Tag Archives: Russia

The men behind Paks II: Günther Oettinger and Klaus Mangold

Today János Lázár triumphantly announced that all of the EU’s questions about the Russian- built and financed Paks II nuclear power plant have been satisfactorily resolved. Hungary is free to begin its mega-investment which, according to most experts, is an unnecessary undertaking which most likely will also be unprofitable.

Coincident with, and not totally disconnected from, this announcement is the political storm brewing in Brussels over the appointment of Günther Oettinger, commissioner for digital economy and society, to be the replacement for Kristalina Georgieva, who in the last two years was EU commissioner in charge of the European Union’s budget and who also served as one of the vice presidents of the commission.

Georgieva’s departure is considered to be a blow to the Juncker administration. She was enticed by the Bulgarian government to leave her job as vice president and corporate secretary of the World Bank. After two years in Brussels she is returning to Washington as the chief executive officer of the International Bank for Reconstruction and Development and the International Development Association. Most people interpret her move as a criticism of the Juncker Commission’s way of doing business. According to politico.eu, “Juncker’s Commission will undeniably be weaker without Georgieva. But what makes her departure worse is that Juncker is compounding the loss by promoting Günther Oettinger to take her place.”

Oettinger has been in Brussels for a long time. Between 2010 and 2014 he was commissioner for energy. When Germany nominated him again in 2014, Jean-Claude Juncker gave him a lesser post as commissioner for digital economy.

Oettinger is known to be a man who says and does outrageous things. Back in 2000 he broke into the banned “Deutschland, Deutschland über alles” at a celebration of his German nationalist fraternity. A few weeks ago at a business conference he described a delegation of Chinese officials as having “their hair brushed from left to right with black shoe polish.” When talking about Merkel’s liberal social policy, he joked about “compulsory gay marriage.” First, Oettinger insisted that he had nothing to apologize for but, I guess under pressure from his government, he admitted that the words he used “have created bad feelings and may even have hurt people.” He is described as curt and comes across as “unintellectual and unserious—more likely to obsess over cars or football than trade deals or European Union directives.”

It was Günther Oettinger who as commissioner in charge of energy matters gave the preliminary go-ahead to the Paks project in December 2013. The incoming Juncker Commission, on the other hand, decided on a reexamination of the whole project. Although Oettinger was no longer officially responsible for energy, according to all available information he worked hard in the background to promote Orbán’s pet project.

The second player in today’s story is Klaus Mangold, a wealthy German businessman and a former member of the board of automaker Daimler. Mangold, who is sometimes referred to as “Mr. Russia” in the German press, runs an industry lobby for stronger economic ties with Russia and so has been lobbying against Western sanctions on Russia.

According to some sources, Mangold has had a long-standing interest in the Paks II project. In fact, he may well have been the person who initiated it, acting as an intermediary between Putin and Orbán. 444.hu found proof of Mangold and Orbán meeting in December 2012, “reviewing German-Hungarian and Hungarian-Russian economic relations, particularly questions of energy and its financing,” which would indicate that the meeting might have included a discussion of enlarging Paks with Russian help. So, argues 444.hu, negotiations about Paks began as early as December 2012. Subsequent talks between Russia and Hungary were conducted in secret. It was only in January 2014 that the Paks contract was signed.

Günther Oettinger may no longer be the commissioner in charge of energy matters, but he hasn’t given up his role as a secret backer of the Paks II project. Nowadays, he attends conferences in Budapest on digital economic matters and uses them as opportunities to discuss matters concerning Paks with Viktor Orbán. One of these trips took place on May 19, just before János Lázár’s trip to Brussels and Russian Foreign Minister Sergey Lavrov’s visit to Budapest. This time Oettinger arrived on Klaus Mangold’s private jet. 444.hu learned that there was a dinner meeting attended by the two Germans and the Hungarian prime minister.

