Tag Archives: corruption

Viktor Orbán is losing his cool

Trump’s uncontrolled outbursts seem to be contagious. While in the past Viktor Orbán showed considerable restraint when giving interviews or answering opposition members of parliament, in the last couple of weeks he has given vent to his frustration and anger.

Friday, during his regular morning radio interview, he lashed out against the European Commission, repeating himself, calling the legal opinion released by the European Commission an object of derision, a document that one cannot discuss without laughing. If Hungary accepted this document, it would become the laughing stock of Europe. He went on and on. Then yesterday, he accused Ákos Hadházy (LMP), who has spent years fighting the endemic corruption of the Orbán regime, of corruption himself. Pressured by the European Commission and by Hadházy’s dogged pursuit of his government’s systemic corruption, Orbán no longer seems capable of exercising self-control.

I have been following Ákos Hadházy’s political career ever since he first appeared on the national scene. He reported on a local corruption case in Szekszárd, a small town, where he was a Fidesz member of the city council. Since then, Hadházy, now co-chair of LMP, has focused on uncovering corruption cases. Just the other day, he said in an interview that he had held more than 80 “corruption infos.” Once a week he stands in front of the cameras and reports on yet another horrendous case. Each of these cases involves millions if not billions of forints. Hadházy estimates that in the last seven years the “Fidesz clientele” stole about three trillion forints of the subsidies Hungary received from the European Union. In his assessment, all work performed is at least 30% overpriced.

Lately, Hadházy has been working on two cases, both involving healthcare. The first one was a program that was supposed to set up “mentor houses” for premature babies and their parents in Szeged, Kecskemét, and Gyula. A foundation was established for the purpose, called “I Arrived Early Foundation,” which received 1.2 billion forints from the European Union. Since it was such a large project, Hadházy asked for details. It turned out that less than half of the money was allocated to the program itself. The rest was designated for the maintenance of the foundation. Money was spent on most likely overpriced rentals, legal advice, laptops, telephones, several printers, and very high salaries for the “coordinators,” while the 40 mentors received only about 50,000 forints a month.

It turned out that two other very similar projects received about half the amount that “I Arrived Early Foundation” got, and they managed quite well. Mind you, they didn’t pay 50 million forints for “legal advice.” In fact, they got along just fine without it. While a methodology study cost the “I Arrived Early Foundation” 50 million, the other foundation managed to get one for 8 million.

Hadházy stirred up a hornet’s nest by investigating this particular foundation. János Lázár’s wife is one of the board members of the foundation, and Hadházy suspected that the unusually generous financial support given to the foundation was not entirely independent of Mrs. Lázár’s presence there. Soon after the “corruption info” in which Hadházy announced the foundation’s suspicious expenditures, he found himself in the crosshairs of Zoltán Balog’s ministry, which awarded the money to the foundation, and the Office of the Prime Minister, headed by János Lázár. Nándor Csepreghy, Lázár’s deputy, assisted by the government paper, Magyar Idők, led the attack. Magyar Idők published several articles accusing Hadházy of being a heartless man who compared these premature babies to newborn puppies. Hadházy, who is a vet in private life, did in fact compare the weights of some of these babies to newborn puppies, and he was quite accurate. A newborn puppy is about 500 grams, just like the smallest premature baby. Csepreghy, in defense of his boss, called Hadházy an “ignorant scoundrel.” Lázár at one point offered his wife’s retirement from the foundation, but as far as I know nothing of the sort happened. Naturally, the foundation explained away all of its expenses.

The second case was even more clear cut. The National Healthcare Services Center (Állami Egészségügyi Ellátó Központ/ÁEEK) issued a tender for several ventilators. General Electric and three Hungarian firms submitted bids. The Hungarian firms were actually just wholesalers, and their bids were a great deal higher than General Electric’s. The three Hungarian firms offered to sell the ventilators for a price between 1.7 and 1.9 billion forints as opposed to GE’s offer of 1 billion forints. ÁEEK tailored the tender in such a way that only one bidder could win the tender. Predictably, GE lost the bid, but the company decided not to take the decision lying down. The American firm turned to the Public Procurement Authority (Közbeszerzési Döntőbizottság), which ruled in GE’s favor. ÁEEK had to pay 50 million forints. Bence Rétvári, undersecretary in the ministry of human resources, subsequently denied that the procurement was rigged.

Ákos Hadházy addressing Viktor Orbán in Parliament / Source: ATV

The GE affair was the topic of Ákos Hadházy’s weekly corruption info. János Lázár seemed to agree with Hadházy that those who were involved in the case must be investigated. So, emboldened by Lázár’s reaction, Hadházy brought up the case in parliament yesterday when Viktor Orbán by house rules had to be present and was obliged to answer questions. Hadházy asked the prime minister who was right: János Lázár or Bence Rétvári. Orbán flew off the handle. He accused Hadházy of lobbying for GE. “A representative stands up in the Hungarian Parliament lobbying for a company. How much money did you receive for this? How dare you? How dare you lobby for a company in the Hungarian Parliament during an ongoing public procurement? Especially, on behalf of a foreign company. Now, I have been sitting here for many years, but I have not seen a case more corrupt than this, shame on you!” He also ordered an “investigation” of Hadházy right on the spot.

Hadházy doesn’t seem to be intimidated. He will sue Orbán for slander. Otherwise, he wrote a defiant note on his Facebook page in which he pointed out that Orbán, with his outburst, “kicked a three-meter self-goal” by calling attention to the fact that they want to steal billions from the “dying hospitals.” He said that Orbán’s claim of “an ongoing public procurement” is a lie since the Public Procurement Authority already closed the case. Otherwise, he is looking for the day when Orbán will have to apologize to him. Well, in his place I wouldn’t hold my breath.

October 10, 2017

A few gems from Viktor Orbán’s “strong and proud” Hungary

There are just too many topics that have piled up in the last few weeks that deserve at least a mention. So I decided that today’s post would be a potpourri.

Lex Felcsút

Hungarians like to use the Latin “lex” for “law” when a piece of legislation proposed by the Orbán government is specifically designed to circumvent already existing legal constraints or has been enacted for the specific benefit or disadvantage of individuals. Here are a couple of examples. When Viktor Orbán wanted György Szapáry, who was over the age of 70, to be Hungary’s ambassador to Washington, he simply changed the law, raising the upper age limit for diplomats. When he wanted Zsolt Borkai, an Olympic champion and former lieutenant colonel in the Hungarian Army, to become a Fidesz member of parliament, the five-year moratorium on members of the armed forces for political office was lowered to three. Thus, Lex Borkai.

In 2015 the Demokratikus Koalíció sued FUNA, the foundation that runs the Felcsút football academy, after the foundation refused to release all the documents between January 2013 and November 2015 that pertained to the billions of tax-deductible forints the foundation received from large corporations. The foundation’s position was that the money certain sports clubs receive this way is not considered to be “public money.” The Székesfehérvár court didn’t agree. It ruled that the so-called TAO money in support of sports facilities (Corporate Tax Program) is considered to be public money and instructed FUNA to provide documentation of their finances. FUNA appealed, but in February the Budapest Appellate Court ruled that the books of the foundation for the required period should be made public. The ruling this time was based not on the public nature of the TAO support but on FUNA’s designation as “a publicly useful nonprofit” (közhasznú) organization. Within 15 days FUNA was supposed to deliver the documents to DK.

Those who had been distressed over this murky set-up full of opportunities for corruption were thrilled. “Here is the end,” said Magyar Narancs in February 2017. But not so fast. Nothing is that simple in Orbán’s Hungary. First of all, 15 days came, 15 days went, and no documents arrived. At that point the Demokratikus Koalíció sued. And the case was moved to the Kúria, Hungary’s highest court, for a final decision. There is no decision yet, but the government doesn’t leave anything to chance. On June 27 Magyar Nemzet noticed a small change in the TAO law enacted by parliament a few days earlier. Sports organizations are henceforth no longer designated as “publicly useful nonprofit” entities. If the appellate court decided that the documents must be released because FUNA is a publicly useful organization, the way to deal with this problem is simply to abolish the designation. That’s why this latest fiddling with the law is called Lex Felcsút.

