Tag Archives: European Union funds

The way the world is beginning to see Viktor Orbán’s Hungary

In the last three days three articles have appeared in two leading English-language newspapers, The New York Times and The Guardian, about the systemic corruption in the Orbán government. The word is out at last: a crime ring, run by Viktor Orbán himself, has taken hold of the Hungarian economy. The beneficiaries are the prime minister and his family as well as a few friends and political cronies.

The foreign press’s new-found interest in the criminal activities of Viktor Orbán was ignited by a short article that appeared in The Wall Street Journal exactly a month ago. It reported that OLAF, the European Commission’s Anti-Fraud Office, had sent a report to the Hungarian government recommending that the authorities take legal action over “serious irregularities” in projects carried out by a company that was controlled by the son-in-law of Viktor Orbán. The very fact that Hungarians had to learn about this damning report from a foreign source says a lot about the lack of transparency in Hungary.

It seems that after almost eight years of brazenly embezzling public funds, 80% of which come from the European Union, the friends and family of the Hungarian prime minister are finally coming under scrutiny. Detailed analyses are starting to plumb the depths of the systemic corruption that has made a small group of people very rich in record time. On the basis of calculations by responsible and usually accurate investigative journalists, Viktor Orbán’s hidden wealth may amount to 300 billion forints, more than a billion dollars.

One of the two Guardian articles by Jennifer Rankin neatly lists all the corruption cases that directly involve the Orbán family, including the growing wealth of Lőrinc Mészáros, which may be only partially his own. The list Rankin came up with is most likely incomplete because sub-contractors do not appear in the databases. Since most of these riches come from the European Union, Viktor Orbán’s anti-Brussels rhetoric is especially jarring. The conclusion is that, as Miklós Ligeti, head of legal affairs at Transparency International, put it, “Hungary is now in the grip of party state capture.”

The article ends with a question: will the European Union have the courage to do something about this theft of EU funds? Between 2014 and 2021 Hungary will have received €25 billion from the European Union, which makes the country one of the largest per capita recipients of the EU’s economic development funds. EU politicians are aware of the wholesale robbery that goes in Orbán’s Hungary, but for political reasons they are avoiding tackling the problem. Ingeborg Gräßle, head of the European Parliament’s budgetary committee who visited Hungary a few months ago to take a ride on Viktor Orbán’s rather expensive choo-choo train, merely says that a new kind of “semi-legal” irregularity is emerging in these post-communist countries, including Hungary. Otherwise, she estimates that in 36% of the cases there is only one bidder for EU-financed government projects, and, let me add, the remainder is most likely fixed. But that’s not all. According to András Inotai, a Hungarian economist, in 2017 5% of the country’s GDP came from EU funding while Hungary’s economic growth during the same period was about 4%. So, all that money is doing mighty little good.


Düsseldorf Carnival 2018

On February 10 an in-depth article appeared in The New York Times by Patrick Kingsley titled “As West Fears the Rise of Autocrats, Hungary Shows What’s Possible.” Hungary is described as “a political greenhouse for an odd kind of soft autocracy, combining crony capitalism and far-right rhetoric with a single-party political culture.” What follows is a detailed description of the process by which Viktor Orbán has managed to achieve his goal of an illiberal state. A former Fidesz official described the present Hungarian situation the following way: “sometimes I feel like I’m traveling in a time machine and going back to the ’60s…. All the characteristics and features on the surface are of democracy, but behind it there is only one party and only one truth.” Viktor Orbán is described as one of the strongmen of the age, alongside Vladimir Putin, Recep Tayyip Erdoğan, and Donald Trump. “Although Mr. Orbán lacks the global profile of those leaders, what he is doing in Europe is seen as part of a broader decline of democracy in the world.”