Klaus Mangold, Viktor Orbán, and Günther Oettinger

Klaus Mangold, Viktor Orbán, and Günther Oettinger in Budapest, May 19, 2016

That Oettinger flew to Budapest on Klaus Mangold’s private jet merited further investigation, but the reporters of 444.hu got nowhere with either the European Commission or Mangold’s office. A few days later Benedek Jávor, a member of the European Parliament (Group of the Greens/ European Free Alliance), wrote a post in which he expressed his disapproval of an EU commissioner lobbying for a project that is no longer in his portfolio. And there is another problem. Mangold is not a registered lobbyist, yet Oettinger met him despite EU guidelines forbidding meeting with unregistered lobbyists. Then, there is the question of the trip itself. Did Oettinger pay for it or was it a gift? According to EU rules, a commissioner cannot accept any gift over 150 euros.

So, Jávor began an investigation of his own. He wrote a letter to the European Commission:

According to an article published on 21 June 2016 in the Hungarian online magazine 444.hu, Commissioner Oettinger met with Hungarian Prime Minister Viktor Orbán and German consultancy manager Klaus Mangold on his trip to Budapest, on 19 May 2016. During this meeting, the nuclear project Paks II was allegedly discussed.

Klaus Mangold currently leads a German consultancy firm, and used to be Chairman of the ‘Eastern Committee of the German Economy’. He is an important mediator between German firms and the Russian political scene. According to the Hungarian newspaper Figyelő, Mangold had already been a mediator in the previous 2013 Paks case. It has been reported that Commissioner Oettinger arrived in Budapest on Mr. Mangold’s private plane.

This meeting took place only a few days before Hungarian Minister János Lázár, of the Prime Minister’s office, came to Brussels to discuss the Paks II project.

We therefore ask the Commission the following:

  1. By what means did Commissioner Oettinger travel to Budapest?
  2. What information does it have about the content of this meeting?
  3. Has it investigated the possible use of state subsidies for the Paks nuclear project (SA.38454 (2015/C)(ex 2015/N)) and/or the infringement procedure in which the Commission objects that no public procurement preceded the Rosatom mandate discussed at this meeting?

Oettinger took his sweet time answering (on November 3, 2016):

  1. Due to the lack of commercial flights to arrive in time for the meeting with Prime Minister Orban, the Commissioner responsible for Digital Economy and Society joined Mr Mangold’s private plane.
  2. The Commission had been invited to a conference in Budapest about digitisation of industry and automated driving which was opened by Prime Minister Orban. Prime Minister Orban and the Commission met in order to prepare the conference and to discuss the setting up of national initiatives for the digitisation of industry (as outlined in the communication by the Commission of 19 April 2016(1)).
  3. The Paks II nuclear project was not discussed.

Two days ago the story was finally out in the open. Eszter Zalan of euobserver.com wrote an article inquiring whether Oettinger broke any ethics rule by traveling on a private plane of a German businessman with strong Kremlin ties. The article points out that on May 18 there was a choice of four commercial flights from Brussels to Budapest, and therefore Oettinger is simply not telling the truth.

In a way Oettinger’s flight with Mr. Russia is of secondary importance. What is much more worrisome is the visit of Oettinger and Mangold to Budapest in order to advise Viktor Orbán on how to handle a commission probe into the Paks project. But, as often happens, the use of the jet makes bigger waves than the less tangible accusation of foul play on the part of a pro-Russian lobbyist and a pro-Russian prime minister.

Oettinger, like so many people in such situations, keeps giving contradictory statements. By now his story has changed somewhat. In his latest version the Hungarian government paid for his plane ride. “We did not explicitly ask HU [Hungary] about their payment—neither for plane nor for hotel they also offered,” he said. He claims that “governments often offer transport & accommodation for missions of Commissioners when they invited for meeting, conference,” he tweeted, adding “I was invited to a dinner with a Prime Minister to discuss EU digital policies. It is my job to explain & discuss.”

The European People’s Party’s reaction to the Oettinger story is what it always is when one of their own is being questioned about a wrongdoing. Manfred Webber, who is the leader of the EPP group, told journalists that he had “complete confidence” in Oettinger. He called him a “very experienced commissioner” and said there was “no doubt at all whether Günther Oettinger is doing a good job.” The Socialists and the Democrats are naturally less charitable. They called on Oettinger “to clarify his unfortunate actions and unethical behavior.”

