Tag Archives: Pallas Athena foundations

When a love affair is no private matter: The case of György Matolcsy

Until very recently the Hungarian media had left politicians’ private lives alone. In the last few months, however, there has been a decided change in attitude. I think it was 888.hu, a government-inspired internet site that was supposed to be hip and capture the imagination of the younger generation of right-wingers, that broke with this hands-off policy. The editor-in-chief, the notorious Gábor G. Fodor of Nézőpont Intézet, decided to publish nude photos of the wife of MSZP party chairman József Tóbiás. A few weeks later Ripost.hu, also a government-sponsored tabloid site, came out with a juicy story about János Volner, a Jobbik MP, who was found behind some bushes with a woman friend in Pécel, a suburb of Budapest. What the two were doing in the bushes was widely discussed at the time, especially in the pro-government media. So, thanks to the newly created pro-government tabloids, the taboo has been broken.

The story of György Matolcsy’s divorce and his liaison with a 31-year-old woman, Zita Vajda, has been garnering a lot of attention. The media isn’t interested in their romantic attachment. Rather, they view the story as further proof of the incredible corruption that surrounds the Hungarian National Bank (MNB) under the leadership of György Matolcsy.

Regular readers of Hungarian Spectrum are only too familiar with Matolcsy’s generosity toward his friends and family—and his family is large since there are a lot of Matolcsys. He is especially generous toward his lover, for whom he is divorcing his wife of thirty years. In fact, Matolcsy is taking care of Zita’s mother as well. It is easy to be generous with someone else’s money, especially when that money comes straight from Hungary’s central bank. Matolcsy has a track record of using bank funds for questionable purposes. The bank bought some very expensive real estate, and it transferred an incredible amount of public money from the bank to private foundations it set up, which I described as a perfect money laundering device.

Népszabadság stumbled upon the case of Matolcsy’s liaison with Zita Vajda by accident. What the paper was investigating was her fabulously high salary. She was making more money than a department head, and her job was merely to prepare and organize Matolcsy’s foreign travel and negotiations. When Matolcsy became chairman of the central bank in 2013, he fired a number of staff members, including well-qualified economists, and replaced them with his favorite associates from the ministry of the national economy. Zita Vajda was among them. Vajda’s very high salary (1,730,000 ft.) was undoubtedly the subject of gossip, and I assume that one of the employees convinced Népszabadság to investigate. It took a little while because the bank tried to stall, but eventually the paper got the information with the following sentence tacked on at the end: “György Matolcsy’s personal life and his divorce is a private matter.” Was this a mistake or was the information about his divorce, which was not publicly known, intentionally leaked? I don’t know, but it supplied another incentive to pursue the matter. And the deeper Népszabadság dug, the more dirt it uncovered.

In addition to her job at the bank, in 2014 Zita Vajda was made a board member of the bank’s Pallas Athene Domus Innovationis (PADI) foundation. A year later she became a member of the board of a corporation created by the same PADI. Népszabadság calculates that the salary of a board member of one of these foundations is 555,000 ft./month. Soon enough it became known that Zita Vajda’s mother, Mrs. Péter Vajda, an employee of a public accounting firm, takes care of the accounts of all six foundations. The company, thanks to Zita Vajda’s relationship to Matolcsy, received approximately 27 million forints from the foundations in 2015 alone. The company’s total revenue that year was only 62 million forints. Thus, almost half of the public accounting firm’s revenue came from the bank’s foundations.

Just to keep the record straight, Zita Vajda no longer works for the bank. I guess it was deemed advisable to remove her from the limelight because of the divorce and impending marriage. Ripost recently reported that the Matolcsys separated months ago and that divorce papers had already been filed. After Vajda’s departure from the bank, Matolcsy made sure that she would not suffer any financial loss. Thus, in addition to her two board member jobs, she became deputy director of the Pallas Athene Geopolitikai Alapítvány (PAGEO) and also a “researcher” in the PAGEO Research Institute. Her income from these two new jobs amounts to 1.2 million ft. /month, which doesn’t quite match the money she made at the bank. But if you add up her income from the four different sources, her salary may be as high as 2.3 million forints a month.