The Poster War

Another perfect example of Fidesz inventiveness when it comes to legislation is the recent law nicknamed Lex Simicska. After a couple of abortive attempts, the Fidesz majority pushed through a law that should have required a two-thirds majority by amending a piece of existing legislation that needed only a simple majority. President János Áder dutifully signed a clearly unconstitutional law. You may recall that these Jobbik billboards, the target of the law change, featured not only Orbán but also Lőrinc Mészáros and Árpád Habony. Jobbik made the right decision when it included these two on their posters. Only yesterday Iránytű Intézet (Compass Institute) released a poll on the popularity of Habony and Mészáros, in addition to that of politicians. These two are at the very bottom of the heap. Habony is most likely seen as the symbol of Fidesz’s very aggressive method of communication, while Mészáros is the symbol of corruption. Clearly the Hungarian people like neither.

A 2010 Fidesz poster right next to Hungária Circus in Hatvan / Source: 24.hu

Lajos Simicska’s firm, Mahír, gave a substantial discount to Jobbik, which Fidesz tried to portray as concealed party financing. But selling advertising spots is like any other business venture where there are no fixed prices. Sometimes they are cheaper–for example during winter. Sometimes they are more expensive–for example, at election time. And, I assume that in certain circumstances personal preferences may play a role. For example, in Jobbik’s case, Simicska’s by now intense hatred of Viktor Orbán must be taken into consideration. Or, conversely, when Simicska worked hand in hand with Viktor Orbán for the good of Fidesz, he gave, as we all suspected, a very good price to his own party. In fact, at the very beginning of the 1990s Simicska purchased Mahír for that very purpose.

Now we know how good a price Fidesz got from Simicska in 2010 when the whole country was plastered with Fidesz posters. Someone made sure that 24.hu got all the documentation covering Fidesz’s deal. Fidesz paid 63% less than Jobbik did for its recent billboards. One billion forints worth of advertising was purchased for 23 million! That’s a real bargain, all right. But that’s not all. Fidesz ordered 4,700 billboards for 23.2 million forints, and they got an additional 1,300 posters gratis. Thus, Fidesz had 6,000 billboards and posters as opposed to MSZP’s 2,000 posters and Jobbik’s fewer than 500 during the 2010 election campaign. But, of course, these parties didn’t have such a generous benefactor. Nor did they have such well-funded party treasuries.

State support of parochial schools

I just read that the Orbán government spends 200,000 forints on children who attend parochial schools and only 54,000 on those who attend public schools. If all children were considered equal, public schools should receive 112.5 billion forints more than they get now. I feel very strongly about this issue, and I find the trend of passing public schools gratis to various churches unacceptable. The kind of education children receive in parochial schools, given the extremely conservative nature of Hungarian churches, may have an adverse effect on Hungarian society as a whole. Moreover, how can the Orbán government justify that kind of discrimination against most of its own young citizens?

Shooting galleries for school children

I left the best for last. Even the Associated Press reported about two weeks ago that Hungarian educational authorities are currently evaluating the installation of shooting galleries in schools to increase the variety of sports available to students. Officials of the Klebelsberg Center insist that the idea has absolutely “nothing to do with aggression and violence.” I saw a high-ranking official of the Center talk about this plan with great fervor in a TV interview, but about two weeks later came the denial. Márta Demeter, formerly an MSZP member of parliament, asked István Simicskó, minister of defense, about the veracity of the news. He flatly denied any such plans. He claimed that the Klebelsberg Center’s inquiries from school principals about appropriate locations for shooting ranges have nothing whatsoever to do with “the long-range defense development program” of his ministry. I’m sure that the Center’s inquiry and Simicskó’s earlier plans of building shooting ranges all over the country are connected. I also suspect that reactions to the notion of putting firearms into the hands of 13-14-year-olds were so negative that the great plan had to be abandoned.

Conclusion

That’s all for today, but I think these few examples are enough to demonstrate that something is very wrong in Viktor Orbán’s “strong and proud” Hungary.

July 2, 2017

Today’s extra: “Observer” on the enrichment of György Matolcsy & family

The corruption cases which grab the public attention are usually the big ones – the Quaestor broker firm with more than HUF 100 billion missing, the MET natural gas deals profits worth approx. HUF 150 billion realized offshore, the Residency State Bond affair with another HUF 130 billion revenue taken offshore, etc.

Corruption in Hungary, however, is so widespread that it is impossible to follow the hundreds of “ordinary” frauds, embezzlements, misappropriations and other corrupt practices flourishing in the Orbán regime. General statements like this are sometimes questioned for the perceived lack of substantiating evidence, although few readers bother to go into any details if such evidence is presented.

Three investigative reporting articles were published in Magyar Narancs (January 19, February 9, and February 23, 2017) and then in English in The Budapest Sentinel (April 25 and April 27, 2017) and offer this resume which condensed the main points from all three articles and set them in chronological order adding some comments.

The articles investigate the dubious affairs of Orbán’s “right hand,” currently deep in the pockets of the Hungarian National Bank as its chairman.

GM started his political career by joining the Hungarian Communist party, MSZMP, but in 1989 immediately jumped onto the conservative bandwagon becoming political undersecretary of the prime minister’s office in 1990. The political “flexibility” of GM proved to be coupled with an even greater moral flexibility.

The TA foundation

“A continuous and central feature in the story of the enrichment Matolcsy and his family … is a mysterious and opaque state-founded foundation, the Tulajdon Alapítvány (TA) … set up in the early days after the change of regime in November 1990 by the Antall government’s privatization agency (ÁVÜ). … GM, who was quickly “kicked out of prime minister József Antall’s inner circle” was instrumental in setting up TA with the help of ÁVÜ and became its secretary and director of the institute it operated.”

Source: mszp.hu

“The foundation accumulated enormous sums of money … [as the state paid them high fees, e.g.] 3.5 million to put together a publication on opportunities in Hungary for foreigners, while writing reports on experience in the privatization of individual state companies for 300,000 forints each. …[when] the average monthly wage in Hungary was 18 000 forints.”

In 1997 TA set up the Privatizációs Kutató Kft firm where GM, Ms Marianna Harczi and Sándor Kopátsy jointly owned a 10% stake, but only Harczi’s name appeared in the Company Registry and she acted on behalf of the trio.

 The Növekedéskutató Intézet Ltd.

 While the TA was well funded by public money GM could not simply pocket it, a fig leaf was needed. In 2001, an year in GM’s tenure as minister]… a 75% stake in Privatizációs Kutató Kft, renamed Növekedéskutató Intézet Kft., was purchased by Ms Gyöngyi László, in fact by Mrs. Matolcsy using her maiden name in an attempt to hide the real owner as there would have been a conflicts of interest. Witness the astonishing – and legally questionable stipulation in the Matolcsys’ matrimonial contract where: “The wife recognizes that the shares representing her ownership according to the company register in reality represent the property and separate assets of the husband.” The above acknowledges her role as an illegal front person, and raises the suspicion of a felony – “committing the falsification of public documents .”

 The golden eggs

 The conditions of the acquisition, the following economic results and the fall after the loss of government are very telling. In December 2000 the TA board of trustees decided to sell its 90% stake in Növekedéskutató, even if the company “had performed particularly well … achieving revenues of HUF 87 million in 1999 and 89 million the following year, with operating profits of [28% and 22%] … respectively.”

The firm was undervalued at HUF 40 million, instead of a more realistic 50 million. Moreover, 13.6 million forints in the firm were subsequently paid out in dividends to the new owners and just in time to cover almost half of the acquisition price.

It seems a very poor deal for the state to sell its 90% share of a very profitable public company for a sum equal to half year revenue or two years profit. On top of that Mrs Matolcsy was given a generous deferment and a 7 million forints of interest-free financing from the seller – TA.

