Tag Archives: economics

Conservative economists on Hungary’s prospects

It was exactly a year ago that I wrote about the “József Eötvös Group,” organized by a number of conservative economists and legal scholars. In the choice of its name, the group honors József Eötvös (1813-1871), who was minister of education in 1848 and again between 1867 and 1871. Eötvös, along with Ferenc Deák and István Széchenyi, is one of the few admirable nineteenth-century Hungarian politicians whose moderating influence was eventually overshadowed by nationalist politicians with little wisdom.

Eötvös was a writer of some renown who joined the turbulent political life of the 1840s. One of his political aims was the reform of the inhuman conditions of Hungarian prisons. He also worked on the theoretical foundations of a future Hungarian parliamentary system and made sure that it became part of the program of the opposition. He served briefly as minister of education in the Batthyány government (March-October 1848). When, after the Compromise of 1867, he became minister of education again, he was at last able to put his ideas into practice. In the first few months parliament passed his bill for the emancipation of the Jews. A short while later, he completed a reform of the Hungarian school system. Finally, the Nationality Law of 1868 became the law of the land, which was a liberal document at the time.

Robert A. Kann in his monumental book A History of the Habsburg Empire, 1526-1918, called Eötvös an enlightened man and added that “had Eötvös’s and Deák’s spirit prevailed, the Hungarian treatment of national groups might not have been inferior to that administered by the Austrian authorities.” Today we would call him a liberal conservative. He is a perfect fit for those liberal-conservative intellectuals who want to offer an alternative to Viktor Orbán’s populism. Interestingly, liberal members of MSZP turned to Ferenc Deák as their idol and established the Ferenc Deák Circle. The two groups are not that far apart ideologically.

The Eötvös Group holds regular open meetings on defined topics. A year ago, when I reported on one of the group’s meetings, the theme was the nature of Viktor Orbán’s system. The key speaker was András Körösényi, a political scientist, who described Fidesz’s world as a political system based on Viktor Orbán’s “oligarchic interests.” It doesn’t really matter where Orbán’s critics come from: their ideas are quite similar. For instance, the liberal Bálint Magyar describes the same phenomenon as a mafia state.

Source: index.hu

This time the topic was the sorry state of the Hungarian economy. While the government is in the midst of a campaign to sell the idea that the economy is booming, the two economists who delivered lectures at the meeting, Tamás Mellár and László Csaba, painted a different, quite grim picture.

It is perhaps telling that while a year ago only a handful of people were interested in the group’s lectures and discussions, this time the place was packed. In fact, extra chairs had to be added, and even then some people had to stand.

Tamás Mellár told his audience that ever since the 1970s for every 1% in economic growth 2.5% of funding has been needed. Thus, between 2001 and 2010, a 17% economic growth required 34% in additional funding. The situation became worse between 2010 and 2015 when, to achieve 10% economic growth, the country needed 35% in additional resources. Most of this came from the European Union, but some of the money came from the nationalization of the private pension plans, loans, and depletion of some of the foreign currency reserves of the Hungarian National Bank. That cannot go on, Mellár declared.

What does Mellár suggest after the removal of the Orbán government? As far as economic measures are concerned, a new government will have to abolish the flat tax introduced by the Orbán government and replace it with a progressive income tax. He would also introduce a wealth or equity tax on the total value of personal assets over a certain limit, which would be one possible way of recapturing some of the public wealth stolen by Orbán’s oligarchs. Instead of forced industrialization, the government should pay attention to new technologies, new business solutions, education, and research. But in order to see any change, Hungarians must break out of the apathy that currently exists in the country. “Now there is no Russian pressure anymore. This time we ourselves caused all this trouble, and we must be the ones who get us out of it.”

Although the government’s predictions for next year are optimistic, László Csaba sees little hope for the expected great economic growth. Interest rates in the United States will most likely rise, and who knows what Donald Trump will be up to. Meanwhile, there is the refugee crisis, populism, low economic growth in Europe, the Russian-Ukrainian conflict, slowing emerging markets, and unpredictable oil prices. One cannot count on European Union subsidies forever. Hungary must rely on itself.

