Tag Archives: Gábor Demszky

Metro 4: The largest case of Hungarian fraud and corruption

Now that the complete OLAF report is available online, we can all settle down and try to read 103 pages of dense prose detailing “irregularities, fraud, corruption, and misappropriation of EU funds.” A five-member OLAF group began their investigation in January 2012 after the Court of Auditors and the Directorate General for Regional and Urban Policy of the European Commission contacted OLAF, asking the office to scrutinize the case. During the investigation, the OLAF staff got in touch with only the City of Budapest and Péter Medgyessy, prime minister of Hungary between 2002 and 2004, whose consulting firm worked for Alstom Transport S.A., one of the firms accused of wrongdoing.

The total cost of the project was €1,747,313,606, of which €696,490,000 came from the Cohesion Fund. According to OLAF’s calculation, “the financial impact on the Cohesion Fund is €227,881,690.”

The release of OLAF’s final report put an end to the political game Fidesz and the Orbán government had been playing with the document. János Lázár, head of the prime minister’s office, and his deputy, the honey-tongued Nándor Csepreghy, did their best to get as much political mileage from the affair as possible. Lázár intimated that an international socialist-liberal conspiracy was behind the corruption that occurred at the Metro 4 project. On another occasion, he claimed to have filed charges against Gábor Demszky, mayor of Budapest between 1990 and 2010, Csaba Horváth, deputy mayor between 2006 and 2009, and János Atkári, an adviser to Demszky. Csepreghy must have known that none of these people was mentioned in the document, but in a long interview at 888.hu he intimated that even Ferenc Gyurcsány, prime minister between 2004 and 2009, may have shared responsibility for the misappropriation of funds. A few days later he claimed that other politicians might also be implicated.

All this is just political fluff. What we know from the OLAF report is that the City of Budapest signed a contract in 2004 with Budapesti Közlekedési Vállalat (BKV), the city-owned transit authority, which was commissioned to implement the project. Most likely that was a major mistake, which led to a lot of difficulties later. Any project, especially such a large one as the construction of a metro, needs a general contractor who oversees the project. BKV’s staff was not equipped to coordinate the work, which led to innumerable hiccups during construction.

Throughout the project the Hungarian media, especially the online site Index, reported many suspicious cases of overspending. But these cases were actually small potatoes, like too many consulting firms and lawyers making millions for very little work. Although several such cases are described in the final report, the bulk of the money OLAF would now like to be returned came from serious irregularities during the acquisition of tenders by huge corporations.

According to OLAF, 96% of the “irregularities” occurred in contracts signed by six large firms: Siemens AG, the largest manufacturing and electronics company in Europe; Swietelsky, an Austrian construction company from Linz; Strabag, the largest construction company in Austria, based in Villach; a Hungarian company called Hídépítő Zrt., which as its name indicates builds bridges and roads; the BAMCO consortium (Vinci CGP, Strabag, Hídépítő Zrt); and Alstom, the French multinational company operating worldwide in rail transport, including the manufacture of metro trains.

I left Alstom to last because it was in regard to Alstom that OLAF got in touch with Péter Medgyessy, who received €600,000 in 2007-2008 from Alstom for two years of consulting. This payment occurred after Alstom had won the tender with apparently the worst offer. Medgyessy naturally claims that his consulting firm had nothing to do with the Alstom case, adding that it is a well-known fact that his relationship with Prime Minister Ferenc Gyurcsány and the liberal SZDSZ leadership of the City of Budapest was strained. What his relationship with Gyurcsány had to do with BKV deciding to purchase overpriced Alstom cars is beyond me. I have no idea whether in a court of law Medgyessy would be found innocent or not, but in ethical terms his behavior was highly suspect.

Siemens, the German company which was in charge of electrical works, received 31.7 billion forints (€102,303,730) for the job. Since OLAF claims that Siemens most likely received inside information during the bidding process, the European Union wants the Hungarian government to pay back the whole amount. The same is true of Alstom’s 22.9 billion forint (€73,892,769) tender. BAMCO also won the tender in an irregular manner, and therefore the European Union demands the return of 8 billion forints (€25,817,360). The EU also demands 7.6 billion forints (€24,523,364) from Swietelsky, which was responsible for the interior of the metro stations. Strabag-Hídépítő, in charge of structural work on the station at Baross Square, received 3.7 billion forints for its work but because of procurement irregularities 2.5 billion forints (€8,067,751) should be returned.

Another politician who, although not mentioned by name, was most likely involved in the metro case is László Puch, former financial director of MSZP, whose company Media Magnet Kft. just purchased the ailing Népszava and Vasárnapi Hírek. Media Magnet, according to the OLAF report, received 331 million forints (€1,068,110) from Siemens for advertising. The report notes that “this company was in charge of the campaign of the political party which was in a decision-making position in the case of Metro 4.” In 2010 Index reported that BKV ordered all sorts of superfluous studies from Media Magnet on such things as, for example, the state of the cable television market. There is a strong suspicion that some of this money ended up in MSZP’s coffers.

The biggest culprits will most likely be found among the representatives of the named companies and those BKV officials who were in contact with them. There’s no question that the guilty parties should be punished, but judging from the outcomes of earlier corruption cases I have my doubts that we will ever hear about all the dirt that OLAF unearthed. I’m also pretty sure that Fidesz will try its darndest to drag high-level politicians into the morass around BKV.

I see that Gábor Demszky will be represented by György Magyar, one of the “star lawyers” in the country. On February 3 Magyar announced on ATV that Demszky had signed only three contracts during the many years of construction. One was the contract between the city and the government in which the parties agreed that 79% of the construction cost would be borne by the government and the rest by the City of Budapest. The second contract dealt with a loan the City had to obtain for the project. The third was the contract that gave full authority to BKV for the implementation of the project.