Promptly the Növekedéskutató’s revenue rose by 12%, to 198 million forints in total for 2001 and 2002, but the profits skyrocketed to 118.5 52.5 million – a stunning 62% pre–tax profit. Mrs. Matolcsy received 31.7 million in dividends in the first three years realizing 60% return of on investment, or more with the effects of loan from TA – which let go the goose that laid the golden eggs. The “business” dried up with the fall of the Orbán government in 2002 – revenue crashed to HUF 15 million in 2003 bringing a loss of 20 million.

The Eurotourism Kutató és Tanácsadó Bt. partnership

In spring 2001, when Mrs. Matolcsy acquired Növekedéskutató, two firms were established whose main activity was also sociological research. Both achieved instant and never to be repeated results in 2001 and 2002 during GM’s tenure as minister.

Eurotourism was set up by the same Ms. Harczi and one of her children with starting capital of 100,000 forints. (At the time, Harczi was TA’s secretary and a member of its board of trustees, and co-owner and MD of Növekedéskutató).

In its first, incomplete year, the new firm promptly raked in HUF 42 million in revenue with a 27 million or a dazzling 64% of operating profit, surpass even this in the following two years, raising its revenue to HUF 65.5 million with 53.6 million or a miraculous 81.8% operating profit. All achieved, according to its reports, without employees and hardly any subcontractors, i.e. by Ms. Harczi alone.

With GM’s departure from his ministerial position in May 2002, similarly to Növekedéskutató case, “the firm’s revenue was a flat zero for two years and until 2015 inclusively” the firm had an annual average revenue of 2.4 million with practically no profit.

Despite the miraculous profits in 2001 and 2002 “according to the financial figures, Ms. Harczi never once took a dividend from the firm, while according to the contract she carried out her duties as managing director without remuneration.” In January 2006 Mrs. Matolcsy became “the internal partner with a 90% stake, … In September, Harczi divested her remaining 10% and finally exited, GM’s older son, Máté Huba took her place.”

Incredibly Harczi “divested her share in the firm on both occasions for its nominal value of HUF 100 00 in total, while at the end of 2005. .. Eurotourism’s own capital stood at 51.5 million forints, with total liabilities of half a million … The real value of the partnership was without doubt somewhere around 51 million.” This explains Ms. Harcz’s actions – she was a front for the Matolcsys.

The Eurocon Tanácsadó és Szolgáltató Bt Partnership

The Eurocon case is almost identical with the above described one. The partnership was set up by Dóra Újvári and János Tornallyay in 2001 with initial capital of HUF 80,000. Similarly to Eurotourism, this new firm from nowhere immediately performed outstandingly well: its revenue for 2001-2002 was HUF 62.4 million forints with 25.4 million or 41% operating profit.

Similarly, after the end of GM’s tenure as minister for the economy, the firm’s revenue plunged to an average of 10 million for the period 2003 to 2010.

GM used the same template to gain ownership – the founders were replaced by the twenty-year old son, Ádám Matolcsy, (in December 2006) and Mrs. Matolcsy (in January 2008), who paid only the HUF 150,000 nominal value for the partnership worth close to 15 million at the time. The only difference was that the founders took 16.5 million in dividends before “selling” to the Matolcsys.

Property “migration”

Mrs. Matolcsy et al also bought real estate from the TA foundation which was then run by GM as a director. Under this scheme the foundation bought at least three properties and sold them all in a few years to a family member or interest although the dealings involved a conflict of interest and were certainly illegal, probably criminal.

All properties were in an apartment block built in 1989 close to MOM Park shopping center in Budapest’s District XII:

  • A 52-m2 flat sold to MG’s 17-year-old son Ádám Matolcsy in 2003 (sole owner in 2004), who could hardly have paid for it with his own money.
  • A 65-m2 flat sold to Növekedéskutató in 2003, when the firm’s majority owner was Mrs. Matolcsy.
  • A 106-m2 retail-unit in the same building to Eurotourism Bt, after Mrs Matolcsy became the 90% owner.

 Altogether, according to the articles, GM “had 96 million forints at his disposal at the end of 2002 … the source of this sum dated from the successful years 1998 to 2002. .” As one can imagine, this was times over the total income from his foundation director and ministerial remuneration.

The articles set out other examples from the following years indicating that GM continued to cart out public money, e.g.: “the TA’s revenue between 2005 and 2010 was 180.9 million forints, which came from the party foundation run by GM until 2007, the PMA. The TA – in close cooperation with Matolcsy’s Növekedéskutató – helped Fidesz with its preparations for the election. … and, at least in part, functioned as one of the party’s background institutions … counter to TA’s charter, which prescribes political independence…the state-founded Tulajdon Alapítvány (TA) and the privately owned Növekedéskutató (later MGFI) … operated out of the same registered offices, and even shared telephone and fax numbers.” What a gall!

The Fidesz return to power in 2010 immediately brought to TA “an outstandingly good year – revenue reached 66 million… not a single word about the foundation’s clients, supporters or sources of income… Between 2011 and 2014 the TA board of trustees paid grants totaling 75.5 million forints (there is no data for 2010), but it remained unclear to whom” for studies like those carried out by the Matolcsy companies.

The articles also point out to money flowing in from other sources, e.g. support for the jovokep.hu web site, GM books, etc. Press also reported other petty tricks like claiming inflated car expenses, “renting” an expensive flat owned by a big bank CEO, appointing his confidantes, including his lover to lavishly paid positions, qualifications notwithstanding, e.g. Marianna Harczi was a metallurgical engineer. The participants in all these schemes are the same small circle of individuals, many of them related to each other, not the way a transparent public sector works.

The GM, or I can say Fidesz, schemes invariably involve a state-funded institution – a ministry, a party foundation, a second, closely held, state-owned foundation, a privately owned firm and front companies, all operated by a close circle of confidantes.

One can safely assume what is GM up to as president of the MNB [Hungarian National Bank] setting up the now infamous Pallas Athena [Athéné in Hungarian] – he’s at it again.

This time round there were billions of public forints destined to “lose their public funds nature” after their transfer from MNB to the “independent foundations” where he and his subordinates were trustees. Billions have already been loaned or transferred to GM’s relations, cousins and confidantes masquerading as business partners. After all “why should something that went so well on a small scale not work on a large scale, too?”

Reading through clearly shows that everything GM was involved in reeked of corruption, not to mention the superficial, useless or simply nonsensical of it. A depressing reading anyway.

April 30, 2017

Maximilian R. P. Gebhardt: The Emperor Has No Clothes

Maximilian R. P. Gebhardt is a former US diplomat and Economic Officer for the Department of State, now working as a consultant to private clients. From 2013 to 2015 he served as the economic officer at US Embassy Budapest responsible for covering trade and investment as well as tracking corruption.

♦ ♦ ♦

I served in Hungary from 2013 to 2015 doing counter-corruption, although a fair amount of my job was watching trade and investment, along with tracking sectoral changes. I’m proud to have contributed quite a bit to our 2014 and 2015 Investment Climate Statements. It is worth saying that I am more an analyst than an economist, and the data set that I generated is currently being looked at by folks far more experienced than I. My background is ultimately in international relations with a nice six-year stint at the State Department as a Foreign Service Officer where I was trained, though mostly I picked everything up on the job – the Foreign Service way.

Late last week, I was in discussions with a few old contacts from back when I was in Hungary. The discussion seemed pretty routine: the government was seeking to land the Olympics which would mean massive construction contracts, Hungary still showed positive growth signs and Moody’s had upgraded them out of junk status, and the national debt continued to shrink. The usual story of Hungary’s reliable but ultimately unimpressive 2-3% GDP growth. The on-the-ground picture was pretty much as I had left it as well. The rising cost of living was a constant gripe, wages were flat. Generally the complete opposite of the official inflation data that included utility price cuts.

And then Momentum succeeded in forcing a referendum, and the immediate reaction on the heels of that was for the head of the Central Bank to make a not-so-veiled claim that the United States attempted to remove FIDESZ and was behind Quaestor and all the failures of Q1 2015. I admit, it was a pretty funny story. I built the case for those visa bans, and I can say with certainty that there was no plan for a coup. They were at best a shot across the bow.

But it raised an interesting question: “What are you hiding that has you so worried?”