He is convinced that “without comprehensive reform of the education system there is no hope.” The government should leave higher education alone. Instead of constantly reorganizing colleges and universities, the government should concentrate on kindergartens and elementary schools because these are the crucial years where students’ futures are decided. As far as the government’s economic predictions promising high growth are concerned, “they are completely unfounded.” Hungarian GDP at the moment, calculated in U.S. dollars, still hasn’t reached its 2008 level. This is worrisome even if it includes the fact that the forint is now weaker against the dollar. “We don’t have enough capital, we don’t have enough manpower, we spend too little on research and development, and the external environment is not favorable. In fact, the only increase we can expect is an increase in debt.” As for the government propaganda regarding recent tax reductions, it is a sham because for each tax cut there are many new increases elsewhere. “There is a feeling of hopelessness in the country.” He concluded his talk with a Seneca quotation: “If one does not know to which port one is sailing, no wind is favorable.”

Still, there are some hopeful signs. The Momentum Movement’s introductory meeting was filled with interested people. The young organizers urged the audience to ask them questions about their political plans. On the very first day the activists gathered 10,000 signatures of the mandatory 138,000 and by now they reached almost 40,000. People have been standing in line to add their names to the list. The government seems to be taken aback; they didn’t expect such an enthusiastic reception to an anti-Olympics drive. Therefore, attacks on the group began in earnest in the many government-financed newspapers and internet news sites. Since the topic of the Eötvös Group’s next gathering will be “Do we need an Olympics?” pestisrácok naturally discovered a close connection between the learned economists and the young political hopefuls, which apparently does exist. All in all, one can see some early signs of a societal awakening.

January 22, 2017

Holding the Olympic Games in Budapest: Viktor Orbán’s obsession

In the last week or so we have been learning more about the cost of Viktor Orbán’s dream project: to host the Olympic Games in 2024.

It’s hard to know exactly when he first entertained the idea. We know that by the time he became prime minister in 1998 he was already plotting to hold the 2012 Olympics in Budapest. Luckily Orbán lost the election in 2002, and the following year the Medgyessy government had the good sense to withdraw Hungary’s bid. But a lot of money had already been spent on the project, which was unrealistic from the start. What a disappointing year it had to have been for Orbán. No fancy palace for the first family in the Castle District and no chance of hosting Olympic Games in Budapest. But Orbán never gives up on his pet projects. He just may live in the Sándor Palace one day. And he is still working hard on his Olympic dream.

MTI / Photo: Tibor Illyés

MTI / Photo: Tibor Illyés

Over the course of the last two years, in great secrecy, a team prepared Hungary’s bid. Until recently no one managed to get any information out of the government concerning the amount of money that has been spent so far. A few figures have been known for some time. For example, $36 million was spent just on the bidding process, which included feasibility studies and projected estimates. The total cost of $2.8 billion that PricewaterhouseCoopers came out with is considered by Andrew Zimbalist of Smith College, who is an expert on the economics of the Olympic Games, simply “fanciful.” For recent Olympics “the cost runs from about $15 billion to $30 billion.” He carefully calculated the costs and the possible benefits of holding the Games and came to the conclusion that they were financial suicide for most cities.

Holding the games in Budapest has many opponents, mostly of course from the ranks of the opposition. They even tried to hold a referendum on the question, which was rejected by both the government and the Fidesz-majority City of Budapest. The Kúria followed suit. If the government is at all worried about the outcome of a possible referendum, it makes sure that it will never be held.

In early August Publicus Research published a poll which found that the majority of respondents didn’t want to have the Olympics held in Hungary. Seventy-five percent of them considered the cost too high and 64% thought that the country is too poor for such an extravagance. Almost 60% believed that the money spent on the Olympics would only enrich entrepreneurs close to Viktor Orbán. Two-thirds would spend the money on healthcare and education instead.