Fidesz naturally wants to have a parliamentary investigation into the case, which will lead to further accusations on both sides. If Hungary had a decent prosecutor’s office and an independent chief prosecutor, it should undertake a speedy, thorough, unbiased investigation of the case. Unfortunately, this is the last thing we can hope for under the present circumstances.

February 6, 2017

The perils of being an opposition politician in Hungary

I don’t know whether I will be able to make a coherent story out of the mess the Orbán government most likely has purposefully created regarding the report of the European Commission’s European Anti-Fraud Office (OLAF) on irregularities—fraud and possible corruption—in connection with the construction of Budapest’s fourth metro line (M4). The report covered the period between 2006 and 2015.

Although the Hungarian government received the OLAF report—or its English-language summary, the Hungarian public heard about it only from the English-language news site Politico. It didn’t take long before the Fidesz government and the Fidesz-led City of Budapest, on the one hand, and the politicians of the socialist-liberal government of the pre-2010 period, on the other, were at each other’s throats. The government claimed that practically all the financial wrongdoings were committed before 2010 while the opposition politicians accused the Orbán government of making political hay out of the case while refusing to make the report public. The administration claimed that it has no authority to release OLAF’s findings.

Most likely because of the holiday season at the end of the year, for about a month not much happened. Then, on January 16, János Lázár officially announced that he will file a complaint against Gábor Demszky (SZDSZ), mayor of Budapest between 1990 and 2010, Csaba Horváth (MSZP), deputy mayor between 2006 and 2009, and János Atkári, a highly respected economist who for many years served as Gábor Demszky’s financial adviser. That announcement started an avalanche of often conflicting articles in the Hungarian media.

A day after Lázár’s announcement, his deputy Nándor Csepreghy gave a detailed press conference dealing with the Metro4 corruption case. The government found MTI’s report of that press conference so important that it was immediately translated into English. We learned from Csepreghy that the Fidesz government had had its own suspicions of fraud surrounding the project even before. The OLAF report only confirmed these suspicions.

Csepreghy disclosed a few relevant facts that might help our understanding of the case. For example, he revealed that the investigators of OLAF conducted interviews with 50 individuals, “including the competent executives and managers” of the Budapest Transit Authority (BKV) and the City of Budapest. In addition, Csepreghy named a few companies that had been involved in the construction of the metro line as possible culprits. He also gave the initials of certain individuals heading large public and private companies. Finally, he said that “there are dozens of actors mentioned in the report who were politicians, were associated with the realm of politics, or operated as semi-public actors.” Finally, he told the press that the “government’s legal advisers are currently looking into the possibility of disclosing the OLAF report to the public in its entirety, to which the Government is fully committed.”

Nándor Csepreghy at the press conference / Photo: Tamás Kovács (MTI)

Although the government filed a complaint against Demszky, Horváth, and Atkári, they weren’t among the individuals Csepreghy referred to by their initials. A Magyar Idők editorial found Demszky’s absence from the list especially regrettable. The former mayor will get off scot-free because “according to rumors, his name doesn’t appear to be in the report.” Only the CEOs of large companies will be prosecuted. But what will happen if they reveal “the name of the chief coordinator”? In brief, the journalist responsible for this editorial accuses Gábor Demszky of being the head of a conspiracy to commit fraud.

Meanwhile Hungarian members of the European Parliament decided to look into the question of whether the Hungarian government told the truth when it claimed that it needed the approval of OLAF to release the report and that it was waiting for OLAF’s response to its request. All three opposition MEPs–Csaba Molnár (DK), Benedek Jávor (Párbeszéd), and István Ujhelyi (MSZP)–asked the head of OLAF, Giovanni Kessler, about OLAF’s position. All three claimed that, according to the information they received, it was up to the Hungarian government whether to release the document or not. Since there is a controversy over the meaning of the information received, I will rely on Ujhelyi’s statement, which includes the original English-language letter he received from OLAF. Here is the crucial passage:

In response to your question, since the OLAF final report has now reached its intended recipients, the Office is not in a position to decide on the possible release of the report. Such a decision belongs in the first place to the national authorities to which the report was addressed. It is for these authorities to assess the impact of a possible release of the report and to ensure compliance with the relevant legal obligations on judicial secrecy, data protection and procedural rights, including the right of access to file.

It is hard to fathom why the Orbán government again resorted to lying instead of appealing to the possible legal problems that could stem from the release of the report. Since then, Attila Péterfalvi, president of the National Authority for Data Protection and Freedom of Information, personally asked István Tarlós, who by now has a copy of the document, not to make the OLAF report public. It looks as if Péterfalvi, before making this request, consulted with János Lázár of the Prime Minister’s Office and Péter Polt, the chief prosecutor, who are both against the release. Although there might be compelling legal reasons not to allow the publication of the OLAF report, given the reputation of Péter Polt’s prosecutor’s office one cannot help being skeptical about the real reasons for the secrecy.

Over the weekend Gábor Demszky gave an interview to Vasárnapi Hírek in which he detailed his position on the case. Demszky said that, according to the rules of the Council of Europe and the European Parliament, OLAF must give anyone mentioned in their investigative reports the opportunity to respond. Since no one contacted Demszky, Horváth or Atkári, it is probably safe to assume that they are not the subjects of the investigation. Even so, the Orbán government filed complaints against them. Demszky also said that because OLAF conducted its investigation between 2012 and 2016, “most of their information came from the offices of the Fidesz government.” OLAF, Demszky added, most likely accepted the information in good faith because its investigators don’t expect these offices to be swayed by political pressure.