Back in late 2014, when I was tracking agricultural VAT fraud, we got a tip from Ferenc Biró at Ernst and Young that he had tracked some limited food oil VAT fraud for a client of theirs by looking at discrepancies in the trade data. Hungary might cook the books a bit, but it does not live in a vacuum, and Hungary is certainly trade dependent, with exports and imports combining to well over 150% of GDP. Fortunately, trade is classic double-entry bookkeeping. An export logged by one country has a corresponding import recorded on the other side. As the Hungarian Tax and Customs Authority both logs the official trade data and collects taxes like VAT, it stands to reason that anyone cheating on VAT wouldn’t want NAV to know, so there would be no record of the transaction.

I  slogged through bulk Global Trade Atlas data for a dozen countries so that I could prove a point. In the end, I did find anomalies in food oil, oilseed, and some other agricultural commodities in trade with Slovakia, Ukraine, Serbia, and Croatia. It was fun, it told us we were right to worry, but ultimately it was an internal exercise in confirming what we had already confirmed with multiple sources regarding agricultural VAT fraud.

Fast forward, and I asked myself that same question – what about now? The food oil market, after all was said and done, was supposedly cleaned up. Mission accomplished, America won. I pulled out a few million data points from UNCOMTRADE data and asked the question again: “Are there gaps in the data?”

I should first say for American readers that VAT is a type of tax that is not unlike sales tax, except it is assessed on the “value added” at each transaction along the value chain. In Hungary, VAT is 27%, the highest in the world, so there is quite an incentive to cheat. When you export from one country to another, the tax authority in the exporting country refunds the VAT to the exporter, allowing trade to happen at the actual price of the good, rather than the inflated price with VAT. In trade, there are two kinds of VAT fraud you typically catch: import-based and export-based. Import-based VAT fraud rests on a simple principle. When a good is imported into country A, you are liable to country A’s tax authority for VAT on that import. Export-based is a bit more complex. You claim you exported a good to the tax authority, pocket the VAT refund, and then sell the good domestically at or below market price, pocketing the VAT. Food oil and agricultural VAT fraud was typically of the export variety, drawing lots of criminal participants since they realized you could keep claiming exports in a loop, pocketing refund after refund. For a time, that kind of VAT fraud really tied up the oilseed market – why sell off your oilseed when you can use it to keep pulling off VAT fraud ad infinitum?

I did a few initial case studies – automotive, aviation, agriculture, electronics, and petroleum products. In the case of aviation, automotive, and electronics, I found some anomalous reported exports to Hungary that were not reported as imports. In the case of agriculture and petroleum, I found export-based issues with Hungarian exports that had no corresponding imports recorded.

The total impact of this was huge, about $3.37 billion in errors in 2015 alone, which was large enough to impact GDP.

I’m still looking at the data, and several other economists are as well, so these findings are certainly not conclusive, but as my favorite nerdy webcomic XKCD once said, “Correlation doesn’t imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing ‘look over there.’”

February 28, 2017

The past seven years: Hungary in numbers, 2010-2016

Máté Veres, research associate of Gazdaságkutató Zrt., published this study in Új Egyenlőség at the beginning of the year. The article was translated by “Observer,” who added the following notes:

This article offers a set of indicators to reveal the state of the Hungarian economy and society. We think, however, that the situation is somewhat worse than Veres’s assessment because there are additional detrimental factors not discussed here, e.g.:

  • The very low investment rate as a percentage of GDP
  • The budget deficit hidden in subsystems down to individual units like hospitals or schools districts
  • The consumption boost by the remitted earnings from abroad, which are to decline in time
  • The poor ratings of the Hungarian places of higher education, the outdated, retrograde education model and policies, the very low number of people with IT or foreign language knowledge, etc.  

Analyses of these points will eventually be presented in another article. I’m grateful for the work and care “Observer” took in translating this important article for us.

♦ ♦ ♦

Analyzing the results of the second Orbán government [and third as from 2014] after seven years of freedom fight and other kinds of struggle and hundreds of millions of euros from the EU spent, it’s time to draw a picture of how the Hungarian economy and society are doing compared to 2010 in the light of the latest figures available.

After [the election victory in] 2010 the government benches have been widely using the already well known “past eight years” phrase. It was used by Fidesz and the Christian Democratic politicians as their favored counter-argument when the opposition tried to challenge government actions. The performance of the governments between 2002 and 2010 in many areas could have been criticized (as we did in our analyses), but in general the “last eight years” argument has always been a simplistic communication tool, often used to bypass substantive discussions. In our evaluation of the Fidesz government performance we now follow a different path and instead of summary political statements we shall stay with the facts and figures to show what the “past seven years” were like.

Seven years are already a sufficient horizon for an evaluation of the government’s achievements. For this purpose, however, in addition to showing the changes in numbers, we need to find explanations for the results, and therefore – where possible – to compare the results with those of our regional competitors as well. So now we’ll consider some areas of key importance to the future of the country.

UNEMPLOYMENT

It was 10.3% in 2010 and only 5% in 2016, according to the KHS (Central Statistics Office-CSO), or 6.8%, according to Eurostat.

Apparently the situation has improved, but it is worth adding that the [2008 world financial] crisis played a major role in the exceptionally weak 2010 numbers, while the much better 2016 numbers include both those working abroad and those fostered workers vegetating on subsistence wages (USD 180/month).

The same factors underlay the Eurostat numbers showing a miraculous growth of employment in Hungary (59.9% in 2010 and 68.9% in 2015). According to official figures we caught up with the EU average, but without those working abroad and the fostered workers we just caught up with the eastern [EU] member states. In any case, there is an improvement, primarily due to the EU-funded, labor-intensive construction projects.

HUMAN DEVELOPMENT

2010 – 36th place, in 2016 – 44th

Human development is an indicator introduced by the UNO, a concept of human well-being wider than the GDP indicator. It is generated by averaging three numerical indicators: life expectancy, education and standard of living (GDP Purchasing Power Parity per capita). In this area we not only managed to fall significantly behind, but all our V4 [Poland, Czech Republic, Slovakia and Hungary] regional competitors overtook us, while Poland was still behind us in 2010.

HOUSEHOLD DEBT

EUR 7,844 mil in 2010, 5,683 mil in 2016

A clear success can be booked in this area. The composition of the debt is just as important as its size, as the crisis taught a large part of the Hungarian middle class. Until 2010 the household debt of the Hungarian population grew at a rate remarkable even by regional standards, and in foreign currency, which was mainly due to the bad interest rate policy of the Hungarian Central Bank (HCB) and to the lack of regulation. The central bank’s interest rate policy between 2001 and 2007 encouraged the population to borrow in foreign currency.

PUBLIC DEBT

In 2010 the PD was HUF 20,420 billion or 78.8% of GDP. Seven years later, in 2016 it was 25,393 billion or 75.5% of GDP.

This figure has fluctuated during the second Orbán government. It had been over 80% GDP too, but at the end of the year ‘with hundreds of tricks’ – the best known being the seizure of the pension finds – they always managed a decrease from the previous year [the government publishes and uses only a single figure – that of Dec. 30th). There is a lot of uncertainty as to whether the government can sustain the downward trend, given the scale of the debt, but if it manages to keep the balance of payments at zero, the government can eventually claim a clear victory on this front.

TAXES ON LABOR

In 2010 the total was 54.1%; in 2016, 49.0% There is a sizable literature on the issue. The differentiated and on average higher taxes on labor and/or profit are not at all problematic, if they are used by the state to provide high-quality, accessible to all, health, education and other services. This is evidenced year after year by the results of the economic systems of Sweden, Norway, Denmark and Finland, known as the “Nordic model”, since the above-mentioned countries have figured at the top of the lists in competitiveness, innovation and the environment for decades. However, in Hungary things are developing in a direction exactly opposite to the Nordic Model. This question is also interesting because the Fidesz government proclaimed itself to be the government of tax cuts.

Social security expenses in the European Union, 2014

It is clear that if we look at the overall situation, the taxes on labor have decreased. Although it’s worth adding that in international comparison while in 2010 we had the second largest burden rate in the OECD, by now we managed to move up only by two places, occupying fourth place from the bottom. This small success is mainly due to the introduction of a flat personal income tax and its rate reduction to 16%.