Of these four jobs the most intriguing is her “research position” at PAGEO to the tune of 600,000 ft. /month. As far as we know, she spent two months in India where she studied yoga. In fact, in her spare time as “international secretary” to Matolcsy, she gave yoga lessons to interested bank employees. Her knowledge of India certainly doesn’t merit 600,000 ft. per month. The top expert on India, a university professor, makes only 380,000 ft. Népszabadság discovered one short article online that she wrote about Dharavit, one of the largest slums in Mumbai. But she is no India expert. The job was created for her because of her relationship to Matolcsy. After all, the happy new couple will need plenty of money to maintain a life style becoming the Hungarian central bank chairman and his wife.

The lady seems talented--in yoga

The lady may be talented–in yoga

Matolcsy, we know, is attracted to certain Eastern beliefs/superstitions. For instance, it seems that Matolcsy believes in the ill effects of certain numbers. The number 8 has ominous consequences, and therefore he changed the official address of the bank from Szabadság tér 8-9 to Szabadság tér 9. People claim that certain rooms inside the building had to be renumbered to avoid the number 8.

Another hypothesis that’s floating about in Budapest is that Hungary’s central bank is run by a man who accepts the Tibetan Buddhist belief that there are four days in the year when positive or negative actions can be multiplied ten million times. The best description I could find of this belief came from the Kopan Monastery in Nepal. Since these days are calculated on the basis of the lunar calendar, the dates vary from year to year.

Upon hearing stories about Matolcsy and the Buddhist ten-million multiplier days, the journalists at Népszabadság began checking the calendar of important bank announcements and came to the conclusion that there might be something to the story. The article correlated these special days with important bank announcements. It is hard to know, without going over all the important decisions that have been made in the last three years, whether there is any truth to this hypothesis. I did check the dates to ascertain what day of the week we are talking about, and I found two announcements that had been made on Saturday, an odd day to pick.

Buddha stature from Sarnath / 4th century

Buddha statue from Sarnath / 4th century

Soon after the article on the strange happenings in the central bank was published, the bank’s spokesman denied the allegations and called it absurd, pointing out that since March 2013 the Hungarian National Bank has published 818 news bulletins and 455 publications. Therefore there has been hardly a day when the bank didn’t make some kind of a statement. Yes, the hypothesis may sound strange, but by now one can imagine almost anything about the affairs of the bank under the leadership of Matolcsy, who some years ago claimed that all Hungarian children, just like the Japanese, are born with a red spot on their fannies which, of course, was nonsense.

In the wake of the revelations of Népszabadság, the pro-government papers have been silent. Matolcsy and his girlfriend have disappeared from sight, and Zita shut down her yoga blog in a great hurry. The supervisory board headed by a Fidesz politician claims that it has no jurisdiction over Zita Vajda’s salary. We can be pretty sure that everything will go on as if it nothing happened in MNB, which the author of an editorial renamed Magyar Nemzeti Budoár (Hungarian National Boudoir). Another editorial, which appeared in Magyar Nemzet titled “Sötét verem” (Dark pit), emphasized that although the paper is not fond of tabloid stories and the romance between Zita Vajda and György Matolcsy is a private matter, there are times when a love affair loses its private quality. This happens when public money is involved. According to the author, “Matolcsy for a very long time has owed the public an explanation of his sundry questionable affairs.” And if he misses the opportunity to do so, “he shouldn’t be surprised if many people think that love is not only a dark pit but might also hide corruption.”

Perhaps the best line came from Zoltán Bodnár, former deputy chairman of the central bank, who has a good sense of humor. At the time of the upheaval over the establishment of private foundations by the Hungarian National Bank, Matolcsy steadfastly maintained that with the transfer of the money to private foundations “it had lost its public character.” So, when a few days ago a reporter asked Bodnár what he thought about the national bank under Matolcsy, Bodnár quipped: “it has lost its character as a central bank.”

September 15, 2016

György Matolcsy, a headache for Viktor Orbán

In the last few weeks György Matolcsy, chairman of Hungary’s central bank, appeared before parliament twice, and his performances there have been the butt of jokes.

The Hungarian National Bank is supposed to be an independent entity in the sense that its chairman cannot be instructed either by the government or by parliament as far as its monetary policy is concerned. Parliament can, however, exercise a supervisory function over the bank’s activities. Given the recent scandals surrounding the Hungarian National Bank, Matolcsy was required to answer questions from the floor.