I might add that one has to be very careful when assessing the veracity of witness testimony. We know from other politically motivated trials that witnesses often give false testimony. The most infamous was that of Zsolt Balogh, head of BKV. In order to save himself months of pre-trial custody, he invented the story that Miklós Hagyó (MSZP), one of the deputy mayors, demanded 40 million forints, to be delivered in a Nokia box.

The opposition parties are truly worried about the prospect of years of investigation by politically motivated Hungarian prosecutors. Even though in the past most defendants were eventually exonerated, they remained in limbo for years and their careers were ruined. We must also keep in mind that although OLAF has filed scores of such reports on cases involving fraudulent procurement practices, only four guilty verdicts have been handed down in the last almost seven years. Some cases, like that involving Orbán’s son-in-law, were unceremoniously dropped. The prosecutors’ sudden interest in this case indicates to me that they think they can use it to do damage to the opposition, one way or another. Evidence of culpability has never been the litmus test for deciding which cases to pursue.

January 30, 2017

The Orbán regime’s reaction to the scandal at the Hungarian National Bank

The Hungarian National Bank cagily released the documentation on its foundations’ grants and contracts Friday night after 5 p.m., but the timing didn’t help much. The outcry was immediate. And ever since, more and more revelations have been adding fuel to fire, from the grants given to relatives of György Matolcsy to the extra money that went to the wife of Chief Prosecutor Péter Polt. (In addition to her regular job as one of the department heads of the bank she also sits on the boards of several foundations.) The opposition, including Jobbik, is up in arms. All parties demand an investigation as well as the abolition of the six foundations which, by all accounts, were established illegally.

News travels fast, especially nowadays. The Financial Times carried the story of the resignation of the journalists at vs.hu on its front page. The New York Times and the Washington Post also covered the story.  Bloomberg had a complete rundown on Chairman Matolcsy’s machinations with the almost one billion U.S. dollars that was moved from the assets of the National Bank to private foundations. If something like this had happened in western Europe, it would undoubtedly have resulted in the resignation of the chairman of the central bank and perhaps even the whole government. In Hungary, however, nothing of the sort will happen. As Lajos Bokros, the former finance minister, put it when asked about the consequences, “I have no illusions. As long as we are saddled with the Orbán regime, nothing will change.”

Despite the many juicy stories surrounding this case, we shouldn’t get bogged down in details. The important thing to keep in mind is that the very establishment of these foundations was illegal. Bokros in a post on Facebook summarized the legal objections to Matolcsy’s “unorthodox” handling of the assets of the central bank. (1) All money that is accrued over the fiscal year by the bank must be put into the budget of the Hungarian state. Matolcsy, in office now for three years, has not been doing this. (2) The National Bank cannot establish foundations because by doing so it siphons public funds from the budget. (3) The Bank cannot utilize funds for public purposes because the utilization of public funds can be done only with the approval of parliament. (4) The Hungarian National Bank cannot get involved in the formulation of fiscal policy. Its only job is the formulation and execution of monetary policy. (5) The National Bank cannot attempt to transform public money into private funds because that is intentional theft and fraud.

Péter Róna, another economist and banking expert, in a conversation with György Bolgár on Klubrádió this afternoon added that the only assets Matolcsy could have used to buy works of art, musical instruments, or even to establish foundations were the bank’s private “income” from dues paid by banks and entrance fees to view the bank’s numismatic collection, which when Róna was a member of the board of directors a couple of years ago was no more than 4 billion forints a year. The foundations received 260 billion forints, more than 17 billion went for real estate, and an incredible amount of money was spent on artwork, including a picture by Titian for 4.5 billion forints.

From the general silence, it is apparent that members of the government and Fidesz-KDNP MPs find the whole scandal most unfortunate. When journalists asked questions of László Kövér and Viktor Orbán in the corridors of the parliament building, the politicians just kept going, eyes fixed on the floor. They refused to utter one word. Some of the lesser characters tried to act dumb. The excuse of one of the Fidesz deputy chairmen, Szilárd Németh, was that since he has only a simple cell phone, not like the journalists with their smart phones, he had heard nothing about the whole thing. I suspect that they were told to remain silent in the hope that eventually the whole scandal will just die down. However, I would like to remind Árpád Habony and Antal Rogán, head of the propaganda ministry, that this kind of strategy didn’t work in President Pál Schmitt’s plagiarism case.

Behind the stony silence I suspect fear because journalists of four independent organs were told yesterday that they will not be able to enter the parliament building for an unspecified duration. The four publications are Népszabadság, HVG, Index, and 24.hu. Letters notifying the editors-in-chief of the decision asked the editors to instruct their colleagues to obey the rules governing the presence of journalists in the parliamentary building “in order to maintain your publication’s parliamentary accreditation.”

In addition to the silence, the decision must have made somewhere high up, most likely in Fidesz, to leak a ten-year-old story according to which Péter Medgyessy, prime minister of Hungary (2002-2004), received 597,000 euros from the French company Alstom while he was serving as “traveling ambassador” for the country. After Medgyessy resigned, his successor Ferenc Gyurcsány named him to the post as a kind of consolation price. At the same time, however, Medgyessy returned to his old consulting business. Magyar Idők claims that the money Medgyessy received from Alstom was not compensation for his consulting services but a bribe in connection with Alstom’s bid for the metro cars for the new M4 metro line negotiated in and around 2006. Alstom was found guilty of paying more than $750 million in bribes to government officials around the world in December 2014. To make sure that the story sticks, a few hours later Magyar Idők also published a tabloid-like editorial.