After quite a few months and a lot of effort, journalists finally got some information about the money that has been spent already, which is staggering. As 444.hu aptly declared, those figures should convince the government that “it would be time right now to abandon the whole affair.” The money flows through an office which began functioning in 2015 called Budapest 2024 Nonprofit Zrt., owned jointly by the Magyar Olimpiai Bizottság (MOB) and the City of Budapest. The office is well endowed by the government. This year alone it has a budget of close to $36 million. Next year Budapest 2024 will most likely receive the same amount. The nonprofit spends a lot of money on itself. For example, it moved into the Eiffel Palace, one of the notorious purchases of the Hungarian National Bank, which is perhaps the most expensive piece of real estate in the whole city.

The estimate of $2.8 billion, which Zimbalist considered to be “fanciful,” doesn’t include such items as new bridges across the Danube, new streetcar lines, and a new railroad bridge. These items, according to estimates, add an additional $7.2 billion. So, we have already reached the lowest possible figure of $10 billion that Zimbalist was talking about. This figure is 8% of Hungary’s current annual GDP. Moreover, if this is their own estimate, we can be sure that the final figure will be at least twice as much.

Zimbalist published an article, “An Economic Myth of Olympic Proportions,” just about the time the Olympic Games began. He described the Games as boondoggles in the majority of the cases. He called the International Olympic Committee (IOC) “an unregulated global monopoly” which conducts a biannual auction in which cities compete against one another to prove their suitability. “The outcome of this process is predictable: winning cities usually overbid.” Recent Olympic Games have cost $15-20 billion and the total revenue for the host city was about $3.5-4.5 billion, including TV contracts. Why is the figure so low? Because 75% of the revenue from the TV contracts goes to the IOC and only 25% to the host city.

People who are keen on hosting the Olympics argue that holding the games boosts tourism, but this is not always the case. In fact, tourism in London during July and August 2012 decreased by 5% because ordinary tourists don’t want to encounter huge crowds, transportation delays, inflated prices, and possible security threats. And the argument that the country as a result of a successful Olympics will be more attractive to investors is hollow. Why should it be?

Péter Zentai, a Hungarian journalist, interviewed Zimbalist at the end of August, in the course of which he elaborated on his assessment of the economic aspects of the Games. According to his estimate, the Olympics in Rio de Janeiro has lost about $10 billion. The Hungarian organizers argue that the so-called Agenda 2020 of the IOC puts a lid on the enormous expenses associated with the Games. But, according to Zimbalist, Agenda 2020 “doesn’t contain anything new.” The International Olympic Committee has always talked about “flexibility, sustainability, reuse” but at the end there was “always the same megalomania.” It’s no wonder that smaller cities like Cracow, Oslo, Stockholm, and San Moritz changed their minds. And there is talk about the possibility of Rome withdrawing its bid. The sad fact is that a mere 20% of the money spent benefits the economy and society of the city and the country.

One can only hope that Budapest will not win against Paris or Los Angeles, assuming Rome is no longer in the running. Even if the Hungarian government doesn’t have any sense and refuses to realize that the country doesn’t have the financial strength and the infrastructure in place to host the usual summer extravagance, perhaps those who decide the issue will.

September 5, 2016

The Hungarian central bank goes on a buying binge

It was on August 3 that I first read about the so-called Borbély castle in Tiszaroff. It was refurbished after the change of regime and was owned by a German businessman who made a four-star luxury hotel out of it. In the wake of the recent downturn in the economy, however, the business failed, and the owners put the property up for sale. The article I read in Vasárnapi Hírek reported on rumors circulating in the village that the Hungarian National Bank had purchased the castle for use as a vacation resort for the central bank’s employees. And indeed, a week later it became official. The bank purchased the property for €1.3 million (415 millon HUF).

Kester Eddy, a reporter for the Financial Times, had a great time writing a story about the purchase. It reminded him of the days when, under communism, state companies and institutions owned holiday properties so their employees could spend two weeks splashing around in Lake Balaton. The bank struck back and explained that “the Magyar Nemzeti Bank, like other EU central banks, seeks to provide its more than one thousand employees with fringe benefits.” Moreover, the castle-hotel is located in the country’s least developed region and by opening the hotel again “more than 30 new jobs have been created.” Between May and the end of August it will function as a recreational center and between September and April as a training center.