444.hu not undeservedly feels proud that one of its investigative pieces was picked up by the international media. And it is still on Oettinger’s case. Its reporters discovered that the EU commissioner paid a visit to Budapest during the past weekend and that he was planning to return to the Hungarian capital today. The occasion for Oettinger’s visit this past weekend was apparently a party given by the Strabag Construction Company. According to 444.hu, this trip was not recorded on the commissioner’s calendar. The occasion for his latest trip is another conference on digital cars and, again, he has a planned meeting with Viktor Orbán. Isn’t it amazing how the busy Hungarian prime minister has so much time for and interest in digital cars? All in all, Günther Oettinger’s activities in Hungary are highly suspicious, and they should be seriously investigated. However, most likely nothing will happen. Apparently he has the strong support of Chancellor Angela Merkel.

November 17, 2016

Russian disinformation in the pro-government Hungarian media

About two months ago I read a fascinating article published by Political Capital, a political science think tank, on Russian conspiracy theories and disinformation that circulate worldwide. On the whole the Russian effort is not very successful because few reputable conservative or liberal newspapers are willing to spread its propaganda. Not so the Hungarian pro-government newspapers, which often take Russian “news stories” at face value.

I have written several times about the Hungarian public’s gullibility when it comes to these theories. But it is one thing for an uneducated Aunt Mary or Uncle Joe to believe fanciful fabrications and quite another for pro-government newspapers to help spread the disinformation originating in Russia. In May of this year an English-language study titled Fog of Falsehood: Russian Strategy of Deception and the Conflict in Ukraine, edited by Katri Pynnöniemi and András Rácz, was published. One chapter, written by András Rácz, was devoted to Hungary. Naturally, the author concentrates on Hungarian reporting on Ukraine, but it is also a good source on the overall reporting practices of the official news agency, MTI, as well as publications like Index, Origo, Magyar Nemzet, and Magyar Idők. Since the study is in English and available online, there is no need to say much about it here, except that because MTI often relies on Russian sources, the news Hungarians receive on Ukraine goes through a kind of Russian filter. Since the Hungarian media is centralized and the Orbán government usually takes a pro-Russian position when it comes to foreign affairs, it should come as no surprise that papers that are in essence mouthpieces of the government will often regurgitate the pro-Russian attitudes of the politicians.

disinformation

Political Capital studied five pieces of disinformation circulated by the Kremlin. The first was in connection with the Maidan revolution of 2013-2014, which Vladimir Putin described as a far-right provocation. It was spread far and wide that the CIA organized the “Ukrainian putsch” in order to remove Putin from his position. The pro-government Hungarian media followed suit. From the very beginning Kossuth Rádió called the revolutionaries “terrorists.” One political scientist in the pay of the Hungarian government claimed that it was Victoria Nuland, assistant secretary of state, who dictated the names of the new Ukrainian cabinet to the U.S. Ambassador in Kiev. In Magyar Hírlap a right-wing economist took it for granted that the United States was behind the revolt.

The situation was the same when it came to the death of 298 people on the Malaysian Airline plane that was shot down, as it turned out later, by Russian or Russian-supported forces in July 2014. The Russians came up with all sorts of conspiracy theories to divert attention away from their own responsibility for the disaster. At that time Zsolt Bayer claimed that “even a child of average intelligence can figure out in three minutes that Putin is the one in this equation who had the least interest in the downing of the Malaysian plane.” One of the Orbán government’s so-called security experts, Georg Spöttle, claimed that “there was something on the plane” before it crashed. He based this supposition on a theory put forth by a pro-Russian internet site: that Dutch security forces had planted a bomb on the aircraft.

The pro-government Hungarian media also accepted Russian disinformation in connection with the assassination of Boris Nemtsov, circulated to deflect any suspicion of Putin’s complicity in the murder. The Russians offered several theories. One claimed that radical Islamists were behind the murder. The head of the Russian investigation committee was looking for extreme right-wing elements. Interfax talked about opposition business circles being behind Nemtsov’s death. The Hungarian right-wing media got the message. Gyula T. Máté, son of Gyula Thürmer, chairman of the Hungarian Communist Party, explained why Putin couldn’t possibly be involved in the murder and pointed instead to Ukraine. Zsolt Bayer embellished this story by adding that Nemtsov’s Ukrainian girlfriend had had an abortion and introducing a jealous lover.