Lajos Kósa, leader of the Fidesz parliamentary caucus, announced that “no prime minister in the 25 years of our democracy was accused of such a crime. Péter Medgyessy must give an account of that sum.” The prime minister’s office immediately joined the chorus, and its spokesman promised an investigation into how “this money is connected to the governance of the left.” They will investigate not only the affairs of the former prime minister but also those of former Budapest mayor Gábor Demszky. As for Medgyessy, he admits that he received almost 600,000 euros from Alstom through a Danish and Austrian company but claims it was all on the up and up.

Of course, at this stage we have no idea what transpired, but I must admit that 600,000 euros for a consulting fee is pretty steep. I heard Csaba Molnár (DK) contemplate the possibility that the reason for Medgyessy’s rather sympathetic attitude toward the Orbán government of late might have something to do with Fidesz’s holding this information over his head. Of course, this is just speculation, but it was rather embarrassing when a few months ago Medgyessy claimed in a radio interview that the Orbán government’s corruption is no different from corruption during the socialist-liberal period. I guess this also included his own two years as prime minister.

I’m sure that the pro-government media, including state TV, will keep this issue alive while an investigation will immediately begin into the bribery charge against Medgyessy and perhaps even against Demszky. Meanwhile, of course, nothing will happen on the Matolcsy front.

April 26, 2016

The European Anti-Fraud Office is a bit slow: The case of the Heart of Budapest project

Well, we are back in Budapest’s District V, which is known by many names: Lipótváros (Leopoldstadt), Belváros (Downtown), or lately for a little political propaganda “The Heart of Budapest.” At least this was the name of the mega-project undertaken within the boundaries of the district that made the historic district mostly traffic-free and repaved the streets between Kálvin tér and Szabadság tér, stretching 1.7 km, with fancy cobble stones. Like everything else, the project was largely financed by the European Union.

It was Antal Rogán, the newly elected mayor of the district, who came up with the idea of revamping downtown Pest shortly after the municipal election of 2006. He convinced the City Council of Greater Budapest to apply to Brussels for a grant, and it seemed that at least on the surface the SZDSZ-MSZP city and the Fidesz district were of one mind. We mustn’t forget that at this time Antal Rogán was considered to be a moderate and reasonable man. Later the Fidesz media praised him as a truly remarkable Fidesz mayor who managed, despite the fact that the city of Budapest and the government were in SZDSZ-MSZP hands, to receive a huge sum of money for the development of his district. Well, the Heart of Budapest project really was impressive. A good portion of District V became something of a showcase.

The renovated Károly körút - Photo András Földes

The renovated Károly körút – Photo András Földes

As we know, Antal Rogán has had his share of his political trouble ever since Péter Juhász, who was Együtt’s candidate for mayor last October, decided to investigate shady real estate deals during Rogán’s tenure. I wrote about corruption in the district in December and again in January. Juhász, unlike most Hungarian politicians, doesn’t give up. Whether he will succeed in putting Rogán in jail remains to be seen.

What Rogán did not need was another scandal. But he’s under attack yet again, this time in connection with the Heart of Budapest project. The internet site vs.hu reported yesterday that OLAF, the European Anti-Fraud Office working under the aegis of the European Commission, found serious irregularities in connection with Rogán’s project. According to vs.hu, OLAF finished its investigation at the end of last year and called upon the Hungarian Chief Prosecutor’s Office to begin an investigation of the case. Naturally, OLAF’s findings were also sent to the European Commission. The Chief Prosecutor’s Office admitted that they received the documentation that supports OLAF’s case but said that “currently work is being done on the translation of the material.” Knowing the Chief Prosecutor’s Office, they will work on that translation for months if not years. Moreover, some opposition politicians learned that in the last few years the Chief Prosecutor’s Office received several dozen such complaints, but as far as we know Chief Prosecutor Péter Polt’s crew did nothing about them.

This is not the first time that questions have been raised about the project. At the end of 2012 OLAF found that not everything was in order. There was a good possibility that both District V and the city of Budapest would have to pay sizable fines: about 900 million forints each. The charge? The officials of the district and the city who were handling the bidding process demanded such unnecessary qualifications from the applicants that only one combined firm, Reneszánsz Kőfaragó Zrt and Bau Holding 2000, forming the Heart of Budapest Consortium, could possibly undertake the work. The bidding was theoretically open to foreign firms as well, but I doubt that much effort was put into finding non-Hungarian companies for the job.

What kinds of unreasonable demands did the authorities insist on? To qualify, a company had to have references for 1.2 billion forints worth of work on historic buildings even though the new project focused on repaving streets. There was absolutely no restoration of historic buildings. This ploy is commonly used in Hungary to make sure that the “right” company is the successful bidder. In Hungary 40% of all projects end up with a single bidder. Every time such a thing happens we can be pretty sure that corruption is not far away.

In 2012, when this story broke, Rogán and his deputy András Puskás, who has since left the district under the cloud of possible corruption, argued that there was nothing wrong with the project. It was done properly. The problem, they countered, was that the European Commission didn’t like the Orbán government and concocted this case to attack Viktor Orbán and his politics.

Now that OLAF finally got to the point of calling on the Chief Prosecutor, the district is trying to shift the blame to the current opposition. After all, the argument goes, the first phase of the project was finished in 2009 when Gordon Bajnai was prime minister. And Gordon Bajnai was present at the official opening. I guess that, according to the brilliant logic of the editorial offices of Magyar Nemzet, Bajnai had something to do with passing on the job to an earlier designated firm just because he cut the tricolor ribbon at the opening ceremony. For good measure, Magyar Nemzet added that Viktor Szigetvári, co-chair of Együtt and then Bajnai’s chief-of-staff, participated in the negotiations. Szigetvári calls the accusation a lie.