The Borbély Castle-Hotel in Tiszaroff on 3.5 hectares

The Borbély Castle-Hotel in Tiszaroff on 3.5 hectares

Earlier the Hungarian National Bank had seven different vacation homes, but by 2009 the bank sold them off one by one. In these still difficult economic times it is hard to justify buying a luxury hotel even if the price was apparently attractive. The owners asked 680 million forints for it, but the bank managed to purchase it for a mere 415 million. Moreover, Matolcsy pointed out that the bank had earned a profit of 26.3 billion forints and therefore the purchase did not cost taxpayers a penny. An interesting explanation from a central banker.

The brouhaha over the purchase of the castle-hotel had barely died down when HVG learned that the Hungarian National Bank also bought perhaps the most expensive office building in Budapest, the eight-story Eiffel Palace. Originally it was rumored that some of the offices of the central bank would be moving into the building. Portfolio thought that purchasing a class A office building was an acceptable business concept. Others were less sanguine. For example, the popular blogger orulunkvincent.hu. According to him, the price was €57.5 million (18 billion forints) and the building has 14,000 square meters of rentable space. In calculating the potential return on this investment he assumed the top rental rate for space in a green building, €13.5 per square meter. In downtown Pest 86% of the available office spaces are occupied. If the Eiffel Palace has the same occupancy rate its gross annual rental income would be €1,950,480. Assuming an 80% profit and 10% tax, the net rental income would be €1,404,346 per year. That means a return of 2.44%. Five-year government bonds have an interest rate of 4.70%. So, says the blogger, this deal does not sound so fantastic to him.

According to critics of the deal, the Hungarian National Bank grossly overpaid the owners of the Eiffel Palace. They paid almost 18 billion forints when according to real estate assessors it is not worth more than 11-12 billion. E-PM will go to court in connection with the purchase of the office building because it suspects malfeasance or a breach of fiduciary responsibility on the part of the central bank.

But these two purchases were nothing compared to yesterday’s revelation. HVG learned that the central bank had transferred 200 billion Hungarian forints to its five foundations named after Pallas Athena, the goddess of wisdom, courage, inspiration, civilization, law and justice, just warfare, mathematics, strength, strategy, the arts, crafts, and skill. A perfect description of Hungary today!  This amount is one and a half times more than the Hungarian government spends a year on higher education.

Initially it was known only that this money will be spent on education. Today the central bank released details of its project. “We are creating a faculty of economics and finance at Kecskemét College, a faculty of finance in Marosvásárhely/Târgu Mureș (Romania), a doctoral school in the Buda Castle, and an intermediate financial training center in Pest.” The reason? “The already obsolete doctrines and mistakes of the neo-liberal school of economics continue to dominate Hungarian education in economics and finance.” Since Matolcsy thinks that mainstream economists in the country–and that means practically all respected experts–are wrong and since he cannot get rid of them, he will build parallel economics departments that will teach his unorthodox economic theories. Just as the Orbán government needs an alternative Holocaust Museum and an alternative academy of artists it also needs a new set of economists who will be the high priests of unorthodoxy.

Matolcsy admitted that it will be an expensive undertaking because, after all, they need “new institutions, professors of new vision, and new teaching materials.” Creating new institutions will probably be the least of Matolcsy’s problems. Where will he find those professors of new vision? Where is he going to find new teaching materials? Perhaps he is planning to write them himself because I can’t believe that any self-respecting economist would be willing to write textbooks acceptable to Matolcsy.

I tried to find out more about the institutions mentioned and, as far as I can see, only two seem to exist. The Kecskeméti Főiskola at the moment does not teach economics. It has one section that produces elementary school teachers, another where they teach information science, and another that specializes in what Hungarians call “kertészmérnöki kar”–less elegantly put, gardening and landscaping. This college was established in 2000, i.e. during the first Orbán administration. The second institution, in Marosvásárhely/Târgu Mureș, is not mentioned by name, but I guess it is the Sapentia Hungarian University which was established in 2001 and heavily subsidized by the Hungarian government. I remember that shortly after the 2010 election Viktor Orbán made a trip to Târgu Mureș and gave a billion forints to the institution. As for the others, I assume they will be established sometime in the future.