This is what Hungary looks like from New York and London. But what has been happening since the OLAF report detailing István Tiborcz’s alleged criminal activities was released? First of all, the government has come up with a strategy to divert responsibility from Orbán’s son-in-law to Lajos Simicska, Orbán’s old friend-in-crime, now enemy. This strategy may work on the propaganda level but it will not be sufficient to save Tiborcz from prosecution. But we ought not worry about the future of Ráhel Orbán and her husband. The Hungarian prosecutor’s office has already announced that its investigation of the case will be long and arduous. I have no doubt that after an inordinately long investigation Tiborcz will be found innocent of any wrongdoing. The government propaganda machinery also concocted the story that the European Union’s anti-Orbán forces timed the release of the report to coincide with the national election. It is with OLAF’s help that Soros’s men in Brussels want to remove Viktor Orbán from the seat of power.

Otherwise, all eyes are on Hódmezővásárhely, where István Tiborcz’s business career began. To recap the story: Orbán’s future son-in-law needed money and a contract to establish his business credentials, which he didn’t have. Both were provided through the good offices of the prime minister. Orbán convinced his favorite oligarch at the time, Lajos Simicska, to put some money into the young man’s firm. As collateral, Simicska demanded a share of the business. After two years, Tiborcz and his business partner paid the loan back and Simicska retired from this business venture, which he had never actually run. As for the needed contract, János Lázár, today chief-of-staff of Viktor Orbán but then still mayor of Hódmezővásárhely, suddenly had a burning desire to install new public lighting.

The sleepy little town is now all over the media as a result of the details of the project, which came to light thanks to 24.hu. So, Lázár felt that he had to give a press conference right on the spot. After a general denial of any wrongdoing, he offered a description of the town’s business venture with István Tiborcz. Lázár’s fairy tale about the bidding process and the details of what happened afterward is especially amusing if one reads old articles on the town’s internet news site called Vásárhely Hírek. While there, I also decided to read up on the special election campaign for mayor, which is in full swing at the moment.

The election will take place on February 25. Of course, the scandal around István Tiborcz also touches on the town and the election. There seems to be some anxiety in Fidesz circles about the outcome, although a couple of weeks ago I was certain that the independent candidate, Péter Márki-Zay, who lost his job after he declared his candidacy and was so maligned by his pro-Fidesz parish priest, had not the slightest chance of making a decent showing. But in the last few days commentators have pointed out that the Hódmezővásárhely election is a unique case in the sense that neither Jobbik nor the left-of-center parties have put up candidates and therefore Márki-Zay is facing the Fidesz candidate, Deputy-Mayor Zoltán Hegedűs, alone.

The town was planning to distribute 10,000 forint vouchers to pensioners sometime in March, just before Easter, but, behold, the decision was made to disburse them before the election. The prime minister also invited Hegedűs for a cup of coffee in his office in the parliament, and Defense Minister István Simicskó paid a visit to town to make sure that everybody knows that the old military barracks will be renovated and the Hódmezővásárhely shooting gallery will be the very first one to open in the whole country.

Political observers often complain about Hungarians’ indifference to corruption, which they tend to view as a fact of life. Perhaps there is hope. If Márki-Zay makes a good showing in a town where the deceased Fidesz mayor received 61% of the votes, followed by Jobbik with 17.1% and MSZP-DK-Együtt with 15%, it will give us a clue about public sentiment. A Márki-Zay win could have a measurable effect on the national election on April 8.

February 12, 2018

The spectacular business career of Lőrinc Mészáros

On January 2 HVG published a short article with the title “The new year barely begun, Mészáros already grabbed more than one hundred billion.” Of course, they were talking about the “fabulously talented” Hungarian businessman, former pipe fitter, mayor of the village of Felcsút, and Prime Minister Viktor Orbán’s friend or, what more and more people believe, his front man, Lőrinc Mészáros. The information about this latest grab came from the Public Procurement Authority, according to which Mészáros and Mészáros Kft. got the job of reconstructing a 15.7 km railroad line between Százhalombatta and Ercsi, which will cost 49 billion forints. The same company, together with Euro Asphalt, will build a waste disposal system in Ózd at the other end of the country for 4.3 billion forints.