In addition, Magyar Nemzet blames the SZDSZ-MSZP administration of the city of Budapest. “All this happened during the era of Demszky-Hagyó-Steiner.” Pál Steiner was the whip of the MSZP caucus on the city council while Miklós Hagyó was the MSZP deputy mayor. Hagyó was later accused in a vast corruption case, which is still pending. The lurid details of the case tarnished MSZP and helped Fidesz coast to an overwhelming victory, resulting in a two-thirds majority in 2010.

OLAF has been investigating for the last six years. Right now, the Chief Prosecutor’s office is busily, or not so busily, translating. When do you think we will know exactly what happened? If you ask me, never.

 

Gábor Demszky on the illegitimacy of the Orbán regime and on civil disobedience

With municipal elections to be held this Sunday, I decided to devote a post to the political reactivation of Gábor Demszky, lord mayor of Budapest between 1990 and 2010.

After Demszky’s fifth term ended, he not only left political life, he left the country. Prominent members of former administrations learned soon after the 2010 election that avenues for gainful employment in the public sector were blocked. Demszky therefore applied for grants and scholarships abroad and spent three and a half years in Germany, the Netherlands, and the United States. Once he returned, he decided to share his opinions on the present state of politics in the country and in the city.

In early August, when Lajos Bokros was just one of the many candidates for the mayoralty of Budapest, Demszky announced that he would support him since he considered Bokros the best person for the job. Then in Élet és Irodalom he gave a long interview to Eszter Rádai just a couple of days before the democratic parties decided on Bokros as their candidate instead of their original choice, Ferenc Falus. Here he not only talked about why he considers Bokros to be the best man for the job, he also elaborated on the political importance of the mayor of the capital city in the regime change that will eventually take place. In addition, he talked about his conviction that the present regime can be removed only through civil disobedience. Finally, he did not hide his contempt for most of the opposition parties.

So, where should we start? In Demszky’s opinion, the candidate for the job of lord mayor of Budapest must not promise much to the electorate because under the circumstances the city is entirely at the mercy of the central government. The situation was also bad during the first Orbán government between 1998 and 2002, but then at least the city still had some assets. By now, the city has been stripped of all its former wealth as well as its autonomy. What we have now, instead of self-government, is “a modernized form of the council system” that existed in the Kádár regime.

Yet the role of the mayor of Budapest is an important one because the post can be used as a bully pulpit, which gives the mayor an opportunity to represent the opposition toward the central government. He will have to act as a kind of ombudsman who stands up for the interests not only of the inhabitants of Budapest but of all citizens. The mayor of Budapest can have a powerful voice, which gives the man who holds the position political leverage. If the next mayor is a spokesman for the opposition, he might be able to challenge Viktor Orbán for the premiership four years later. And it is only Lajos Bokros who would be able to do that. After all, he once saved the country from bankruptcy. He is an internationally known economist who is strong enough to take up the fight against the mafia state.

Lajos Bokros and Gáboe Demszky at the book launch of Hungarian Octopus, vol. 2

Lajos Bokros and Gábor Demszky at the book launch of Hungarian Octopus, vol. 2

At this point Eszter Rádai reminded Demszky that Viktor Orbán in this case would make a second Esztergom out of Budapest. Esztergom is the place where an independent mayor was chosen instead of the Fidesz candidate for mayor in 2010. The city was punished for it. Not a penny came from the central government to rescue the city that had become hopelessly indebted under Fidesz management in the previous years. Demszky’s answer was that Viktor Orbán did the same thing with Budapest between 1998 and 2002 and yet it was Budapest that won the election for the opposition in 2002. Demszky is not exaggerating. I remember vividly that Fidesz was leading all through the early hours when the votes were pouring in from outside of Budapest but then the late Budapest results started coming in and suddenly everything changed. Fidesz lost the election. Viktor Orbán certainly did not forget the disloyalty of the city.

The conversation moved on to the opposition. In Demszky’s opinion, “the opposition is an integral part of this regime” and all of its sins because it has not stood behind its twenty years of democratic achievements. Since it is not ready to take responsibility for its past, it does not have a future either. It accepts the Fidesz narrative of the “muddled twenty years of transition,” the way Viktor Orbán likes to describe the period between 1990 and 2010. This is the greatest sin a political opposition can commit in confronting a dictatorship. Giving up the praise of democracy and freedom. It denies its most important tradition, liberalism. In fact, the leaders of the opposition want to free themselves of the liberals. The opposition parties “only act as if they are the representatives of the democratic opposition while they have nothing to do with either democracy or opposition.”

Out of the five opposition parties Demszky considers three to be Fidesz appendices: Jobbik, MSZP, and LMP. I guess the relationship of Jobbik and LMP to the governing party does not need further elaboration, but I think MSZP’s inclusion in this category does. In Demszky’s opinion MSZP is not really a party of the left. It never was. The MSZP leaders united only to grab power, but once they lost it they became helpless. That leaves only two parties, Demokratikus Koalíció and Együtt-PM, that Demszky considers bona fide opposition parties. Együtt-PM is so small and weak that it cannot be taken seriously while DK will be, in his opinion, unsuccessful in the long run because it is led by Ferenc Gyurcsány, who is the most divisive politician of the opposition. Gyurcsány is correct when he emphasizes the necessity of a unified opposition party, but one needs more than that.

Those who believe that the Orbán government and its mafia state can be removed by ordinary parliamentary elections are wrong. Naturally, Demszky does not advocate the violent overthrow of the government, but he recommends civil disobedience. One should study Mahatma Gandhi as the Polish opposition did in the 1980s. One must realize that Orbán’s regime ruined the constitutional order, took away political and individual rights, and ruined democratic institutions. The present political system has thus been rendered illegitimate. One needs more than a change of government; just as after Kádár, Hungary needs a regime change.