The Hungarian pro-government media also picked up a story from the Kremlin-funded Sputnik, according to which two of the suspects of the terrorist attacks in Brussels were actually Belarussian citizens. Behind this bit of disinformation was a Russian-Belarusian spat over Belarus’s too friendly attitude toward the West at the time. Nonetheless, the official MTVA hirado.hu decided to run this bogus story, which was picked up from a historian who read about the brothers in Syrian and Tunisian internet sources. Magyar Idők also devoted a short article to the story, which in this case came straight from Pravda.ru.

Finally, there was the Russian attempt to blame the United States and George Soros for WikiLeaks’ release of the Panama Papers, which was considered to be a personal attack on Vladimir Putin. The Russian president himself in a question/answer marathon blamed the United States for the release of the Panama Papers, saying that “they will keep doing this anyway, and the nearer the elections, the more such stories will be planted.” The pro-government Hungarian media jumped on the bandwagon. Quoting Dmitriy Peskov, the spokesman for the Kremlin, Magyar Idők reported that American officials had apologized to Vladimir Putin for the release of the papers even before they were actually made available online.

These are just a few examples of Russian disinformation being spread by the Hungarian pro-government media. I’m sure that I could come up with many more if I spent a few days combing through the appropriate sources. The lesson? The Hungarian government has closely allied itself to Putin’s Russia. Orbán and his friends use a number of formerly pro-Soviet/pro-Russian journalists who studied in the Soviet Union or whose fathers spent years in Russia. They are fluent in the language and follow the Russian media closely. People of pro-Russian sentiment can be found on the left too, but after Orbán changed from being an avid Russian antagonist to an enthusiastic pro-Russian these left-wingers moved over to the Orbán camp. Thus, Gyula Thürmer, the arch-communist, by 2014 was supporting Fidesz, and his son, Gyula T. Máté, has a regular column in Magyar Hírlap. Strange things can happen in Orbán’s Hungary.

August 27, 2016

Viktor Orbán: “We have convinced NATO”

Viktor Orbán’s self-aggrandizing fabrications after international summits never cease to amaze me. He holds so-called press conferences, usually in Hungarian and frequently with a single reporter from M1 state TV, to explain his pivotal role in the negotiations. It is usually, he explains, at Hungary’s insistence or upon his own sage advice that the European Union, or in this case NATO, decides to pursue a certain course of action.

This time the claim is that NATO at his urging decided “to take an active part in the European Union’s efforts at solving the refugee crisis. … We managed to get NATO on our side … We stated that illegal migration must be stopped, the outside borders must be defended, uncontrolled influx carried not just civilian but military security risks.” After this grandiose announcement that gave the impression that soon enough NATO troops will be standing at the Serb-Hungarian border, he said that “first and foremost, certain NATO forces will be moved to the defense of the maritime borders.”

The fact is that NATO has had a presence in the Aegean Sea ever since February when at the request of Germany, Greece, and Turkey it joined other international efforts to deal with the crisis. NATO is also involved in stemming illegal trafficking and illegal migration. These roles were described in the “NATO Summit Guide,” released by NATO ahead of the summit. It was reported in April 2016 that “Barack Obama said he was willing to commit NATO assets to block the traffic in human beings and the people smugglers that we refer to as modern slavers.” In June The Financial Times reported that “NATO will take a more prominent role in handling the EU’s refugee crisis by expanding its presence across the Mediterranean, potentially helping to stem an increased flow of people from north Africa into Italy.” In brief, Hungary didn’t initiate anything. The decision to expand the operation has been in the works for months.

Only one Hungarian publication, 444.hu, noticed this latest untruth of Viktor Orbán.