A few days later, on January 10, Válasz reported: “Hang on! Suddenly Lőrinc Mészáros owns 203 companies.” Anyone who’s interested can now look at the list Válasz put together. Less than a year earlier the same internet site recorded only 103 companies owned by this business wizard, whose assets have grown faster in ten years, especially in the last three years, than Facebook’s. When journalists asked Mészáros about his striking outperformance, he responded that “it is possible that I was smarter than Zuckerberg, don’t you think?”

The Hungarian media had lots of fun with Mészáros comparing himself to Mark Zuckerberg

Most of the amassed wealth has come from the European Union. Átlátszó calculated that between 2010 and 2017 Lőrinc Mészáros and his family won public tenders worth €1.56 billion, 83% of which came from EU funds. I might add that of the 203 companies Mészáros and family own, only nine have been the recipients of public procurements, but they were richly rewarded. All told, they won 97 public tenders, half of which were open tenders where the Mészáros firms had no competition whatsoever. A list of the public tenders won over the years can be seen here.

The English-speaking world was introduced to Lőrinc Mészáros’s fantastic business acumen last summer when Bloomberg published an article about him. The story that caught the eye of journalists was that stock in a Hungarian company called Konzum Nyrt., whose sales in 2016 had dropped 99 percent and whose debt ballooned, a year later, after Mészáros bought a 20% share of the firm, grew fifty-fold on the Budapest stock exchange. The article noted that in three short years Mészáros had become the fifth richest man in the country.

It doesn’t matter how emphatically Viktor Orbán insisted during a parliamentary debate that Lőrinc Mészáros is not his front man (stróman in Hungarian), an overwhelming majority of Hungarians are convinced that behind him and some of the other oligarchs is Viktor Orbán himself. Only a tiny minority, 6% of the adult population, can’t imagine that such a connection exists, while 78% consider a connection “very probable and/or possible.” Even Fidesz voters suspect their party leader is hiding behind hand-picked oligarchs. Among them, 31% believe in his innocence, but 60% are either certain (10%) or consider it possible (50%) that the prime minister is heavily involved in the corruption scheme which the majority of voters consider systemic. Of course, opposition leaders like Ferenc Gyurcsány of DK and Viktor Szigetvári of Együtt are convinced that the richest Hungarian today is Viktor Orbán.

Átlátszó came out with a fascinating article in December that tried to put the wealth of Orbán’s oligarchs into historical perspective. They picked the three richest men in the country in 1935: Count László Károlyi, Count Sándor Festetics, and Prince József Habsburg. Their wealth in pengő, the Hungarian currency at the time, is known, but it is hellishly difficult to translate that into today’s forints. Átlátszó asked two economists to come up with some comparable figures. Their results were wide apart, but in both cases they were only tiny fractions of Lőrinc Mészáros’s estimated wealth. Péter Szakonyi, who maintains an annual list of the 100 richest Hungarians, told Átlátszó that “there has never been anyone who got from zero to 120 billion in three years.” Indeed, in the last three years Mészáros has seen an exponential growth in his wealth.

There is no end to the Mészáros story. It doesn’t seem to bother Viktor Orbán that more and more people consider him a crook who through Mészáros is amassing a fortune. Just yesterday it was all over the media that Mészáros’s three children, who in 2015 established a company called Fejér-B.Á.L. Zrt., a construction company, had just won a public tender for the new building of the University of Physical Education. As for the company’s name, B stands for Beatrix, Á for Ágnes, and L for Lőrinc, Jr. According to their website, the company currently employs 120 construction workers and 27 office personnel. The company will share the job with Magyar Építő, one of the favorite companies of the Orbán government. It is this company that is in the process of building the new Ferenc Puskás Stadium and did the work on the Ludovika Campus. Both of these projects are extremely close to Viktor Orbán’s heart. The job that the Mészáros children got, at least on paper, is worth 1.2 billion forints.