Demszky admits that at present very few people are ready to stand against the regime openly, but he is convinced that the situation will get to the point that people in large numbers will be ready to resort to civil disobedience. Poverty will only grow and, although at present there are no political prisoners, there will be. Dissatisfaction with the regime will grow. Demszky excludes the possibility of Fidesz’s tight ranks breaking up under the weight of outside pressure: “what holds these people together is power and fear because they know that they could lose everything. They put all their money on one card.”

I think most of us can agree with Gábor Demszky–and Bálint Magyar–that the opposition must concentrate on regime change because by now Viktor Orbán’s system has solidified into a full-fledged regime that Magyar calls a post-communist mafia state. Many of Hungarian Spectrum‘s readers, to judge from the comments, have a very low opinion of MSZP and few believe in its survival. However, when it comes to Lajos Bokros’s role in the regime change, few would bet on him as a contender to replace Viktor Orbán as prime minister of Hungary. Not because he would not be an outstanding prime minister but because a political career cannot be built without a viable political party and Bokros at least at this moment does not have such a party behind him.

But when it comes to Demszky’s main thesis about the illegitimacy of this government and Orbán’s state he is certainly right. The opposition forces should pay serious attention to this fact. As long as they collaborate with the government and with Fidesz in parliament they only help to ensure the survival of the regime.

Gábor Demszky as mayor of Budapest: Metro 4

Yesterday I noted that the great day had arrived: the Metro 4 line of the Budapest metro system opened at last. The man who is largely responsible for making this day possible is Gábor Demszky, who was lord mayor (főpolgármester) of the city between 1990 and 2010. He was the second longest serving mayor of the city since 1873.

Who was Gábor Demszky before he became mayor of Budapest at the age of 38? He finished law school but worked as a sociologist–that is, when he was employed, which was not too often. He was not exactly the Kádár regime’s favorite because of his participation in the illegal underground democratic opposition. He was involved in producing and propagating samizdat literature. It was this small democratic opposition that eventually established SZDSZ (Szabad Demokraták Szövetsége/Association of Free Democrats), a liberal party.

Although in the early days the politicians of Fidesz and the Free Democrats were close, after Viktor Orbán decided to move his party to the right there was not much love lost between the two groups, especially after 1994 when Fidesz did poorly at the polls and SZDSZ decided to join the socialists to form a government. Moreover, Viktor Orbán had a long-standing aversion to Budapest. He was proud of being a country boy and never felt at home in a large city.

Orbán’s personal dislike of Gábor Demszky can be dated from 1998. Although Fidesz, with substantial help from the right-wing Smallholders, managed to win the national election in the spring, that fall Demsky trounced the Fidesz candidate, János Latorcai, in the Budapest municipal election. Demszky received 59.22% of the votes; Latorcai, 39%. Viktor Orbán decided to “punish” the city and Demszky for that defeat. He stopped projects midstream, for example, the new national theater whose foundation had already been dug. Then he broke the contract between the government and the city for the financing of Metro 4. He announced that the government had no means to support the project. It was only five years later, after the fall of the first Orbán administration, that the loan guarantee was renewed and work could resume. Demszky managed to convince the European Union to subsidize half of the estimated cost of building the metro line. Of the other half the city of Budapest was to pay 21% and the national government 79%.

By 2010 a substantial amount of work on Metro 4 had been completed. Yet the new “independent” mayor, István Tarlós, talked about stopping the project half way. He announced in April 2011 that “there are no funds for the second section of Metro 4 but the first part of the work can be completed.” Later he tried to slow down the project by breaking the contract with the French company Alstom that provided the metro cars. In brief, Tarlós and Orbán did everything in their power to sabotage the work of Demszky and to undermine the whole project. Yesterday, however, they took full credit for Metro 4. In fact, in the last minute the officials who were in charge of the project in the previous city administration were barred from the celebrations. In his speech Tarlós went on and on about his travails: he and his team had to finish the project, they had no choice. He made sure that everybody understands that it wasn’t Demszky who came up with the idea of an additional metro line but the city government of Budapest during the Kádár regime in the mid-1970s. Surely, Tarlós is fighting the shadow of his predecessor. It must have been a terrible blow for him to see a large poster with a blue background (the color of SZDSZ) held up by some young people. It said: “Thank you Demszky.” Demszky-Tarlos Gábor Demszky has spent the last few months at the Woodrow Wilson Center in Washington as a research fellow. Yesterday he was among the few designated to be “global fellows.” Wilson Center Global Fellows are selected based on their achievements as authorities in their field, which includes public service, journalism, business, academia, and civil society. These non-residential fellows will contribute to the ongoing work of the Center’s programs and serve as an integral part of the overall intellectual community of the Wilson Center. Here are passages from a speech Demszky delivered at the Center a couple of days ago.

* * *

What has motivated me to write about urban reforms? To keep the memory of democratic local governance alive! In Hungary before 1990, there was no independent local government system. We had only local “soviets,” which represented the party state. After 2010, because of strong centralization tendencies, local governments again lost their autonomy, as evidenced by the nationalization of municipal schools, hospitals, and public works. We are backsliding. During the first 20 years of independence, the municipal leadership of Budapest was able to work under very special, economically and politically favorable conditions. Hungary experienced an economic boom in the 1990s when Budapest became a robust economic engine of the country.