On both May 17 and June 13 Matolcsy was asked about the details of the bank’s foundations and the billions these foundations either lent or gave away to Matolcsy’s friends and family members. On both occasions, MSZP’s Gergely Bárándy posed the questions, questions that Matolcsy either couldn’t answer or refused to answer. He simply brushed them aside and repeated three times: “Sham! Sham! Sham!” He declared that anyone who attacks him and the National Bank is doing great harm to the Hungarian currency. In return, Bárándy called him a liar. A few days later the Hungarian National Bank’s press department announced that Chairman Matolcsy is suing Bárándy for slander.

György Matolcsy at his appearance in the parliament on May 17 / MTI / Photo: Tibor Illyés

György Matolcsy at his appearance in parliament on May 17 / MTI / Photo: Tibor Illyés

This first performance was followed by a second, when again the opposition pressed Matolcsy regarding the money that was passed to the small bank of Tamás Szemerey, who happens to be Matolcsy’s first cousin. MSZP members of parliament also wanted to know what Szemerey’s wife was doing on the board of one the central bank’s foundations.

Matolcsy’s answer was curious to say the least. He has many cousins who have not received any money from the Hungarian National Bank. For example, László Trócsányi, the current minister of justice, is also a cousin through the Darányi and Héjjas families. Moreover, Márton Kasnyik, a journalist at 444.hu who is very critical of him, is also a cousin. Trócsányi, “although he greatly admires the bank chairman,” rushed to correct the record. He is in no way related to Matolcsy, he said, although Matolcsy had earlier claimed that the information about the family ties came from Trócsányi himself. As for Kasnyik, Matolcsy’s claim is far-fetched. Their last common ancestor lived sometime in the eighteenth century.

Bárándy didn’t stop at family ties. He also asked the bank chairman about numerology. He wanted to know whether it is true that Matolcsy has something against the number 8, and whether it is true that he banished the offending number both inside and outside of the bank. No more Room 8 inside. And the official address of the bank was changed from Szabadság tér 8-9 to Szabadság tér 9. Also, Bárándy wanted to know whether it is true that only people who were born on August 20, 1984 can work in the secretariat of the bank. Matolcsy’s reaction was one of great indignation. But instead of denying the rumors, he simply insisted that his antagonists are concocting conspiracy theories against him.

It was at this point that people began to question the mental competence of the bank chairman, including Gergely Bárándy himself who expressed his doubts about Matolcsy’s mental state on ATV’s Egyenes beszéd (Straight Talk).

Before I return to Matolcsy’s more serious problems, let me insert a bit of family history here. The Matolcsy genealogy was thoroughly researched by a relative, and the almost 100-page family tree is quite impressive. Students of history know the Matolcsy name mainly because of Mátyás Matolcsy (1905-1953), apparently a brilliant economist who ended up as a far-right politician in the 1930s and 1940s. He became a member of the Arrow Cross party and in 1946 received a ten-year jail sentence. He died in jail. Mátyás is only a distant relative of György.

It is a mystery why Matolcsy felt compelled to bring up the Darányi and Héjjas families. Kálmán Darányi, prime minister of Hungary between 1936 and 1938, is associated with the radical right in Hungarian politics, especially during the second half of his premiership when he appointed Germanophile politicians to his cabinet and had a hand in the preparation of the First Anti-Jewish Law. As for the Héjjas family, Iván Héjjas is synonymous with the White Terror. While Pál Prónay was in charge of the summary executions in Transdanubia, Héjjas was at the helm in the territories between the Danube and the Tisza rivers. Search me why a sane man would brag about such a lineage in connection with an alleged relative who turned out not to be a relative at all.

Turning back to the pressure being brought to bear on Matolcsy. After two years of wrangling in court, the Hungarian National Bank was ordered to release a study Századvég did for the bank for the modest sum of 1.8 billion forints. It turned out that the study the bank received had nothing whatsoever to do with the topic Századvég was supposed to analyze. It was, it seems, just another instance of money being laundered through Századvég with the assistance, in this case, of the National Bank.

Yesterday Matolcsy received a letter from Mario Draghi, chairman of the European Central Bank, who explained again that “Article 123 TFEU prohibits the ECB and national central banks from purchasing public debt instruments directly on the primary market.” In brief, the Hungarian central bank cannot invest in government bonds even if they are purchased on the primary market by its foundations.