The Mészáros children have every reason to smile

The Hungarian edition of Forbes described Mészáros’s wealth as something he didn’t take away from someone; he didn’t acquire it through his business acumen; he simply received it through the good offices of the prime minister of Hungary, who for one reason or other finds this man useful for his purposes. This simple pipefitter must play a key role in Viktor Orbán’s scheme to build his own financial empire. Mészáros is also used to increase the government’s presence in the Hungarian media through his purchase of regional newspapers. From the outside, this relationship between Orbán and Mészáros is hard to fathom, but I’m sure Orbán knows what he’s doing.

January 21, 2018

Orbán giveth and Orbán taketh away

In April 2015 I wrote a post about the Modern Cities Project that Viktor Orbán came up with, most likely because Fidesz had lost a number of by-elections and had thus fallen short of its comfortable supermajority in parliament. It was time to offer all sorts of material incentives to larger Hungarian cities known as “megyei jogú városok,” which simply means that they also take care of the business of the counties in which they are situated, although not all of them are county seats.

Orbán began a roadshow, visiting city after city. At each place he visited he offered fabulous amounts of money for road construction and all sorts of other projects, many of them having something to do with sports. The most ambitious part of the plan was the modernization of the infrastructure of the entire country, which included converting all of the highways connecting these cities to “motorways” or superhighways. At the time the cost of the package was estimated to be 1,000-1,200 billion forints.

According to the latest estimate, the promise tsunami of the prime minister was much greater than originally estimated. Thus far he has visited only 13 cities of the 23, and 1,200-1,500 billion forints has already been pledged.

Valasz.hu has done an excellent job of collecting all the available data about the Modern Cities Project. Its reporters came to the conclusion that only 80 billion forints has actually arrived at the 13 municipalities. Considering that the deadline for the original plan was 2018, it is unlikely that many gift packages will be delivered to these cities anytime soon.

The latest piece of good news was announced on July 22. The government made some important decisions regarding much needed improvements on M1 and M7. Both are very busy roads on which traffic jams are frequent. M1, which is a two-lane “motorway,” will be widened between Budapest and Győr to become a three-lane road. The same thing will happen on M7 between Budapest and Balatonvilágos.

But a week later, on a Friday afternoon, came the surprise: the projects on M1 and M7 are off. Moreover, road construction around Veszprém was scrapped, as was the construction of a four-lane highway between Budapest and Kecskemét. The last was totally unexpected since only a month ago Mercedes announced plans to expand its factory in Kecskemét. The government has also reneged on promises for new or widened roads around Sopron, Szolnok, Békéscsaba, Ózd, Győr, and Esztergom.

Still, a fair number of projects remain on the books. According to a list provided by portfolio.hu, they are mostly construction projects on roads that connect Hungary with neighboring countries. These projects fall within the European Union’s so-called “Integrált Kölekedésfejlesztési Operatív Program” (IKOP), designed to facilitate efficient international travel through a network of roads across Europe. They can therefore be financed by the European Union. Roads promised to certain cities, however, like the ones around Veszprém, Sopron, or Kecskemét, that serve only local needs must be financed by the Hungarian government. And it is becoming increasingly evident, despite the Orbán government’s boastful comments to the contrary, that the state coffers are not exactly overflowing.

Scrapping the project to widen M1 and M7 may also mean that Viktor Orbán is reconsidering his dream of hosting the Olympic Games in 2024. This road construction was among the infrastructural changes deemed necessary for the feasibility study to be submitted to the International Olympic Committee. Next year’s World Aquatics Championship in Budapest, which the government agreed to host after Mexico changed its mind, has turned out to be a very expensive undertaking. The original cost estimate has already doubled, and we are nowhere near the end of all the necessary construction projects. Perhaps the growing price tag of the Aquatics Championship has tempered Orbán’s enthusiasm for the Olympics.

The media, which as far as I remember didn’t spend much time questioning the feasibility of the promises Viktor Orbán made during his road show, which lasted almost a year and a half, has now discovered that “Orbán’s promises about the future of modern cities were no more than a fairy tale.” A blog writer called the program “a gigantic hoax” because to the very last minute the waves of promises continued unabated when the government already knew that no money was available for the projects.