This period was unique because we were finally working in a country with a rule of law where the government could not directly interfere with city policies. I hope that we will once again be able to work under normal democratic conditions that will allow us to apply the methods and experiences summarized in the Budapest Model. My goal was to strengthen the elected, autonomous municipal tradition to show that this is a feasible and sustainable model. Looking back, it is remarkable to observe that in 1990, after the breakdown of the socialist system, we had to face the same kinds of challenges that city planners faced at the end of the 19th century.

There was a need to finish those infrastructure projects that had been started more than a century before but had never been finished. Buda and Pest merged in 1873, and the last quarter of the 19th century saw the capital’s greatest period of prosperity when its basic infrastructure and many of its finest buildings were almost, but not fully completed. It was this period of economic growth that eventually shaped the city. The “Queen of the Danube,” as Budapest was widely known, was also expanded through a plan of the Capital Council of Public Works, chaired by Baron Frigyes Podmaniczky, Budapest’s Haussmann, whose was responsible for modern Paris. The plan created stately boulevards, bridges, and a set of squares (the grandest being Heroes’ Square, which is connected to the center of the city via Andrássy Avenue.) The first continental subway in Europe was built in Budapest to create a true metropolis. These monumental projects were not maintained under the Communist system, so there was an urgent need to rebuild them before they collapsed. In addition, we had to solve the problem of waste water management because only 20 % of the waste water was treated biologically.

We had to address the problems of waste management, extend the existing public transport system with new tram-lines, and build the 4th metro-line. Our main concern was to find feasible solutions to finance these major projects while keeping the quality and accountability of the city at a good level. We renovated the Margaret Bridge and Liberty Bridge and built a network of connecting roads around three newly built bridges .The Gresham Palace, which can be seen behind the Chain Bridge, is on the list of “monument-like buildings” in Budapest. This legal category was created by the city to protect hundreds of monument-like buildings. (A “monument” belongs to a different category because it is protected by state laws). These monument-like buildings—ranging from Neoclassical to Art Nouveau—imbue the city with its eclectic character.

The Budapest Urban Renewal Fund was designed to assist the owners of these buildings in renovating and maintaining them as sites of the city’s cultural heritage. The owners could apply for refundable or non-refundable grants, which were made available from the city budget. Many small projects were also financed through these grants. Perhaps most notably the Royal Hotel, which was on the list of monument-like buildings, was reconstructed according to the original plans by a private investor and was renamed the Grand Hotel Corinthia. As the mayor of Budapest, I always thought that our task was to renew the capital city using visions in harmony with the newly formulated EU cohesion policy.

The European cohesion policy is a redistributive policy, largely unknown in the US and in Asian countries, the aim of which is to give opportunities for economic development, even to the least developed areas of the Union. To develop the most lagging regions and cities–like the large industrial cities in Eastern Europe– is completely against pure market logic, which would encourage further development in the best performing regions. Nonetheless, it was exactly this cohesion policy that provided us with the chance to live in an integrated Europe, where Budapest could compete in the region with Vienna and Prague. The policies we created and introduced may not have been the best of all conceivable policies, but they certainly were effective. We tried to develop an innovative new financial strategy while reorganizing the social policy of the city as well. We were fully conscious of the fact that maintaining a sustainable balance in financial management was the single most important and indispensable factor for the future success of the city. It was for this reason that a seven-year financial model was drawn up by the French consultant company Credit Local International Counsel. We had to take into consideration that the governments in the region operated under very difficult conditions. They faced pressing macro-economic problems and had little chance of eliminating the structural deficit of their budgets.

Under these conditions, managing these pressing needs by keeping most of the public resources in their own hands was considered a “last resort” for central governments. This is why resources were consistently taken away from municipalities. As a consequence of the city’s rapid growth, the revenue from personal income taxes grew exponentially. On the other hand, the remaining proportion for the city’s use decreased dramatically year by year because of repeated state budgetary cuts. We were able to use 100% of the personal income taxes (PIT) in 1989, but our share decreased to 0.7% by 2010. As the cornerstone of our financial strategy, we decided that the operational surplus must be kept at the level of 15 percent. (Operational surplus means the surplus of operational revenues over operational expenditure.) Keeping the operational surplus at the minimum 15 per cent level meant that only 85 percent of the recurrent revenues were spent on recurring expenditures, like bills and salaries. The rest was invested in improving the infrastructure of the city and the municipal institutions. With this rule, stable resources were secured for the continuous maintenance and upgrading of the city’s assets.

In our long term financial strategy, the targeted 15 per cent of the operational surplus was the stable element. It was carved in stone, and we could realize it. (In 2008, when the financial crisis hit, the operational surplus was 16.3 per cent.) One of the huge benefits of this system was that in this framework, politicians could not sacrifice long-term goals for short-term benefits. This system did not allow spending the budget for long-term investments on short-term political gains resulting from ad hoc salary increases or subsidies offered to certain groups. The 15 percent operational surplus rule can define not only the possible volume of the yearly operational expenditure and guide financing strategies, but, based on the seven-year financial prognosis that we used since 1996, it could also guide sector strategies (public transport projects, infrastructure investments, cultural and educational projects). With this, we have arrived at my last point. Finances in Budapest were not technical issues dealt with by a specific city hall department but were considered as a crucial element in the policy making process.

hrough this manner of financial management restructuring, the running of Budapest became easier to plan, more effective, and stable. The city’s credit rating improved from A3 to A1, which significantly increased the financing options for developments. The financial management of the capital became a dependable instrument of urban policy. From the accumulation of the operational surplus, the city completed hundreds of projects, which I described earlier. In Budapest, the newly elected local government has started only one new large-scale EU funded project since 2010. It has only finished those which were started by us earlier. Generally, one sees that especially this year, the city fathers have started many smaller projects to beautify the city, obviously taking elections into consideration. But the most worrisome change in my view is that the financial model, which we used for fifteen years and which brought long-lasting results, has not been used by the current local government since 2011. In addition, the Orbán administration does not provide the capital with resources that would be sufficient for the long-term financing of public transport and that could support the sustainable management of this huge task. Therefore the future prosperity of the city is in doubt.