However, it’s worth mentioning that the replacement of the progressive tax system used until then by a flat tax rate opened a HUF 444 billion hole in the yearly budget and benefited only the richest. In addition, never has labor in Hungary been burdened by such a wide variety of taxes as today. Actually the situation here is the worst in the region. Meanwhile the government promised a massive tax burden reduction in the medium term and a single-digit company tax. There has been a long-standing debate about the need for a significant reduction of the tax burden with regard to the competitiveness of the economy.

In any case, despite the 2010 promise, we surely didn’t get any closer to the “beer mat-sized tax return” [as V. Orbán half-jokingly promised in opposition]. However, with the new flat and extremely low 9% company tax rate, another 2010 slogan – “we shall fight the offshore knights” – now seems to have morphed into “join the offshore knights’ race.” Similar to the effect of the flat-rate personal income tax, now once again the richest (and the big companies) will do really well as not the Hungarians, but the multinationals, such as General Electric (GE), already did under a special agreement with the government.

GDP GROWTH

Between 2004 and 2010 the growth amounted to 9.9% or in absolute terms USD 114.2 billion to 129.4 billion (a 15.2 billion difference). Between 2010 and 2015, in the same length of time, the Orbán government boosted the GDP from USD 129.4 billion to 138.8 billion (a 9.4 billion difference). The right side of politics clearly underperformed. These numbers, however, may be deceptive because much depends on external factors. But if you just look at our competitors in the region, save for the Czechs and Bulgarians almost all Eastern European member states, even Romania, performed better.

PUBLIC TRANSPORT

The [public transport] ticket price in Budapest in 2010 was 320 Ft., in 2016 – 350. The ticket prices in the region were as follows in 2016. Sofia – 158 Ft., Bucharest – 90 Ft., Warsaw – 240 Ft., Prague – 275 Ft. So the situation remains unchanged, we are the most expensive.

FREEWAY CONSTRUCTION COST

During the Gyurcsány government overpricing [in public projects] gained notoriety, but there are still no authoritative studies regarding its extent. Interestingly, according to Zsuzsanna Németh, Minister of Development 2010-2014, the Hungarian freeway construction cost per kilometer had decreased steadily during the Gyurcsány government, and in 2010 was 1.8 billion Ft. on average. Compared to this, according to the same Ministry led by Zsuzsanna Németh, the freeway construction unit cost had increased to 2.3 billion per kilometers in 2013. But there were also sections where the costs reached almost 4 billion forints.

BIG MAC INDEX

[Or how many minutes you have to work for a Big Mac]

Crisis or not, the change here is clearly positive: in 2009 – 59 min., in 2015 only 44 min. That said, we still haven’t overtaken anyone in the region, we are on par with Bucharest. It is also important to point out that the Big Mac index focuses on cities, and while Budapest is clearly catching up, the country is dropping behind compared to the other EU Member States. And this worsening trend continued during the past seven years just as before.

BUDAPEST (CENTRAL HUNGARY) GDP PPP / CAPITA compared to EU average

In 2010 144%, in 2014 143% where 100% means the EU average

Only Budapest is above the EU average, the second best county – Győr-Moson-Sopron stands at only 77%. In the light of the foregoing it is worthwhile showing also how the best performing Hungarian regions – where the situation in this area has worsened since 2010 – compare to our V4 competitors. In 2014 in the same category Prague was stood at 173%, Bratislava 187%, Warsaw 197%. Notably in the case of Budapest, Pest County is also part of the region.

GDP per capita by purchasing power parity, 2015

IMPORTED FOODS SHARE

In 2010 24.5%, in 2015 22%

The more food is produced by local, domestic producers the better, both environmentally and economically. According to a relatively recent Corvinus University study, positive, if modest changes have taken place in this area.

THE REAL VALUE OF PENSIONS
It is so far growing in the second Orbán government period, due in part to last year’s persistently low inflation, the third year in a row, and, on the other hand, partially due to the inflation-indexation of pensions introduced by the Gyurcsány government and which during the Fidesz government was often surpassed through the use of small tricks.

MATERNITY LEAVE

In 2008 the gross benefit was HUF 28,500, in 2016 just as much. In international comparison, this is dramatically low.

PRIMARY SCHOOL TEACHER GROSS ANNUAL WAGES

In 2009 it was USD 9,500, in 2015 – 9,149.

The biggest change in the area of earnings in the past period, as mentioned before, was the flat personal income tax, which benefitted primarily the affluent. At first glance the above seems even a decrease, but due to the significantly weakened forint exchange rate in the period the balance is rather a positive one. This fact doesn’t make for any exuberant joy because according to the OECD data, admittedly in need of updating, the approx. USD 9,500 earnings (just as a few years ago) was sufficient only for the last place among the EU member countries.

PEOPLE LIVING IN EXTREME POVERTY

In 2010 – 3 million, in 2016 – 3.6-3.8 million

In addition to this terribly high number, perhaps it is most important to note that after nearly a quarter of a century, in 2011 the CSO stopped publishing any figures about exactly how many people live below the poverty line. (The Policy Agenda think tank, however, has calculated that by 2015 the number has grown to 41.5%. See our article on all of this.)

Actual Individual Consumption in the European Union, 2014

Furthermore, the CSO had calculated that at least 87,351 Ft. monthly net earnings were required (in 2014) for living at a subsistence level. In comparison the net minimum wage in 2016 was still 73,815 Ft. In the first case it seems there was finally a move forward. Thanks to the tenacious struggle of the trade unions in 2018 the minimum wage will reach the subsistence level of around 90,000 Ft. However, thanks to the far higher 35% tax burden, in net terms the minimum wage is still light years behind that of our competitors in the region regarding the increases carried out between 2008 and 2016. In addition, Hungary has the highest proportion (72.2%) across the EU of households that wouldn’t be able to pay any unexpected expense.

HOSPITAL BEDS NUMBER

In 2009 – 70,971, in 2014 – 66,000

The population has been declining steadily since 2010, but we surely aren’t so many fewer. Actually there are more elderly. Therefore we need more, not fewer beds.

HEALTHCARE

Not only compared to 2010, but in fact never has any government since 1990 spent so little on healthcare, as a percentage of GDP, as in the past several years. And this is not only a basic requirement for a more successful functioning of the economy but also a factor that could have improved significantly the overall mood of the whole country. Recent research has shown that the overall satisfaction level in a country is not best raised by increasing the earnings of the inhabitants but by spending relatively larger amounts on problems of well-being. There is also a demand for it. According to the 2016 European Social Survey the Hungarian society is in a terrible state compared to the other European countries: in Hungary people consume the smallest quantities of fruits and vegetables, Hungarian women are moving the least, compared to the Hungarian men only Lithuanians smoke more, compared to the Hungarian men only more Czechs are overweight, Hungarian women are the most overweight, we have the largest proportion of men in poor or a very poor state of health, compared to the Hungarian women only the Spanish women are in a worse state of health, among the Hungarian men are the most showing signs of depression, and the Hungarian population, both men and women, is most affected by cancer. After that, perhaps it’s not surprising that we visit doctors most frequently among OECD countries.

EDUCATION

Similar to the health care case, counting from 1990 we have never spent so little of the GDP in this sector as during the Orbán government. Yet the word education could safely be replaced by “future,” since it is basically influenced by the country’s medium and long-term competitiveness. We are rank penultimate in Europe [in spending], so such investment here would bring the biggest return among the OECD countries. The results are visible: we are sixth from the bottom in the OECD in the number of researchers employed in the country; there haven’t been so few studying in higher education in the last seventeen years. We spent the least for developing computer skills, and our students have the largest number of school hours for non-essential knowledge (e.g., ethics [compulsory alternative to religion], etc.) as opposed to essential ones (e.g. reading, writing, literature, mathematics, natural sciences, second or other language). In view of the above, the recently published PISA results, which understandably caused an outrage, probably represent only the tip of the iceberg.