And one final note. There are people of some importance in the Fidesz ranks who have reservations about Matolcsy’s activities. One is Gergely Gulyás, one of Orbán’s deputies, who is usually an eloquent defender of everything the Orbán government does. So when he says that “there have been some questionable financial decisions by the foundations,” it must mean that not all the Fidesz bigwigs support Matolcsy, that they are worried about the troubles his activities have brought to the party. Further proof that Gulyás must have reservations about the increasingly shady affairs of the government and other Fidesz-controlled institutions like the prosecutor’s office or the National Bank is that in a recent interview he admitted that several times he had toyed with the idea of leaving politics altogether. Indeed, this articulate, smart, always impeccably dressed “young gentleman,” coming from the upper middle class of the Buda bourgeoisie (budai úri fiú), simply doesn’t fit in with the likes of the brutish Szilárd Németh, his fellow deputy chairman of Fidesz. He comes across as someone who, in a different setting, would be a traditional conservative, and a conservative could never feel entirely at home in Fidesz.

June 16, 2016

The Hungarian National Bank’s foundations and their beneficiaries

Last night, after a legal battle, the lists of all the grants the six Hungarian National Bank foundations approved in the last two years were finally released. It will take some time for analysts to sort through these lists to figure out who got how much for what from the foundations. Not only are the lists long, but it can happen that the same person or company received grants from several foundations.

The six foundations of the Hungarian National Bank have complicated names starting with Pallas Athena, the Greek goddess of wisdom, courage, inspiration, and many other virtues. By now only acronyms are used, like PADA, PADOC, and PADS. In any case, György Matolcsy sank 265.65 billion forints or 855.7 million euros of public money into his foundations. He had no intention of ever revealing where all that money would eventually end up. But the Kúria, Hungary’s highest court, decided otherwise. Hence the release of the lists of foundation grants.

These foundations, in addition to serving as sources of grants to the regime’s favorites, also provide job opportunities and extra income for close associates or friends of the management of MNB. The yearly salaries of the six foundation directors amount to 320 million forints. In addition, 30 individuals serve as paid members of their boards. Some people have multiple jobs at different foundations.

It will take some time to determine the greatest beneficiaries of György Matolcsy’s largesse. But so far we can say that they all seem to be politically close to the present government. I would place many of them on the far right of the Hungarian political spectrum.

The building of the Hungarian National Bank

The building of the Hungarian National Bank

One major beneficiary was New Wave Media Kft., whose managing director is István Száraz. It recently acquired two internet news sites: vs.hu and Origo. It also owns two English-language sites: welovebudapest.com and welovebalaton.hu. They seem to be useful sites for potential tourists. One can learn very little about the corporate structure of New Wave from its website, but Hungarian newspapers seem to know that György Matolcsy’s cousin, Tamás Szemerey, is one of the owners.

According to a quick estimate, New Wave received grants from all six foundations, amounting to more than 500 million forints. Over and above this amount 70 million forints was given directly to the ailing vs.hu website. In addition, New Wave received 14 million forints for the translation of three books by George Friedman, a geopolitical forecaster of Hungarian origin who seems to be an admirer of Viktor Orbán.

The foundations poured quite a bit of money into publishing ventures–translations as well as original works. One book found worthy of translating–this time into Polish, Romanian, Czech, and Ukrainian–was Chess and Poker: Chronicle of the Victorious Battles of the Hungarian Economic War of Independence, written by Matolcsy’s secretary, Helga Wiedermann. The book created quite a stir in Hungary when it appeared. Wiedermann recounted that on November 17, 2011, when the Hungarian government officially announced that it had decided to turn to the IMF for a loan, Matolcsy had lunch with three representatives of Goldman Sachs. He told them about the decision four hours before the official announcement. According to Wiedermann, one of three visitors immediately excused himself to go to the rest room, presumably to inform, directly or indirectly, Goldman’s forex trading desk. The EUR/HUF chart from that day shows immediate buying pressure after Matolcsy’s indiscretion. I wrote about this incident shortly after the book appeared in March 2014. So now this book will be available to a larger reading public. The cost of translation, printing, and advertising was 68.5 million forints plus VAT.

Kairosz Publishing House, the favorite of the Hungarian right, received 39 million forints for the publication of a six-volume series on Hungarian history by Dr. Miklós Kásler. And no, his doctorate is not in history. He is the director of the National Institute of Oncology. For a number of years he has appeared on state television with his own version of Hungarian history. The members of the board found the publication of this multi-volume work important because “it can serve as a counterbalance to the strongly globalized historical view arriving from the West.” It is supposed “to form the world view of new generations and to strengthen the patriotic sentiment against the globalist views.” The six volumes cover Hungarian history from the arrival of the Magyars in the Carpathian basin to, I assume, the glorious governance of Viktor Orbán.