“What shall I call you?”* The political system of Viktor Orbán

You may recall that a few days ago I published a lecture of Gábor Demszky, former mayor of Budapest, delivered in the Library of Congress. After the text of the lecture I described an exchange between Anna Stumpf, political attaché of the Hungarian Embassy in Washington, and Gábor Demszky. Stumpf, the daughter of Viktor Orbán’s right hand man during his first administration and today a member of the Constitutional Court, took exception to Demszky’s description of the dire situation of the media in Hungary today when he claimed that in some ways it is less free than it was in the Kádár regime’s last few years. She exclaimed: “You are not serious!” Gábor Demszky’s answer was, “Yes, I’m serious. I lived in it.” Within a couple of days this footnote to Hungarian Spectrum‘s coverage of the lecture made the rounds in the Hungarian media. It made a splash even in the liberal press because the Hungarian opposition doesn’t quite know what to call Viktor Orbán’s political system. Moreover, they are reluctant to describe the “System of National Cooperation” as a regime that is perhaps worse than the “soft dictatorship” of János Kádár. Bálint Magyar and his coauthors from many disciplines describe Viktor Orbán as the Godfather, the leadership of Fidesz and their friends and relatives as mafia, and the political structure as a “mafia state.” The book this group of political scientists, philosophers, economists, and sociologists published became a bestseller in Hungary since it appeared a few weeks ago, and references to the “Hungarian Octopus,” the title of the book, appear frequently in the written and electronic media. Yet some people are not entirely satisfied with the description. There are a few people, especially those who publish mostly in German, who consider Orbán’s system “fascism” pure and simple.  Magdolna Marsovszky is one of the chief proponents of this theory. Only today she commented on an article in the German-language blogPusztaranger, which dealt with a conference organized by the Heinrich Böll Foundation. One of the guests was Attila Vidnyánszky, the new director of the Hungarian National Theater. What Vidnyánszky said at the conference led Pusztaranger to call this new National Theater a “faschistiches Erlösungtheater,” that is, a fascist redemption theater.

A telling pictorial description of the political system of Viktor Orbán. A combination of old socialist and nationalistic sybols

A telling pictorial description of the political system of Viktor Orbán. A combination of old socialist and nationalistic symbols / www.deviant.com

A few days ago Ágnes Heller described the present situation in Hungary as “Bonapartism,” which is defined as “a political movement associated chiefly with authoritarian rule usually by a military leader ostensibly supported by a popular mandate.” When pressed, she elaborated by saying that Bonapartism is at its core striving and acquiring power for its own sake. Moreover, such a system, according to her, cannot come to a resting place, a consolidated state of affairs because the very essence of Bonapartism is the continual striving toward greater and greater power and glory. Such a quest, however, must eventually fail. Society cannot be maintained in a constant state of ideological, national, and social warfare. Others, like János Kornai, agree that Orbán’s system is a dead end but, as he wittily said, one can live on a dead end street for a very long time. A society can live under such circumstances for perhaps decades. That was certainly the case with the Soviet Union. Not a pleasant prospect for those people who believe that Hungary’s future lies with the West, which entails a break with its authoritarian and communist past. It is becoming increasingly obvious that the main outline of Viktor Orbán’s devilish plans for his “revolution” were in the making most likely years before the 2010 electoral victory. László Lengyel, a political commentator and economist, thinks that Orbán and his closest collaborators had a completely defined plan for the political edifice they intended to build way before 2010 because as soon as the first session of parliament gathered, the plan for the System of National Cooperation (Nemzeti Együttműködés Rendszere or NER) was ready for immediate implementation. And commentators are starting to realize that Orbán’s regime is more than populism. The word “dictatorship” is an increasingly common description. There are just too many signs that Orbán’s world bears a suspicious resemblance to the communist times when one had to fear the authorities. Comparisons are made to the Rákosi regime instead of to the milder Kádár era. By the late Kádár period people’s property, for instance, was left alone. One didn’t have to worry that one day some official would arrive and take away one’s car or apartment. But nowadays private property is not at all safe. If the government decides to take away the livelihood of thousands of slot machine owners, it can do it from one day to the next. Or steal millions in savings. It can do it with impunity. Often the goods taken away are passed on to others who are favored by Viktor Orbán and his friends because they are on the right side, the national side. Again, the charge is that a complete change in ownership structure is being contemplated and slowly achieved. Here again the point of comparison is the Rákosi regime. But at least then the state didn’t turn around and sell the confiscated property to its own clients. Then it was done for ideological reasons. And then comes the soul searching. What did we do wrong in 1989-1990? At first, the participants were certain that their peaceful political and economic transition was ideal; it was certainly judged to be the best in the region by outside observers. A lot of people still cling to that belief. But, others argue, perhaps the introduction of a great number of cardinal laws, which need a two-thirds majority to pass, was a mistake. Ágnes Heller charges, not without reason, that the Budapest intellectuals who made up the democratic opposition really didn’t know the people of the country they lived in. Others rightly point out that the democratic education of the population, especially of the youth, was completely neglected. On the other hand, one cannot accuse Viktor Orbán of not knowing his people. He knows them only too well, and this is the key to his success. But more about this tomorrow. —— *I borrowed the title from one of the best known poems of Sándor Petőfi (1823-1849). The original and its English translation can be found here.