A few hours ago Jens Stoltenberg, secretary-general of NATO, tweeted that four NATO battalions will be deployed in Estonia, Latvia, Lithuania, and Poland. Polish, Romanian, and Bulgarian troops will also be used in this new NATO force. Note that neither Hungarian nor Slovak troops will take part in the mission. A U.S.-led battalion will be stationed in Poland. Germany will send 500 troops to Lithuania, and more soldiers will come from the Benelux countries, Norway, and France. Half a battalion, led by Great Britain, will be moved to Estonia. A full NATO battalion, led by Canada, will be sent to Latvia.

The most interesting development is the exchange of troops between Poland and Romania. A Polish brigade will be stationed in Romania, and the Romanians will send a brigade to Poland. It also seems that Bulgaria will send 400 people to Romania, and it is likely that Polish soldiers will be sent to Bulgaria. So, in a way, a kind of international force of former Soviet-dominated countries is taking shape.

Russian helicopters

Although Hungary is not sending any soldiers to regions bordering on Russia, the country will have a forty-member NATO control center (irányítási pont). Orbán is being careful to stay in the background as much as possible so as not to alienate the Russians. He did, however, specifically mention in the “press conference” that in his opinion the present military arrangement does not infringe on the “NATO-Russian agreement.”

Origo assumed that Orbán was talking about the Founding Act on Mutual Relations, Cooperation and Security between NATO and Russia signed in 1997 which, according to the paper, includes a clause that prohibits the stationing of NATO troops in countries bordering on Russia. There are commentators, however, who insist that this reading of the agreement is based on a misinterpretation of the text, which has a clause stating that the prohibition is valid only “in the current and foreseeable security environment.” Those who argue that placing NATO troops in the Baltic states is perfectly legal point to “the changed security environment.”

By sending troops to Latvia and Lithuania, the NATO leadership accepted the latter interpretation. But here again Orbán invented a lofty role for himself when he said that “we persuaded NATO that no Russian interest will be violated.” Who are these persuasive “we”?

Although the analysts of the Heritage Institute, a conservative think tank, might argue that the prohibition against stationing NATO troops in countries neighboring Russia is nothing more than “a myth that has been perpetuated by the Kremlin’s propaganda machine,” the Russians see it differently. The Russian foreign ministry blasted NATO for concentrating “its efforts on deterring a non-existent threat from the east.” As had been agreed to earlier, NATO ambassadors will meet their Russian counterparts in Brussels where “Moscow will seek explanations for NATO’s plans.”

Orbán is misleading the Hungarian public about the country’s real standing in the international community and about his own role in shaping international policy. But when the government controls so much of the media it’s easy to tell tales.

July 10, 2016

Business ethics is not the strong suit of Russians and Hungarians

Almost a year after the City of Budapest decided that the Russian company Metrovagonmash would refurbish the old trains of the Metro 3 line, the first reconditioned train arrived from Russia via Poland.

Originally, the city had wanted to purchase new cars, especially since the old Soviet-made trains on Metro 2 had already been replaced by new modern Alstom trains and the brand new Metro 4 line also uses Alstom cars. In the final minutes of the negotiations, however, the government announced that they would guarantee the 60 billion forint loan the city needed only if the money was used to recondition its cars, not for the purchase of new cars. Once that was decided, the choice was between Metrovagonmash and Skinest Rail, an Estonian company. Skinest’s offer was lower by 9 billion forints, it offered a 30-year guarantee instead of 25, and its motor design would have ensured savings in energy use. But Skinest was excluded from the bidding process because it had eight “formal” mistakes in its bid. These so-called “formal” mistakes always come in handy when Hungarian authorities want to bar someone from the bidding process.

Already at that point Erzsébet Gy. Németh, the only DK member of the city council who alone voted against the Metrovagonmash contract, suspected a connection between the Russian loan to build the Paks II Nuclear Power Plant and the Russian firm’s winning tender. Antal Csárdi, the only LMP member of the body, said at the time that “all signs point to the likelihood that Viktor Orbán during this trip to Moscow in February 2015 promised Putin that the Russian company would get the job.” He told Magyar Nemzet that Alstom sold new metro trains to Paris for less money than Budapest was paying the Russians for refurbished ones.