I used to think that I could not be surprised by anything that is done by this administration, yet I am surprised time and again. It is really frightening how much power is in the hands of people whose sense of reality is greatly impaired.

“Tappanch”: Viktor Orbán’s phony wars

It doesn’t happen too often in the world of blogging that readers who are also avid and thoughtful commentators request that one of their own write a “guest post.” But this is what happened. “Tappanch” is always the first to find the salient news of the day. He is never satisfied with journalistic summaries but goes to the statistics. As you will see, he compares several sources of information to come up with his astute observations on the state of the Hungarian economy. I’m sure we will all learn from his considerable research on Viktor Orbán’s mostly lost economic wars.

  * * *

1. The war on debt

The “Basic Law” that replaced the Constitution on January 1, 2012 mandated that each yearly budget should decrease the “debt of the central government”/”complete domestic product” ratio (36 & 37). Subsequently, the Orbán government postponed the effective date of the start of this reduction to 2016. So it created a legal category that restricts the rights of the Parliament and Courts, contingent on the value of the “complete domestic product”, although there is no such notion in economics. Most people assume that the lawmakers meant GDP here.

On the other hand, the debt/GDP ratio depends on how we calculate the debt and how the GDP.

1.1 The denominator: How large is the Hungarian GDP?

The Central Statistical Office (KSH) currently gives three series of numbers.

(a) GDP in current prices.

(b) GDP in previous year’s average prices,

(c) GDP in 2005 average prices.

The three numbers for 2013 and, in brackets, for 2012 were reported to be

(a) 29114.43 [28048.07]

(b) 28360.18 [27175.44]

(c) 21984.68 [21742.74] billion HUFs on December 31, 2013 [2012].

The head of the potential government appointed “Budgetary Council,” Árpád Kovács, used slightly different numbers in a recent article for (a), namely: (a) 29203 [28048].

The GDP is quoted in HUF, but it is also meaningful to convert its forint value into EUR at some exchange rate. I will use the daily conversion rate of the European Central Bank, which can be found here.

The GDP values in EUR were

98.02 [95.96]

95.48 [92.97]

74.01 [74.39] billion EURs at the end of 2013 [2012].

Let’s see the numbers Hungary reported to the European Statistical Office.

2008: 105.54

2009:  91.42

2010:  96.24

2011:  98.92

2012:  96.97

2013:  98.07

So if one asks about the growth of the GDP in 2013, the answer will be at least sixfold. In HUF terms, we get to the numbers 3.80% [4.12% in Kovács’s article], 4.36%, and 1.11%, while in EUR terms, the growth was 2.15%, 2.69%, and -0.50%, an actual decline.

If we use unchanged HUF prices, i.e. (c), agriculture contributed to 0.9% of the 1.1% growth of the GDP.

In reality, the large volume increase in the corn and wheat production was offset by the significant decline in their price.

1.2 The numerator: How large is the national debt?

Are we talking about the debt of the central government? Do we include local governments or Social Security? Gross debt or net debt? Is the debt “consolidated”? Do we measure the debt in HUF or EUR? Which agency reports the debt?

1.2.1 The gross debt of the central government

This number stood at  19933.4 billion HUF when the Orbán government took over on May 31, 2010; at 20720.1 on December 31, 2012; 21998.6 on December 31, 2013; and 23569.3 on March 14. 2014.

So the gross debt has increased by 6.17% in 2013, but even this number was achieved by tricks to lower it artificially for a few weeks around December 31:

12.06:  22,728.0

12.13:  22,645.1

12.20:  22,365.5

12.23:  22,434.8

12.31:  21,998.1 (local minimum)

01.24:  22,862.1

01.31:  22,842.0

02.07:  22,899.3 (all-time high)

They asked the partially state-owned MOL and ordered the 100% state-owned Eximbank to purchase government bonds for 435 billion HUF. They were repaid in January.