One of the few positive steps in the past few years is that those who cannot find work are, finally, offered free training, but the training offered by the National [Vocational] Training Register (Országos képzési jegyzék) is unlikely to boost the highest added value production areas. In addition, the participants’ livelihood is not guaranteed during the course; hence the training can only be used by jobseekers with a better financial cushion or those enjoying a patronage. Improving job qualifications is needed to raise our incredibly low average salary, which already inhibits economic growth.

CORRUPTION PERCEPTIONS INDEX

In 2009 – 46th place, in 2015 – 50th place

Even the people in Saudi Arabia, Botswana, Qatar and four-fifths of our region feel their governments are less corrupt.

ENVIRONMENTAL PROTECTION

No previous government has shown less interest in this area. The Orbán government’s response to the day-by-day worsening problem of global warming was to abolish the Environment Ministry and to do nothing about the few concrete promises it made before the election – including the creation of a green bank. In the meantime, they managed to earn the glory of the “tree-felling government” title, since probably no one has cut down so many trees as they have done in the last seven years in Budapest, and they have plans for more. Moreover, we are perhaps the only country in the world to impose taxes on solar panels while indebting Hungary by a loan equal to at least 10% of GDPif not more – for the sake of a twentieth-century technology for [Russian nuclear reactor blocks] Paks 2, which, in the bargain, will surely never produce a return.

Meanwhile, despite all the flag waving and freedom fighting the external exposure of the Hungarian economy has not been reduced at all. And here it is not primarily the foreign currency denominated debt segment that counts most, nor the export-import volume, which reached 200% of GDP, but the fact that less than half of the exported added value is created in Hungary. In other words, more than 50% of the added value produced in Hungary is by foreign-owned companies, which is unique in the European Union. It is no surprise that of the EU money arriving here for business development – after the government has carved off its significant slice – almost 70% is awarded to multinationals.

Such a level of foreign investor influence is extraordinary even by regional standards, although in Eastern Europe we are all rowing in the same boat, i.e. in what the literature calls a dependent market economy. That is, our economies are wholly dependent on Western investments. This is particularly true for the car manufacturing brought to Hungary, because it accounts for more than 20% of Hungarian exports, and this situation hasn’t changed since the year 2000. Meanwhile a leading Fidesz politician says that nothing can be done because “Hungary is a determined country, where it’s impossible to pursue other economic policies.” But it was precisely the Orbán regime which showed that it is. Over the last fifty years countries such as South Korea, Taiwan and Singapore went through economic development with substantial state assistance, which took them to where we are heading today. Big companies like Samsung, LG and Hyundai were heavily subsidized by the state, which in return set certain export expectations, so these companies were forced to continue spending on innovation. While it is a widespread view that the international rules made impossible this type of government intervention, we can see that the Orbán regime can support their oligarchs without any sanctions. The problem is that instead of innovation the regime expects only political loyalty. Despite its references to them as a model, none of the East Asian models’ components has been employed.

In light of the above it is not surprising that there have never been so many who wanted to emigrate from the country. Meanwhile the middle class is eroding and the differences in wealth between the richest and the poorest are increasing.

There is money available though, since up to now the government has spent HUF 300 billion on state companies and a further HUF 100 billion on its own (i.e. our) soccer pet. Overall, we spend four times more on this prime minister’s mania than on road maintenance, while the number of spectators is steadily declining. There are other outlays that went wrong too – the György Matolcsy-led National Bank has had HUF 250 billion pumped into dubious foundations or spent for the purchase of art objects. In addition, another HUF 850 million was sunk into the Felcsút narrow gauge railway, never to produce any return, and HUF 6.7 billion credit was extended to Andy Vajna for the purchase of TV2. Speaking of Andy Vajna, it is worth highlighting the greatest of all items, in regard to which the government didn’t do anything, namely the offshore [knights racket]. Moreover, Hungary is actually moving in this direction. Even in the face of the couple of years old study finding that the almost unfathomable amount of USD 247 billion of untaxed income has left the country in past decades. In the course of this offshore racket we have suffered the second largest losses in Europe.

WHAT FOLLOWS FROM ALL THIS?

Looking at the numbers the government could demonstrate quite serious achievements compared to 2010, primarily in the area of balancing the ​​budget and public debt. The GDP growth rate could have been included but for the fact that this growth was due mainly to the accelerated EU investments and not to a better performance of the domestic economy. In fact our productivity has been stagnant since 2008.

On the other hand, the social inequalities have increased dramatically during these seven years. It is unlikely that these short-term favorable macro-economic data can be sustained in the long term, mainly because the Hungarian society’s human capital indicators have significantly deteriorated as a result of the dramatic underfunding of the public subsystems (healthcare, education, social policy, public transport). That is, the economic growth is due to a great extent to the EU investment funds and the short-term budgetary balance to huge austerity measures. Both are unsustainable.

February 19, 2017

Miklós Haraszti: I watched a populist leader rise in my country–That’s why I’m genuinely worried for America

Miklós Haraszti, author and director of research on human rights at the Center for European Neighborhood Studies of Central European University, is a familiar name to readers of  Hungarian Spectrum, both as an author and as a commentator. This opinion piece originally appeared in The Washington Post (December 28, 2016). I’m grateful for the opportunity to share it.

♦ ♦ ♦

Hungary, my country, has in the past half-decade morphed from an exemplary post-Cold War democracy into a populist autocracy. Here are a few eerie parallels that have made it easy for Hungarians to put Donald Trump on their political map: Prime Minister Viktor Orban has depicted migrants as rapists, job-stealers, terrorists and “poison” for the nation, and built a vast fence along Hungary’s southern border. The popularity of his nativist agitation has allowed him to easily debunk as unpatriotic or partisan any resistance to his self-styled “illiberal democracy,” which he said he modeled after “successful states” such as Russia and Turkey.

No wonder Orban feted Trump’s victory as ending the era of “liberal non-democracy,” “the dictatorship of political correctness” and “democracy export.” The two consummated their political kinship in a recent phone conversation; Orban is invited to Washington, where, they agreed, both had been treated as “black sheep.”

When friends encouraged me to share my views on the U.S. election, they may have looked for heartening insights from a member of the European generation that managed a successful transition from Communist autocracy to liberal constitutionalism. Alas, right now I find it hard to squeeze hope from our past experiences, because halting elected post-truthers in countries split by partisan fighting is much more difficult than achieving freedom where it is desired by virtually everyone.

But based on our current humiliating condition, I may observe what governing style to expect from the incoming populist in chief and what fallacies should be avoided in countering his ravages.

A first vital lesson from my Hungarian experience: Do not be distracted by a delusion of impending normalization. Do not ascribe a rectifying force to statutes, logic, necessities or fiascoes. Remember the frequently reset and always failed illusions attached to an eventual normalization of Vladimir Putin, Recep Tayyip Erdogan and Orban.

Call me a typical Hungarian pessimist, but I think hope can be damaging when dealing with populists. For instance, hoping that unprincipled populism is unable to govern. Hoping that Trumpism is self-deceiving, or self-revealing, or self-defeating. Hoping to find out if the president-elect will have a line or a core, or if he is driven by beliefs or by interests. Or there’s the Kremlinology-type hope that Trump’s party, swept to out-and-out power by his charms, could turn against him. Or hope extracted, oddly, from the very fact that he often disavows his previous commitments.

Viktor Orbán (Thierry Charlier/Agence France-Presse via Getty Images)

Populists govern by swapping issues, as opposed to resolving them. Purposeful randomness, constant ambush, relentless slaloming and red herrings dropped all around are the new normal. Their favorite means of communication is provoking conflict. They do not mind being hated. Their two basic postures of “defending” and “triumphing” are impossible to perform without picking enemies.

I was terrified to learn that pundits in the United States have started to elaborate on possible benefits of Trump’s stances toward Russia and China. Few developments are more frightening than the populist edition of George Orwell’s dystopia. The world is now dominated by three gigantic powers, Oceania, Eurasia and Eastasia, a.k.a. the United States, Russia and China, and all three are governed by promises of making their realms “great again.”