Indeed, Magyar Idők reported at the beginning of June that “the implementation of the Modern Cities Program” would begin soon and that it would be “the largest investment program of the century.” According to the mayor of Kaposvár, 452 billion forints has been put aside in the 2017 budget for the program. These investments will mean such robust economic development in the regions, counties, and cities that “in Hungary everybody will be able to work who wants to.”

fairy tale

What kind of governance is going on in Hungary where two major road construction projects are announced one day and a week later the decision is reversed? What could have happened during this week? The most obvious explanation is that it was discovered that there is simply not enough money for all the projects promised. But did the government really not know that on July 22? Perhaps one day we will have the answer. At the moment there is only bafflement.

August 6, 2016

ONE OF THE FIRST STEPS AFTER BREXIT MUST BE THE REFORM OF THE EU BUDGET

As always, Hungarian Spectrum welcomes democratic voices from and about Hungary. Today András Lukács, President of the Hungarian NGO Clean Air Action Group (Levegő Munkacsoport) and Board Member of Green Budget Europe, presents his opinion, in the wake of the Brexit referendum, of the role of EU funds in the rise of Eurosceptism. He also offers some possible solutions.

♦ ♦ ♦

 The results of the Brexit referendum strengthened the conviction of all those who think that profound changes in the European Union are necessary to stop and reverse the rise of populist parties with Eurosceptic and, in some cases, even Europhobic agendas. It is hardly an unfounded opinion that if the governance of the EU is not changed radically, then even the mere existence of the EU is put at risk.

One of the main drivers of Eurosceptism is the way EU money has been used. It is telling that, according to a recent representative opinion poll, 61 percent of those surveyed in the Czech Republic, a net recipient of European funds, believe that the EU member countries should get along financially by their own means, i.e. wealthy member countries should not support poorer ones. I know of no similar survey in Hungary, but I do know that there is a widespread opinion here that EU money has led to serious problems. Many are even convinced that EU funds cause more harm to the country than good. For example, speaking at a conference in May this year, Zsombor Essősy, CEO of MAPI Hungarian Development Agency Corp., “The Expert of EU and Domestic Funds” (as it is described on MAPI’s website), stated the following: “If our country spends EU money following the present trends and framework, this might cause the biggest tragedy of Hungary.”

According to a detailed study on the topic by Hétfa Alapítvány, the use of EU money in other countries does not seem to be more efficient than in Hungary. Having spoken to quite a few people dealing with the issue in other net recepient countries, I am not surprised by this conclusion.

Along with others, our organization, the Clean Air Action Group (Levegő Munkacsoport), analyzed the reasons for such a perverse use of EU money. Here I will summarize just a few of these reasons, described in detail in our report.

EU funds are distributed to companies in a way that seriously distorts the market. Many companies make an enormous effort to receive as much EU money as possible in order to gain a competitive advantage, instead of improving their products or services. This situation is also a serious threat to democracy because practically no business group would be willing to criticize the government for fear of not receiving public money.

A substantial amount of EU money has been spent to support the construction of new hotels. Even the Hungarian Hotel Association expressed strong criticism of state subsidies for hotel construction, emphasizing that existing hotels often struggle for survival. Such results of EU funding are characteristic not only of the hotel industry but practically all sectors of the Hungarian economy. Photo by András Lukács

A substantial amount of EU money has been spent to support the construction of new hotels. Even the Hungarian Hotel Association expressed strong criticism of state subsidies for hotel construction, emphasizing that existing hotels often struggle for survival. Such results of EU funding are characteristic not only of the hotel industry but practically all sectors of the Hungarian economy. Photo by András Lukács

The present system of distributing EU funds is also a hotbed of corruption. Free money irresistibly attracts all those looking to get rich (or much richer) within a short time by illegal or semi-legal means. These circles do everything they can to capture the national and local governments, and, as practice proves, they often succeed. (This has been described in detail, for example, in studies by Transparency International Hungary.)