If we count in euros, the debt has increased by a smaller percentage because of the declining value of the forint.

It was

72.35 billion EUR on May 31, 2010

70.89 on December 31, 2012

74.06 on December 31, 2013

74.93 on March 14, 2014

Thus the debt has increased by “only” 4.48% in euro terms in 2013. The debt of the central government has grown by 18.24% in HUF or by 3.75% in EUR since May 31, 2010. This last number looks great, unless we recall the fact that the Orbán government took over the private retirement funds (MaNyuP) of 2.9 million workers on May 31, 2011 and has spent it COMPLETELY by December 31, 2013.


How much of this money was spent for “debt reduction”? (The initial nationalization) + (subsequent voluntary offerings) + interest – (previous capital gains paid to the workers in 2011). The initial nationalization amounts to 2945.3 billion HUF. When I added up the items on the website of AKK, the office that handles issuing government bonds, I came up with the number of 2555.9 billion HUF, which might be a good approximation of the actual new debt the Orbán government created towards the future retirees.

If we add the spent fraction of the retirement forints to the debt, we come up with

19933.4 on May 31, 2010  [72.35 EUR]

22920.3 on December 31, 2012 [78.41 EUR]

24554.5 on December 31, 2013 [82.66 EUR]

26125.2 on March 14, 2014 [83.06 EUR]

So the Fidesz government has increased the debt of the central government by 7.13% in HUF or 5.42% in EUR during 2013. The total debt growth since May 31, 2010 amounts to 31.06% in HUF or 14.80% in EUR. The previous numbers came from the Treasury, which can be found at akk.hu.

The National Bank of Hungary, MNB, has gross debt numbers that are higher by about 1000 billion HUF than the sum of the debt reported by AKK and the spent retirement funds.

24085.5 on December 31, 2012 [82.40 EUR]

25598.8 on December 31, 2013 [86.18 EUR], a 6.28% rise in HUF or 4.59% in EUR during 2013.

The distribution of the gross debt in HUF and foreign currencies has changed since 2010, but the change is not as significant as some government propagandists suggest.

On 2014-01-31 [2010-05-31] {2008-05-31}

40.89% [45.70%] {27.77%} of the debt was owed in foreign currency, “deviza”

0.50% [ 1.26%] { 0.03%} in “other obligations”

58.61% [53.04%] {72.20%} in forints (Source AKK’s website)

1.2.2 Budget deficit and EU support

The budgetary deficit and the growth of indebtness has been mitigated significantly by the support Hungary receives from the European Union. The net EU contribution to Hungary in billions of EURs:

2008: 1.12

2009: 2.72

2010: 2.75

2011: 4.42

2012: 3.28

2013: 4.1  [low estimate, based on Lázár’s statement 4.1= 5.05-0.95]

2014: 4.22 [by the budget plan, 5.21-0.99 @296.9 EUR/HUF]

In this article I use the yearly currency exchange rates EUR/HUF and EUR/USD provided by Bundesbank.

In the 2014 budget plan (September 2013 version), the EU support amounts to more than 10% (!) of the expected revenue, while 7.4% of the outlays were designated to service the interest on the government debt.

Domestic revenue/outlays equals only 85% in the 2014 plan.

In the entire 2014-2021 European budget cycle, Hungary expects to receive 7200 billion HUF, i.e. more than €3.2 billion yearly.

The nominal deficit was:

2008:  3.87= 5696/1.4708

2009:  4.13= 5764/1.3948

2010:  4.22= 5599/1.3257

2011: -4.19=-5833/1.3920

2012:  1.93= 2481/1.2848

The nominal 2013 deficit was €3.13 billion according to financial minister Varga’s January statement.

Let us compare the nominal deficit numbers with those in Kovács’s article. Through 2012, he uses the same numbers Hungary reported to the European Statistical Office as “general government deficit”, which includes Social Security and local governments as well. See here and here.