Please do not forget that populists can turn into peaceniks or imperialists at any moment, depending on what they think could yield good spin that boosts their support. Remember how Putin and Erdogan had switched, within months this year, from warring to fraternity. Or how Orban in opposition had blasted any compromises with Russia, only to become Putin’s best friend upon his election.

I have plenty of gloomy don’t-dos, but few proven trump cards. There is perhaps one mighty exception, the issue of corruption, which the polite American media like to describe as “conflicts of interest.”

It is the public’s moral indignation over nepotism that has proved to be the nemesis of illiberal regimes. Personal and family greed, cronyism, thievery combined with hypocrisy are in the genes of illiberal autocracy; and in many countries betrayed expectations of a selfless strongman have led to a civic awakening.

It probably helps to be as watchful as possible on corruption, to assist investigative journalism at any price, and to defend the institutions that enforce transparency and justice. And it also helps to have leaders in the opposition who are not only impeccably clean in pecuniary matters, but also impress as such.

The world is looking at the United States now in a way that we never thought would be possible: fretting that the “deals” of its new president will make the world’s first democracy more similar to that of the others. I wish we onlookers could help the Americans in making the most out of their hard-to-change Constitution. We still are thankful for what they gave to the world, and we will be a bit envious if they can stop the fast-spreading plague of national populism.

January 2, 2017

András Kósa: The speech of the chief, Őszöd ten years later, Part III

Gyurcsány’s attempt to interpret the speech in Őszöd as the beginning of a new era

András Kósa, a well-known Hungarian journalist, recently published The Speech of the Chief: Őszöd after Ten Years, a collection of interviews with Ferenc Gyurcsány, former and current politicians, and political commentators. Interest in Gyurcsány’s speech and its impact on subsequent political developments doesn’t seem to wane.

A reader and friend of Hungarian Spectrum, Steven N., who is also a friend of Kósa, translated the interview with Gyurcsány for publication here. Since the interview was lengthy, I posted it in installments. The first and second have already appeared. This is the final installment.

♦ ♦ ♦

András Kósa: You know Vladimir Putin personally, as you’ve met with him on several occasions. What is the secret of the surprisingly strong relationship between the Russian President and Viktor Orbán?

Ferenc Gyurcsány: To answer this, it has to be noted that in the mid-to-late 2000s, the European Union and the Obama administration viewed Putin as a leader who was democratizing cautiously. During his first visit to Berlin, the entire Bundestag gave him a standing ovation. Then, in the Russian parliamentary elections in the fall of 2011, he had to pilfer 17 percentage points to be able to win. In the spring 2012 Presidential election, he again needed to cheat to attain a “victory,” though less so this time. I think these things have changed Putin. He realized that the policies he had pursued up until then did not automatically expand his power, so he launched a campaign of harsh repression at home (including the killing of journalists and political rivals, remaking the Russian criminal code, and restricting the freedom of assembly), and again began to assert the conquering pursuits of Great Russia. I have not changed: I’m not critical of Putin because I’m in the opposition. My relationship towards him did not change until the summer of 2012. We even met in Moscow with our families then. But I don’t like this Putin now. Orbán, by comparison, has taken the opposite route: when the world trusted Putin more, he was very critical of our cooperation. Then when the world increasingly kept its distance from Putin because of what I said earlier, he became one of his main allies. I think the only thing that’s happened here was that Viktor Orbán was looking for partners for his foreign policy, and he found one in Putin. If I want to go against Brussels (which was Orbán’s big foreign policy shift after 2010), then – being the Prime Minister of a small-medium-sized country – I need partners to do this, and Putin is perfect for it at the moment. The current Polish leadership is also an excellent partner.

Is it “only” this?

The possibility that money and corruption are behind the good relations between Viktor Orbán and Vladimir Putin cannot be ruled out. Maybe it also greases their relationship. But it’s not the main reason.

As Prime Minister, you had insight into intelligence-related matters: would it be possible that the large intelligence agencies, for example Russian or American, could not find out pretty much anything about any kind of personal or perhaps business matter, or the financial situation, of the current Hungarian Prime Minister?

If they wanted to, they could find out pretty much anything. Of this, I have no doubt. If you’re asking whether these agencies are able to find out something that they could blackmail a Hungarian Prime Minister with, then I would say, yes, they could do that. Whether they’d use it or not, I wouldn’t be able to say. I didn’t come across these things during my own time in office. I did have very nasty disputes on energy issues with the American ambassador and with representatives of the government in Washington. They tried to talk me into this, that, and the other, but they didn’t venture beyond putting verbal pressure on me. Experts say that today around 600-800 people in Hungary are definitely working for the KGB in some capacity. This is not a small number. And their capacity is such that if they want to listen in on our phone calls, they can do it. If they want to know where we’re going and when, who we’re having dinner with and what we’re talking about, they can find out. I think that this coterie exerts a substantial influence on the world of Jobbik and Fidesz.

During your time in office, how big was this 600-800 number?

Roughly about half of that.

A two-speed Europe is forming right before our eyes, and for now we Hungarians seem to have a strong role on the periphery. In such a situation, in which we know that aid from the EU will be drastically reduced after 2020, how much can democratic ties loosen in Hungary, as well as in the region as a whole?

They won’t expel us from the European Union, but the processes can only really go in such a way that one group of countries will deepen its cooperation and head towards a federal Europe. While we remain on the periphery, as you said. Not only will they fund less and less of our finances, but also increasingly less attention will be paid to the social and general state of affairs here. Maybe I’m naive (since before 2010 I also didn’t expect that such a radical transformation would occur if Fidesz ever came into power), but I can’t really imagine what more the government could do in such a transformed EU. You can’t turn off the internet. There’s hardly any openness as it is. Under European circumstances, the police can still not just come into my apartment, and the authorities can’t take away my assets and businesses. I think that Fidesz has pretty much gone to the wall. It’s possible, of course that they’ve already figured this out, because what’s happening right before our eyes is a march towards a semi-authoritarian regime. János Kádár’s cloak stretches extremely far in this regard.

What do you mean?

We Hungarians signed on to what we thought was a highly successful, but nevertheless dishonest, historic compromise. Hungary was the only place in Eastern Europe where (in our so-called “soft dictatorship”) there wasn’t open repression that affected the masses. The “happiest barracks” was built on an immoral pact in which the authorities said: there are three things that you can’t touch. There’s a one-party system, 1956 was a counter-revolution, and the Soviet troops in Hungary protect the peace. Otherwise, you are more or less free to live your life, you can travel somewhat, the shoe stores have shoes, the meat shops have meat, and you can even tell political jokes too. This somewhat conflated the oppressor with the oppressed, which is why the majority of the country now reacts so permissively to political tyranny. Viktor Orbán correctly senses that it’s not the lack of democracy that will crush his regime. This issue has remained a cause only for the upper segment of the political class. Poor governance of the country leads to poor performance: healthcare, the educational situation, and a lack of prospects, shockingly low wages, and increasing vulnerability in the workplace – these are much more dangerous to Orbán than the fact that public television has become the television station of the ruling party. They’ll change the channel to something else.

Why is it that in Hungary charges of corruption don’t harm the government?

One reason is that Byzantine culture has maintained itself right up until the present time: if the powers-that-be dip into the common goods but some of it still occasionally comes my way, then I won’t be so strict with the rules all the time on my own level – this itself is in the tradition of Byzantine culture, which can still be found here. Moreover, the entire political class is considered corrupt – so what’s the difference? But there’s a much more tangible reason as well: the public prosecutor here has a monopoly on prosecuting cases. Péter Polt essentially refuses to launch any kind of investigation, so every initiative comes to naught. The system today is itself built upon corruption; it doesn’t have just a speck of corruption, but is its very essence. Everyone in Fidesz knows about it, everyone knows who is corrupt and in what way, but they condone each other’s actions. Finally, it’s because the opposition has not been very successful with these matters. In any case, Péter Juhász, the representative of the Együtt Party, has done more in this area in the past few years than the rest of us put together.

Will you be Prime Minister of Hungary again?

I won’t rule it out.

Would you want it?