A new book–“Unorthodox Eccentrics” (Unortodox különcök)–by István Lovas, the Jewish anti-Semite with a questionable past, was also found worthy of financial assistance. It too was published by Kairosz. The book is supposed to be a comparison of the Hungarian, Icelandic, and Malaysian handling of the recent economic crisis. According to the review I read, it is mostly about Viktor Orbán the brave and “everybody else.”

Among the grant recipients is another “favorite” of mine, Tamás Fricz. He calls himself a political scientist and for a while was actually an associate of the Political Science Institute of the Hungarian Academy of Sciences. A few years ago the new director of the Institute had the courage to throw him out since Fricz is a Fidesz propagandist, pure and simple. More about his anti-German and anti-Israeli propaganda can be found in one of my earlier posts. Fricz’s subsidized book is a collection of 80 articles written between January 2013 and October 2014. The publisher received 1.2 million forints to help defray costs.

Finally, a 1.5 million grant was given to the Szabad Piac Alapítvány for the publication of the Hungarian translation of Tom G. Palmer’s edited volume After the Welfare State: Politicians Stole Your Future, You Can Get It Back. The book is available online. Palmer’s introduction begins: “Young people today are being robbed. Of their rights. Of their freedom. Of their dignity. Of their futures. The culprits? My generation and our predecessors, who either created or failed to stop the world-straddling engine of theft, degradation, manipulation, and social control we call the welfare state.”

So far I have spent very little time perusing the lists, but I think that even these few examples give us an idea of the mission of the Hungarian National Bank’s foundations. Not financial literacy, not economic research, but the promulgation of Orbán’s ideology and the dissemination in Hungarian of the limited, questionable support it finds in the West. And, of course, assistance for the government’s friends and family.

April 23, 2016

The Hungarian Constitutional Court delivers a blow to the central bank

I would be remiss if I didn’t comment on last week’s news: the unanimous decision of the Constitutional Court regarding the status of the Hungarian National Bank’s recently established foundations.

I have followed and reported on the bank’s highly unusual “business activities,” which included the purchase of valuable real estate with the presumed purpose of making a profit. The best example was the purchase of Budapest’s most valuable office building, the Eiffel Palace.

But the most spectacular venture of György Matolcsy, chairman of the bank, was giving away 250 billion forints to five “educational” foundations. That is a tremendous amount of money, about 2% of Hungary’s yearly GDP. It was especially galling that the National Bank refused to divulge any financial details of these foundations. A year ago, after being rebuffed by the bank on the issue, Bertalan Tóth, an MSZP MP, brought suit against the bank. Tóth won both in the first instance and on appeal: the verdict was that these foundations must give a full account of their operations and finances because their activities are financed with public money. The case then moved up to the Kúria, which agreed with the verdicts of the lower courts.

It was at this point that Matolcsy, most likely with Viktor Orbán’s blessing, made a fatal mistake. With incredible speed a bill was presented to parliament that made the financial details of the foundations a state secret. The reason? Knowledge of the financial activities of an affiliate of the bank might cause financial loss to the National Bank itself. When pressed, Lajos Kósa, leader of the Fidesz parliamentary caucus, explained that the money that had been put into the foundations was no longer public money. It had morphed into private property.

Fidesz’s decision to push this very dubious bill through parliament was in vain. The legislation got into trouble as soon as it reached the desk of President János Áder. He and his legal team decided that the amendments attached to the Law on the National Bank (Law CXXXIX of 2013) were most likely unconstitutional and decided to send them to the Constitutional Court. In cases like this the court has only 30 days to decide. On March 31 they handed down a unanimous decision: the bank’s money didn’t morph into private funds once it was deposited in the foundations. The 250-300 billion forints are still part of the national wealth and as such must be transparent.

The case was so clear cut in my opinion that it would have been close to impossible for the judges, even if most of them are in the Fidesz camp, to give their blessing to this outrageous bill. But the court could have ruled much more narrowly than it did.

The Hungarian media’s primary concern in this case was always the lack of transparency, and therefore the reports that have appeared about the decision usually emphasize this particular aspect of the decision. They rejoice that from here on they will have access to information on these very suspicious foundations without even having to ask for it. From here on these foundations must make all their transactions public on their websites.