2008: 3.94

2009: 4.23

2010: 4.15


2012: 1.98

2013: 2.32

Kovács contradicts Varga for 2013: Varga stated that the 2013 deficit was 929 billion HUF on January 22, while Kovács gave the 2013 number as 689 billion on March 13. But a recent (February 28) KSH publication puts the deficit of the central government at €3.30 billion (979.8 billion HUF), and the “consolidated” deficit at €3.13.

year: central budget; public finances (államháztartás); with local governments

2010: 3.10; 3.29; 4.07

2011: 6.18; 6.23; 5.73

2012: 2.11; 2.07; 1.76

2013: 3.30; 3.13; n/a

(See p. 26, p. 92 of KSH’s website)

The first two months of the 2014 produced a nominal deficit of 582/305= €1.91 billion euros, which leaves only €1.20 billion of deficit for the remaining ten months of 2014.

Let us calculate a more genuine deficit number, equaling the nominal deficit + the used retirement funds + net EU support

2008: 5.06 =   3.94+0+1.12

2009: 6.55 =   4.23+0+2.72

2010: 6.90 =   4.15+0+2.75

2011: 6.81 =  -4.28+6.67+4.42

2012: 6.49 =   1.98+1.23+3.28

2013: 8.57 =   3.30+1.17+4.1 [KSH data + AKK data + estimate from Lázár’s statement]

2013: 7.59 =   2.32+1.17+4.1 [Kovács data for the first number]

2013: 9.61 =   4.34+1.17+4.1 [see 1.2.3 for the first number]

2014: 7.33 =   3.11+0+4.22   [budget plan]

Simicska’s Közgép won at least 432 billion HUF in public tenders in 2013, so about 30% of the EU support goes through the company of the former treasurer of the ruling Fidesz party. We can state with certainty that the genuine budget deficit was the largest ever in 2013.

1.2.3 The debt of the local governments

Here we use the data of the MNB that can be found here.

The liabilities of the government in 109 HUF at the end of 2013 [2012], growth in 2013:

Central government : 25598.8 [24085.5], 6.28%

Social security fund:  51.5 [  164.5] [the disappeared retirement funds do not appear as liabilities!]

Local governments :  637.4 [ 1280.4]

Total liabilities : 26287.7 [25530.4], 2.97%

“Consolidated” liabilities: 26131.5 [25281.7], 3.36%

“Consolidated debt”: 23067.8 [22392.8], 3.01%

“Consolidated” means that “sub-sectors of the general government” are excluded, as the second note in the MNB spreadsheet explains.

This “consolidated debt” is the number Mr. Kovács uses in his article cited above.

Assets of the government:

Central government:  5848.3 [6583.4], -11.17%

Social security fund:  396.1 [ 368.7],

Local governments:  1592.1 [1414.3],

Total assets:  7836.5 [8366.4], – 6.63%

“Consolidated”assets:  7680.3 [8117.8], – 5.54%

Total net liabilities:

Central government:  19750.5 [17502.1], 12.85%

All governments: 18451.2 [17164.0],  7.50%

“Consolidated” net : 18451.2 [17163.9],  7.50%

Notice that the 2013 general government deficit that can be be concluded from these numbers is (18451.2-17164.0)/296.87= €4.34 billion, and not the €2.32 Kovács or the €3.13 Varga and KSH reported.

Let me summarize: the net financial position of the government is worse than what the gross debt numbers indicate.

During 2013, the increase of the debt amounted to

net debt: 12.85% in the central government,

net debt:  7.50% in the central and local governments combined.

gross debt: 6.28% in the central government,

gross debt: 3.36% in the central and local governments combined.

1.3 The mystical ratios

If you have the right to choose your favorite numerator and denominator, the desired ratio can be achieved with ease. We saw that Budgetary Council chairman Kovács counts with a unique, much lower deficit for 2013 than minister Varga. He also uses a higher “GDP in current prices” for 2013.

His calculations for 2013 [2012]:

Debt: 23068/22393, an increase of 3.01% [“consolidated” debt]

GDP:  29203/28048, an increase of 4.12% [GDP in current prices]

ratio:  78.99% [79.84%]

Let us calculate the ratio using liabilities of the central government from 1.2.2!

