.

In the rest of his article Ágh outlines possible ways the Orbán regime’s agony might end. He finds a palace revolution against “the dear leader” unlikely. Insiders are “timid and helpless” since they are no longer accustomed to independent thinking and action. The outcome that Ágh considers most likely is an implosion, “chaos as a result of an internecine war of the Fidesz overlords,” which may last for a long time because in an autocracy there is no real “second man.”

All in all, in Ágh’s opinion, Viktor Orbán “is writing his own obituary day after day.” The opposition should help him “shorten his sufferings” because this is best not only for the country but also for the prime minister. In this way “future historians can compile a shorter list of his sins in the chronicles of the twenty-first century.”

Oh, yes, talking about history. Another commentator, Péter Techet, also mulled over Orbán’s place in history books. He has been in power long enough that scholars will spend considerable time debating his historical role. Techet thinks that only four Hungarian politicians of the last century have been recognized outside of the country as important political figures: Miklós Horthy, Ferenc Szálasi, Mátyás Rákosi, and János Kádár. Although he doesn’t want to compare Orbán to either Szálasi or Rákosi, he asks: “What can Orbán be proud of? Nothing.” And then one by one Techet describes Viktor Orbán’s political failures.

Promises, promises

Although in the last few months the Fidesz leadership has been desperately trying “to buy” the love of wayward voters, my feeling is that the references to gigantic road construction projects, billions for every city in the next couple of years are empty rhetoric. I have the distinct impression that the country’s coffers are not exactly bulging. I wouldn’t be at all surprised, after reading about an interview with László L. Simon, the undersecretary in the prime minister’s office in charge of cultural matters, if the ambitious plan to create a “museum quarter” in Városliget, one of the few green spaces on the Pest side of the capital, is shelved. Apparently, Viktor Orbán doesn’t like the buildings world-famous architects designed. My hunch is that this is just an excuse to postpone or scrap the project.

The European Union may finally be playing hardball with Hungary. The fact that, from day one, the European Commission refused to give any money for the M4 highway project, considering it unnecessary, might portend closer scrutiny of Hungarian proposals. Just today Orbán promised 50 billion forints to the city of Eger, including a four-lane highway. He also told the people of Sümeg that there will be enough money to complete the reconstruction of the Sümeg Castle. None of these projects can materialize without major financial help from the European Union. And if, for one reason or other, the money flow from Brussels stops or slows considerably, Viktor Orbán’s efforts to regain the trust of Hungarian voters will most likely be in vain.

Leaving the sinking ship?

In his article Attila Ágh wrote about “rats leaving the sinking ship” as one of the possible scenarios in the final stages of the Orbán government’s agony. Is it possible that the CEO of the company in charge of the Paks II project is one of the first of these “rats”? It was in 2012 that Sándor Nagy was appointed to head the company that handled the Hungarian side of the project. But today, late in the afternoon, 444.hu reported that Nagy had left Hungary and since April 7 has been working in the London office of WANO (World Association of Nuclear Operators). His disappearance was sudden and unexplained. People familiar with the company and with Sándor Nagy’s role in it are baffled. Will we ever find out the reason? Unlikely. Unless one day we learn that the whole project has been abandoned.