So, the first train arrived and with it the great surprise. There is a good likelihood that the train, consisting of six cars, is not the one sent to Russia to be reconditioned but a product that Metrovagonmash began manufacturing in 2009. Since the train’s arrival, experts who have examined it are coming to the conclusion that the Russians didn’t touch any of the old trains, described by many as wrecks. Instead, they got rid of some of their older, unsold trains sitting in their warehouses.

The first reburbished/new metro cars / MTI / Photo: Zoltán Máthé

The first refurbished/new metro cars / MTI / Photo: Zoltán Máthé

But why would the Russians resort to such deception? According to those who are convinced of the deceit, the Russians couldn’t possibly compete with manufacturers like Alstom with their less modern, technologically less advanced trains and therefore would most likely have lost in an open bid. But if that is the case, the Hungarian government is also implicated. After all, it was the Orbán government’s decision about the loan guarantee that forced BKV to sign a deal for reconditioned trains and thus enabled Metrovagonmash to get rid of 37 trains with 222 cars. It is likely that BKV, the city’s transit authority, was also complicit in the deception because immediately after signing the contract, the Hungarian side came up with new requirements, possibly to match the model the Russians were planning to send to Hungary.

Mayor István Tarlós doesn’t find anything wrong with this fraud concocted between the Russian and Hungarian governments, Metrovagonmash and BKV. His first reaction was that the opposition’s favorite pastime is hairsplitting. “Let’s suppose for the sake of argument that these cars are new. Then when did the city get a better deal? When for its money it gets refurbished ones or completely new ones?” He has no problem with the Russian and Hungarian governments’ trickery as long as, in his opinion, the city ended up on the winning side.

But did the city do well on the deal? Figures provided by media outlets differ greatly. Origo states that the city paid 69 billion forints for reconditioning the old cars while brand new trains would have cost 90 billion forints. However, according to Origo’s calculation, the cost of refurbishing the cars in Russia actually cost 84 billion forints because the city had to borrow 9 billion forints in foreign currency and the interest for the 15-year loan is 15 billion forints. Portfolio, disregarding any added costs, comes up with €1.33 million per Alstom car as opposed to €0.98 million for the Russian ones. But even if these cars are new, Portfolio adds, their technology is obsolete.

What are the technological deficiencies? What most people will miss will be air-conditioning. The Russians installed some kind of ventilation, but it is hard to tell whether this solution will do the trick. Also, the train uses an outmoded spring instead of modern air suspension and has an antiquated ATO (automatic train operation) which, according to Index, is as if we filled a modern office with Commodore 64s. And Budapest is stuck with these trains for 30 years.

Shortly after the appearance of the Népszabadság article BKV released a lengthy statement in which it “rejects the criticism of the high-quality reconditioning” of the metro cars. It touts the “most modern components,” the “extension of the guarantee without any additional cost,” and “the early delivery of the prototype.” The statement complains about the negative attitude of some people and expresses BKV’s joy at receiving the first six-car unit. And it goes on and on. Only one thing is missing: an outright denial that these cars are new. Attila Gulyás, the head of one of the unions of BKV workers, is taking BKV’s side. He claimed in a radio interview that BKV’s representatives visited Metrovagonmash during the reconditioning phase, and therefore “there are eyewitnesses to the reconstruction.” Otherwise, Gulyás finds these cars much more attractive than the Alstom ones. I guess he likes the Russian-style design, to which he is more accustomed.

Erzsébet Gy. Németh (DK) has already decided to file a complaint based on the suspicion of corruption, fraud, and deceit. LMP is contemplating the same unless BKV within a week can come up with creditable proof that the cars that arrived from Russia are refurbished and not new. As long as the chassis is new, a vehicle is considered to be new, and it is not difficult to determine whether the chassis is forty years old or brand new. LMP’s Antal Csárdi claimed that the Russians accompanying the cars encountered some difficulties with the custom officials, who had their doubts about the identity of the cars. If true, this is an unprecedented case in the business world.