I, however, wonder whether some of the Constitutional Court’s observations on the “job description” of the Hungarian National Bank aren’t more important than the transparency issue. The court, among other things, states that the National Bank serves the common good and that it is not part of the private sector. Therefore it cannot pursue commercial activities intended to generate a profit. Whatever extra money accumulates in the coffers of the central bank is the result of changes in exchange rates. But this is not profit in the traditional sense of the word, as Péter Róna pointed out on ATV Friday night. Perhaps the best description of the money thus accrued would be “gain.” In Hungarian, he called it “eredmény.” If, however, a central bank tries to manipulate exchange rates for its own financial benefit, Róna continued, it would most likely be harmful to the country’s economy and would also most likely be illegal.

exchange rate

What is devastating to the present leadership of the Hungarian National Bank is that in its decision the Constitutional Court spelled out the competence of the National Bank: monetary policy and supervision of financial institutions. Its primary goal is the maintenance of price stability. Its capital comes from the state and its shares are also owned by the state. All this makes Matolcsy’s transactions in the last two or three years illegal.

The question is whether there will be any consequences of this reiteration of the mandate of the Hungarian National Bank. It took the bank a long time to chew the verdict over: it was only this afternoon that its spokesman reacted to the March 31 decision of the court. He said that the foundations, even without this court decision, were moving toward greater transparency. But, he added, “these foundations have been separated from the bank and it will be their decision how they will provide the necessary transparency.” This signals to me that the National Bank is planning to continue to play its old games as far as its foundations are concerned.

So far only LMP made public its party’s reaction to the Constitutional Court’s decision. Erzsébet Schmuck, LMP PM, today demanded “the liquidation of the foundations” and expressed the party’s opinion that in view of the Constitutional Court’s verdict the Hungarian National Bank in the past few years has been operating illegally. LMP earlier submitted a proposal which would obligate the central bank to return all gains accrued over 20% or at least 10 billion forints of the total to the central budget. Apparently this is the German practice.

I find LMP’s suggestions logical and appropriate. They most likely reflect the opinions of Péter Róna, who has been active as an economic and financial adviser to the party. It would be a good idea for the politicians of the other opposition parties to support the LMP position.

April 3, 2016

The real estate empire of the Hungarian National Bank and its foundations

Back in August 2014 I wrote a post with the title “The Hungarian Central Bank goes on a buying binge.” If I had known what would follow, I would have chosen a more modest description. Spending has continued unabated. Up to that point the Hungarian National Bank had purchased only two pieces of real estate: a former castle-hotel in Tiszaroff for €1.3 million (415 million HUF) and the Eiffel Palace in Budapest for €57.5 million (18 billion HUF). Since then more property was purchased, not directly by the Hungarian National Bank but rather by the foundations the National Bank established. The purchases were made by György Matolcsy not as the chairman of Hungary’s central bank but rather as the CEO of these handsomely-endowed foundations. In my original post on the subject “only” 200 billion forints had been sunk into these foundations. The latest figure I heard was 300 billion.

Matolcsy has expensive taste. He seems to be especially fond of the pricey buildings in the Castle district of Buda. It is here that Matolcsy, or rather his “foundations,” bought three buildings not far from one another, ostensibly for educational purposes.

One of Matolcsy’s foundations, the Pallas Athene Domus Animae Foundation (PADA), purchased the first of the three buildings: the former Buda City Hall (Úri utca 21) that served the city until 1873 when Buda, Pest, and Óbuda joined to create Budapest. The price was 1.85 billion forints. Apparently, Matolcsy is planning to open a tavern, a wine museum, and a restaurant downstairs while a “doctoral school for economists” will be located upstairs. The idea of the National Bank running a tavern is quite a hit in Budapest.

The next building acquired by the same PADA foundation is the Lónyai-Hatvany house (Hunyadi János út 26), which is known to be the most expensive piece of property in Budapest. The foundation paid 11.2 million euros (3.4 billion HUF) for it. It was originally built for Menyhért Lónyai, prime minister between 1871 and 1872. The house was then purchased by Ferenc Hatvany, an art collector and patron of the arts. The place was once filled with paintings by El Greco, Cranach, Courbet, Renoir, Pissarro, Picasso, and the best of Hungarian artists. Many of these paintings were subsequently hidden in various bank safes, but 168 of them were “liberated” by the Soviet troops. They were discovered in 1991 in Nizhny-Novgorod. The building, which is only half-finished, is a replica of the original, which was leveled by a bomb. Apparently, Matolcsy would like to open a restaurant here as well.