Another driving force behind the ill use of EU money is the endeavor of the government to spend every last cent, rendering the efficiency of spending much less important. Coupled with corruption and other factors, this leads—among others—to investments that are not really necessary, or do not represent the most efficient way to spend public money in a given period of time. Furthermore, even if the investment can be justified and even if there is no corruption behind it, it is often implemented in a very wasteful manner because it is financed with “free money.”

A new brandy distillery built with EU money. A World Health Organisation report (as summarized by 247wallst.com) states: “No country had a higher rate of alcohol use disorders than Hungary, where 19.3% of the population abused alcohol in some form. As many as 32.2% of Hungarian men and 6.8% of women suffered from alcohol use disorders, the highest among countries reviewed.” Photo by András Lukács

A new brandy distillery built with EU money. A World Health Organisation report (as summarized by 247wallst.com) states: “No country had a higher rate of alcohol use disorders than Hungary, where 19.3% of the population abused alcohol in some form. As many as 32.2% of Hungarian men and 6.8% of women suffered from alcohol use disorders, the highest among countries reviewed.” Photo by András Lukács

In our report, besides describing the situation, we also made concrete proposals to the European Commission and governments of EU member states to remedy the situation. The main points are the following.

In the Treaty of Accession, all EU member states declared: “Our common wish is to make Europe a continent of democracy, freedom, peace and progress. The Union will remain determined to avoid new dividing lines in Europe and to promote stability and prosperity within and beyond the new borders of the Union. We are looking forward to working together in our joint endeavor to accomplish these goals.” In our understanding, this means that all member states will improve their legislative and institutional systems as much as possible in order to achieve these goals, but at least they will refrain from any backward measures. Therefore, it must be stipulated that member states repeal all legislative and institutional measures that have been adopted by the given member state since its accession to the EU that contradict the principle of non-retrogression as far as “working together in our joint endeavor to accomplish these goals” is concerned.

The European Commission must demand that the Hungarian government implement all possible best practice measures within a reasonable time to reduce corruption and other malfeasances. In our opinion, this is a measure that would fully comply with EU legislation. The European Parliament also called for measures “to be implemented right across the spectrum of EU policies, and for action not just in response to cases of fraud but also to prevent them.”

The Commission should require strict implementation of the European code of conduct on partnership in the framework of the European Structural and Investment Fund. According to the code, the governments of the member states must closely cooperate with “bodies representing civil society at national, regional and local levels throughout the whole program cycle consisting of preparation, implementation, monitoring and evaluation.” However, the Hungarian government has been doing just the opposite.

The fulfilment of the National Reform Program (NRP) and of the Country-Specific Recommendations (CSRs) should be the main criteria for the assessment of the efficiency of the use of EU funds, and not the success or failure of individual projects or groups of projects. The European Commission should strictly control the former, and not the latter. (The NRP is a document that presents the policies of the member country, which aim to achive the targets set forth in the EU’s Europe 2020 Strategy. The CSRs are the yearly assessments by the Commission on the progress of each member state towards achieving these targets, and they include recommendations for improving the country’s performance.) The NRPs and CSRs are approved by the governments of the member countries as well, thus they are binding commitments for these governments. In spite of this, the Hungarian government is generally doing just the opposite of what it committed itself to in these documents. This is well known to the European institutions concerned; for example, an assessment by the Economic Governance Support Unit of the European Parliament came to the conclusion that in 2014 only Bulgaria and Hungary made no meaningful progress in implementing any of the recommendations.

The EU should give all EU funds, destined for national purposes, directly to the national governments, without any requirements for the precise use of these funds, i.e. each national government should decide that for itself. On the other hand, in the event that a country does not comply with the above requirements, EU funding must be partly or completely suspended until it comes into full compliance. We believe that this is not only legally possible even today, but it is an explicit duty of the European Commission: according to EU legislation it is the Commission’s task to protect the EU’s financial interests.

I strongly believe that it is absolutely necessary to provide EU funds to the less developed member states with the goal of improving their economic well-being as well as their political stability in order to strengthen the EU as a whole and to make it more competitive globally. But EU taxpayers’ money must be used for this purpose, not against it.

June 27, 2016