Debt: 25598.8/24085.5, an increase of 6.28%

GDP : 29114.43/28048.07, an increase of 3.80% [data provided by the statistical office KSH]

ratio: 87.92% [85.87%]

So we found official data showing the “ratio of desire” up in 2013, contrary to the tenet of Fidesz’s own “Basic Law”.

The ratio from the “consolidated” deficit is the well published (23067.8-22392.8)/29114.43= 2.32%.

But the Maastricht criterion requires member states of the European Union to maintain the yearly ratio of (deficit of the central government + local governments + social security)/GDP below 3%.

This ratio was (18451.2-17164.0)/29114.43= 4.42% in 2013.

2. The war on unemployment

E = [employed in enterprises with at least 5 employees]

R = [employed in enterprises with four or less employees]

S = [self-employed]

N = [employed by non-profit organizations]

G = [employed by the government in regular positions]

F = [“fostered” workers, aka as “közmunkások”]

A = [workers abroad, who somehow are counted in the Hungarian numbers]

Employed = E+R+S+N+G+F+A

The last number A seems to be a closely-held secret, it was divulged only once. How many workers and their families work and reside abroad?

We can get some data from observed remittances to Hungary in 2012:

1. Germany: 105,000; $4100

2. USA: 83,000; $4800

3. Canada: 53,000; $4800

4. UK: 51,000; $2300

5. Austria: 40,000; $4600

6. Australia: 24,000; $4900

7: Switzerland: 17,000; $4000

8: Slovakia: 16,000; $3900

9: Sweden: 16,000; $4500

10:Israel: 13,000; $5700

11:France: 11,000; $5100

12: Romania: 8,000: $3100

13: Denmark: 4,000: $2800

14: Norway: 3,000: $3700

All other countries: 18,000

Total:  462,000

The low remittance from UK and Denmark might indicate that the workers there are more likely to stay with their families.

The second trick is to move some of the unemployed to the employed camp using the “közmunkás” category F. F is only an implicitly given number that can be calculated from the data of KSH.

The third problem is that some numbers are contained in moving averages, while others are disclosed every month. Here are the numbers for the three-month average of October-December 2013 [2012]* or for December 2013 [2012] :

E = 1825.7 [1791.7], +1.90% change during 2013,

R* =  785.6 [ 812.3], -3.29%

S* =  439.2 [ 454.9], -3.45%

N =   99.6 [ 104.5], -4.69%

G =  686.6 [ 658.9], +4.20%

F =  178.5 [  86.9], +105.41%

A =   99.4 [  91.4], +8.75%   [the data is on page 6]

If we add these apples and oranges together, we can come up with the victory propaganda numbers of “Employment” = 4114.6 [4000.5], +2.85%

But if we discount the “fostered” workers and the workers abroad included in the statistics, the growth in employment equals the less than great number of 0.38%.


So what do the numbers tell us? First of all, a lot of numbers are not public. Some numbers contradict each other.

Still, we are able to conclude that

1. The GDP growth in constant prices was 0.2% without agriculture in 2013. If agriculture is counted, the 1.1% growth in HUF becomes a 0.5% decline in EUR.

2. The Orban government has increased the debt to an all time high. The total debt growth since 2010-05-31 amounts to 31.06% in HUF or 14.80% [using ECB exchange rates] or 15.10% [using MNB exchange rates] in EUR, if we include the spent retirement funds.

3. The general government deficit reached a record high of €4.34 billion in 2013.

4. The number for the Maastricht deficit criterion was 4.42% in 2013.

5. The domestic employment without the “fostered” workers increased by 0.38%.


P.S. Today, on March 18, 2014, Hungary sold $3 billion of new debt at 5.5% yearly interest. The official gross debt/GDP ratio will reach 84% to 85% at the end of March.

The 10-year bond premium over the 10-year US Treasury note. The data are from Portfolio.

2010: 2.65% (January)

2011: 3.10% (March)

2012: —-

2013: 3.45% (February), 3.25% (November)

2014: 2.875% (March) [over the US Treasury notes]