The most fascinating story concerns the third building. It was acquired by the Pallas Athene Geopolitikai Alapítvány (PAGEO) and will be transformed into “a research and educational center.” The purchase price was 795 million forints. This building, which stands at the very end of Úri utca (number 72), has a most unusual history. Many old cities, especially those built on hillsides like Buda, had an underground labyrinth through which one could traverse practically the whole inner city. This is especially so in Buda, where there are several fairly large caves. Úri utca 72 is one of those houses beneath which there is an underground labyrinth that connects several larger and smaller caves. In 1936, when the Hungarian government began worrying about the possibility of war reaching Hungary, in great secrecy it purchased the property. It wanted to have a safe place to deposit Hungary’s gold reserves and the Holy Crown. Anyone who’s interested in the details and knows Hungarian should read the story of the “bunker” by Balázs Szabó. Perhaps Matolcsy was inspired by the fact that the underground “bunker” was once in the possession of the Hungarian National Bank.

What we can see: Úri utca 72

What we can see: Úri utca 72

The bunker under the building, according to the photos taken in the 1990s, is in pretty bad shape. But it looks as if the foundation has plans to utilize it in some way. The plans 444 got hold of are too general to know exactly what Matolcsy has in mind, but 444 is almost certain that it will be a three-story structure that will include a wellness center. The reporters detected several jacuzzis, a large swimming pool, and several saunas. That would be the lowest point of the “bunker.” From there a 150-160 m. tunnel, 35 m. underground, would lead to another building on Attila út.

Knowing the paranoia of Fidesz politicians, I wouldn’t be at all surprised if the real purpose of the “bunker” is to provide a safe haven for the treasures of the National Bank as well as a secure retreat for members of the government.

PAGEO denies the very existence of such plans, with or without a wellness center. But somebody drew up plans, and they look like this:

Elevator takes one down to 35 meters

Elevator takes one down 35 meters

The tunnel

Entrances into the bunker complex: Úri utca, Lovas út, Attila út

Entrances into the bunker complex: Úri utca, Lovas út, Attila út

In addition to these valuable properties in the Castle district, I should mention two more buildings in Budapest. One is a four-story building in downtown Budapest (Kálmán Imre utca), which was bought in 2014 for 450 million forints. Of course, the buyer was one of the foundations (Pallas Athene Domus Scientiae Foundation). The other building is a luxury villa on Mátyás Király út in the expensive Svábhegy district in Buda. It is in close proximity to Matolcsy’s official residence. Naturally, it was purchased by a foundation, this time PAGEO. Previously the building was owned by the Budapesti Francia Iskola és Gimnázium.

The Bank is also planning to spend another 411 million forints to add an extra floor to the Eiffel Palace, which was purchased in 2014 for the very inflated price of 18 billion forints. This floor would be the exclusive space of the National Bank. Currently the whole building is rented out to various firms, but this top floor would serve as offices for the highest officials of the bank, including the office of the chairman. There would be conference rooms, a library, a large lecture hall, etc. So, basically, the top echelon of the bank would move to the eighth floor of the Eiffel Palace.

A less glamorous purchase was the building of the County Hospital in Kecskemét. The price of the 2015 purchase was 1.7 billion forints. The building is close to the already existing Technical School of Kecskemét College, established only a few years ago, where Matolcsy is planning to have one of his schools of “unorthodox economics.”

The Hungarian parliament, in near record time, voted to make all transactions of the National Bank and its foundations secret for thirty years. According to all responsible legal scholars, moving public money into private foundations is unconstitutional. Even President János Áder, who rarely has compunctions about bills the Fidesz-majority parliament sends him, was taken aback by the audacity of the whole affair. He had the courage to send the bill to the constitutional court for review. Sometime in April we will find out what the Fidesz loyalists of the court will do. Perhaps they will deem the bill unconstitutional. But even if they rule against the Hungarian parliament, the court is so tainted by now that most critics of the administration will be convinced that the decision wasn’t reached independently but at the order of Viktor Orbán, who came to the conclusion that Matolcsy had gone too far and that his business affairs reflect badly on him and his government.

March 13, 2016

Economists of the Hungarian Academy of Sciences speak out against the central bank’s “foundations”

Today is a special day. This is the 3,000th post to appear on Hungarian Spectrum. I wrote my maiden piece on June 27, 2007. 