I don’t have such a strong desire for it right now. I did have it in 2004, no question. I am grateful to fate for letting me be Hungary’s Prime Minister, but it now also has a strong desire for this democratic and civic alternative which I represent to gain a large base of support. It has a stronger desire for this now than it does to make me Prime Minister once more. I can feel good about imagining my life in a way that I remain a Member of Parliament and not have any higher power than this. But it’s devilishly hard to predict what fate will bring in 2022 or 2026. I’ll be 66 years old in 2026: this is still an active age as a politician. I am fortunate because my ambitions and opportunities are just now coming together.

You were once considered one of the most promising politicians in Hungary after the regime change of 1989, and then your name became associated with one of its biggest scandals. What was this experience like for you?

If I could be objective, I’d say: it’s my personal misfortune. But there’s no anger inside me towards anyone. For those who go into this career, it doesn’t hurt to be aware that such things can happen to you. Looking back, I don’t lament about how much of what happened to me was fair or not. Or how much was my fault, or how much was due to chance or a malicious conspiracy by others.

What was your responsibility?

To start with, I took over the government at the head of a party that I was not compatible with, neither culturally or in terms of mentality. This was encoded into what happened later.

When did you realize this? That you weren’t compatible with your own party.

When things started to go bad for us after 2006. And when I saw that Fidesz owed its success, among other things, to being able to fight its battles as a large singular unit, which we were not capable of. When Orbán gave his ultimatum after the Őszöd speech was leaked, that if they do not remove me as Prime Minister within 72 hours then he would put so much pressure on MSZP that we couldn’t hope to be able to bear it, I naturally called together the leaders of the Socialist Party. And I had to admit that there were some in the leadership who wanted to comply with Orbán’s demand purely out of fear. In that regard, of course, they were honest enough to indicate as much – and so the decision was made for me to ask for a vote of confidence against myself in Parliament. But after this, I felt that the party had completely changed: not standing up for introducing the doctor’s visit fee, not arguing for it or explaining it, but fleeing from it. This showed me that the party could not handle the struggles that I urged them to fight for in the Őszöd speech. I had convinced them right then and there. I got their votes, but I couldn’t get their hearts. If you don’t believe in the story, in the hellish debates, in the struggle – then what is it in politics that you do believe in?

We do love conspiracy theories, so since you’ve already brought up the 72-hour ultimatum of October 2006: many contend that with this step Orbán truly brought you back into the game from a losing position. If he had been slower and more patient then and there, he could even have succeeded with the ruling coalition ridding itself of Ferenc Gyurcsány. But after such an ultimatum, MSZP could not have done anything else but reinforce your position three days later in a Parliamentary vote of confidence.

I prefer to believe in the truth contained in a non-public poetic treatise by Orbán that we learned about from the Wikileaks cables, stating, “If you can kill your adversary, and don’t put it off.” I don’t think that today’s Prime Minster, who was the leader of the opposition at the time, delivered this ultimatum in order to keep me in office. He did it because he had assessed the courage of the Socialists pretty well, and he saw a chance that they would back away from me.

There is also an interpretation that you two need each other mutually in a political sense, as a clearly tangible image of each other’s enemy.

I know that to this day there exists this Orbán-Gyurcsány parallel, which really does hold up in two respects. With respect to our origin, we both came from a provincial town and from poverty, and were both first generation intellectuals. But more importantly, we have taken completely opposite routes since coming to Budapest: Orbán became jealous of the downtown elite – he felt that they had taken something from him. Even to this day, he views the metropolitan intellectual elite with contempt. But I admired them. The way I saw it, it was like, “Damn, you can live this way too! Then why would I do it any other way?” We’re also alike in that both of us are strong characters who live for politics. This is true. But there are no similarities between our respective visions. Nor between the systems that we want to build. I think that Viktor Orbán started as a very promising European-minded democrat, and I even saw very many things in him to admire. But from then on he has become an increasingly authoritarian figure who left behind everything about him that was respectable. I came from the youth organization of the state party, so there’s no doubt that he could label me a “communist” (while even before the regime change we had said that we wanted a multi-party system, just more cautiously and slowly, unlike Fidesz at the time), but on this basis I became a wholehearted democrat.

It is said that the reason why Viktor Orbán and Robert Fico understand each other so well (though they have different ideologies within their party’s family structure) is because both are opportunistic, populist politicians who always view a particular situation in terms of the techniques of power, and analyze how to exploit it to their benefit. After Fico was elected as Prime Minister for the second time (freeing himself from the nationalist Slovak National Party), he was able to “turn towards Europe” after 2012 and develop good relations with Brussels. Do you think Viktor Orbán would also be capable of the same in a particular situation?

I wouldn’t rule it out. The turnabout he did in Hungarian-Russian relations in connection with expanding the capacity of the Paks nuclear power plant, in a very short time and managed so successfully (the right-wing voting base, having previously been extremely suspicious towards the Russians, adopted a basically pro-Russian stance two months later, according to polling) speaks for itself. I do absolve Orbán on a very small point, and can self-critically say: it is of course important to be principally and morally committed in politics (which I think I still represent to this day), but it should not be taken too far. I took it too far. It’s perfectly normal for a politician to think about what his voters give him a mandate to do and not to do, no matter how correct he may be. When Orbán said to the Christian Democrats, “However right you are in regards to banning abortion, no matter how much it may be your fundamental position as a principled Christian, if we do this we’ll lose the elections,” I think he was completely right to say it. It wasn’t that I thought: “These Hungarians have become accustomed to free health care while they hand out gratuity money to doctors. I have to convince them to do things differently.” But before that point I should have thought about whether I could convince them, and if not, what good would it do if I lost and then they change it back? Because then I didn’t do anything. I was proud that I fought to justify myself even against the will of the majority. Viktor Orbán pushes terribly hard for the other half of this matter: he is capable of nearly any compromise on principle for the stabilization and extension of his power. Of course, he doesn’t rely on the discretion of the people, so he dismantles institutions that provide a check on democracy: even if they wanted to they wouldn’t be able to stop his intentions.

However, as a wealthy businessman, you sometimes say things like you know what it’s like to live on minimum wage, which it’s better to live poorly but honestly…

Why wouldn’t I able to know? A doctor doesn’t have to have a backache to be able to feel his patient’s pain. A teacher doesn’t have to be an idiot to be able to feel the suffering that his weakest student goes through studying for the next day’s lesson. A politician doesn’t have to live in misery to understand that public goods should be distributed on the basis of social justice. And I haven’t even spoken about coming from an apartment with a kitchenette, where our toilet was in the outer corridor, or a Christmas when we didn’t even have a donut to eat. And I don’t even have to add that a large part of my family still lives a life that is not even lower-middle class, but one beneath that. People I regularly get together with. I consider this comment a cheap intellectual slur if I ever happen to see it.

Do you have any personal relationships with right-wing politicians or opinion makers?

None.

Do you think this is normal?

Of course not. But this is because of a deliberate division of the country into two on Orbán’s behalf. We go along hearing phrases (from Orbán) like “the homeland cannot be in opposition,” while these are the most severe words you can say. This statement means that you do not consider another’s political existence as natural. You consider the other political side as an error that must be eliminated, and with their elimination you have less and less moral compunction. This is the endpoint of this process. And in turn, Viktor Orbán’s responsibility for making this concept more and more acceptable to the country cannot be overstated.

How do you think this final/fatal mutual distrust can be overcome? And would this generation be at all capable of doing it?

Certainly not with Orbán. The preamble to the current Hungarian constitution condemns the entire Hungarian left. Which is absurd. But I also do not think that a majority of Fidesz supporters and some of its leaders would not want a world that is much more relaxed than the one we have now.

Where do you think the country is now, ten years after Őszöd?

In its moral state ten years before Őszöd – I mean that it is in worse shape than before 2006. But Őszöd is not the primary cause of the moral deterioration. It’s a different issue whether it helped open up the way to letting what the authorities are now doing to the country hide in the cloak of legality. There is now a terrible atmosphere in the country, without any large, shared positive experiences or successes.

December 24, 2016