♦  ♦  ♦

A couple of days ago an article appeared in Bloomberg about a protest by “a group of prominent economists at the Hungarian Academy of Sciences concerning the Hungarian National Bank’s educational programs.” The criticism was directed at foundations set up to support the teaching of “alternative” economics.

In order to understand what this is all about, we have to go back to August 2014 when it came to light that the Hungarian National Bank had embarked on the purchase of valuable properties in Budapest and elsewhere: a castle-hotel for the pleasure of the employees of the bank and perhaps the most expensive office building in Budapest, the eight-story Eiffel Palace for €57.5 million. In addition, the National Bank set aside €28 million for the purchase of art works that included Titian’s “Mary with Child and Saint Paul.”

These purchases are nothing compared to the €700 million earmarked by the Hungarian National Bank from its profits for foundations to support the teaching of economics, outside of the regular channels of higher education. The Bank set up five such 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! The amount the National Bank allocated to teach economics is one and a half times more than the Hungarian government spends a year on higher education.

In August 2014 Matolcsy made the following announcement: “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.”

Pallas Athena by Charles-Marie Sarrabezolles

Pallas Athena by Charles-Marie Sarrabezolles

It is these five foundations that the Academy’s Committee on Economics finds objectionable. The Committee summarized its objections under nine headings. They consider the sum the National Bank spent on the Pallas Athena foundations public money. Hence it should be under the jurisdiction of the government, specifically the undersecretary responsible for higher education. There is no outside control of the foundations, and their activities and spending lack transparency.

These foundations, as was clearly stated when they were established, promulgate one specific economic dogma. This violates the principle of academic freedom and endangers the autonomy of the institutions that are supported by these foundations. The new institutions generously endowed by the Pallas Athena foundations will create asymmetry and tension. These new programs don’t have to meet the requirements of the Hungarian Accreditation Committee. These new “universities” will also have a negative impact on the currently functioning Ph.D. programs. The Hungarian National Bank boasts the “largest Ph.D. program” in the country even though it doesn’t have a graduate school. The foundations try to attract students by offering them stipends that surpass the salaries of associate professors with decades of teaching experience and academic achievements. In one of the institutions chosen to offer the Hungarian National Bank’s program, they accepted 62 Ph.D. candidates in a rather minor subfield of economics.

György Matolcsy’s reaction to the Academy’s committee was belligerent. “The Hungarian National Bank rejects the untrue statements by the Academy’s Committee on Economics and will take the necessary legal steps.” Instead of refuting the allegedly untrue accusations, Matolcsy attacked some of the members of the committee. He specifically mentioned those who have been publicly critical of the Hungarian National Bank. He singled out Péter Mihályi, who as editor of Acta Oeconomica receives a financial contribution from the National Bank; Lajos Bokros, who criticized the nationalization of the Budapest Stock Exchange; and Júlia Király, former vice-president of the Hungarian National Bank, who considered the bank’s loan program for small- and medium-size businesses economically harmful. Of course, he didn’t mention Attila Chickán, also a member of the committee, who served as finance minister in Viktor Orbán’s first government. Moreover, as far as I know, there are thirty economists on the committee. Surely, they couldn’t all have been critics of Matolcsy and his bank because he would definitely have mentioned them.

I might add that Transparency International Magyarország has been trying for more than a year to find answers to the Pallas Athena foundations’ finances. The managing director of TI has been bombarding the National Bank with inquiries about these mysterious foundations, to no avail. Világgazdaság, a Hungarian daily newspaper that focuses on the economy, eventually went to court to receive information about the foundations. The court ruled in favor of Világgazdaság, but that didn’t inspire Matolcsy to give details of the financial dealings of three of his foundations: Domus Animae, Domus Concordiae, and Domus Scientiae. These foundations are supposed to finance building construction for the future “economic universities.” Matolcsy claims that “the money [used for these foundations] has nothing to do with the budget. The taxpayers didn’t have to pay an extra penny for them. The central bank is spending its own money, which was created by profit made on two-week deposits.”

Matolcsy’s shady dealings serve several purposes. One is to take public money from the common budget and hide it for who knows what purpose. At the same time he is strangling academic freedom by building “alternative institutions” unfettered by public scrutiny. 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, an alternative academy of artists, and an alternative historical institute, it also needs a new set of economists who will be the high priests of unorthodoxy.

January 24, 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.