June 3, 2016

Putin’s messenger boy: Viktor Orbán in Moscow

A month ago the Hungarian public learned that Viktor Orbán would pay a visit to Moscow sometime in February. Rumors began to fly about the reason for this visit, especially since government sources emphasized that the invitation came from Vladimir Putin. Later this story was modified: a year ago, when the Russian president visited Budapest, the decision was made to hold personal meetings at least once a year.

Most observers suspected that this meeting had something to do with the Paks II nuclear reactor project, which will be financed by a Russian loan of €12 billion and built by Rossatom, a Russian state company. What the commentators were unable to decide was whether it was Russia’s desire to scrap the whole project, given Russia’s exceedingly difficult financial situation, or to speed it up. It’s been stalled because the European Commission keeps coming up with objections. In fact, final EU approval of the project is still up in the air.

A few days later Hungarian papers began talking about another important reason, from Putin’s point of view, for such a meeting. The Russian president is looking for “allies”, whom Orbán’s critics would call Trojan horses, in the European Union, countries that would champion lifting the economic sanctions currently in force against Russia.

Then, on January 22, sputniknews.com announced that “Hungary plans to buy about 30 Russian helicopters with the value of the contract expected to reach $450 million.” The announcement was made by the spokesperson for Russia’s Center for Analysis of World Arms Trade. Putin is a tough negotiator, and it has been clear for some time that Russia wants something in return for that €12 billion loan. That’s why Budapest’s M3 metro line, which would badly need a total remake, including new cars, will have the old Soviet cars restored by a Russian company. The  price of the job keeps going up and already exceeds the price of brand new western-built subway cars.

Although Hungarian papers kept bringing up the subject of Russian helicopters, by now the idea has been dropped, probably as a result of a warning from the United States. Népszabadság learned a few days ago that in the last couple of weeks the United States “through diplomatic channels called the attention of the Hungarian government to the fact that the purchase, for both security and political reasons, would be unfortunate.” After all, Hungary is a member of NATO, and it is customary for a NATO country to buy weapons and military vehicles from other NATO countries. It seems that Orbán got the message.

Hungarian government sources, as usual, said nothing about the topics to be discussed in Moscow today. Again, the Hungarian public learned only from Russian sources that “the parties intend to discuss the possibility of increasing bilateral cooperation which will include the prospects of development of economic and trade relations, promotion of joint projects in energy and high technology, as well as cooperation in the cultural and humanitarian spheres.”

Ahead of the meeting the well-informed government propaganda paper Magyar Idők pretty well “predicted” what the talks would be about. The economic influence of Russia in the region of former communist countries has declined considerably in the last year. A few years ago Russia was among the most important trading partners of these countries. Russia has lost about €7 billion in trade with the region. All of these countries realize the dangers of depending on Russian energy sources and are trying to lessen any negative impact. This is dangerous both economically and politically for Russia. In brief, Putin needs Orbán. Therefore, it is unlikely that the Paks II project is in danger.

Putin and Orban, Moscow

No earthshaking announcements were made after the Putin-Orbán meeting, and I don’t think that much more was discussed during their talk than what we learned during the press conference. Before the meeting there were a few polite introductory words by both Orbán and Putin. Orbán as usual went too far with his remarks. He uttered only a couple of sentences, but the message was not the best. After emphasizing Russian-Hungarian friendship he added: “It may sound immodest, but we can say that all that is good in our relationship is our doing and what is not, is not [our fault].” Turning against the European Union so openly is despicable. One could also question the wisdom of Orbán’s saying that “without good Russian-Hungarian relations the Hungarian economy and Hungarian industry would be unable to function.” Emphasizing Hungary’s dependence on Moscow is not the best strategy. Despite all his bravado, Orbán’s inexperience is occasionally confounding.

During the press conference Orbán said that Russia is a useful partner of Hungary and expressed his delight at the yearly high-level meetings planned between President Putin and himself. He finds it a miracle that in these difficult times Russian-Hungarian friendship is becoming ever better. Orbán seems to have promised to intervene on Putin’s behalf when it comes to the renewal of the sanctions this summer. At least one could surmise this from his remarks at the press conference. In fact, this may have been the primary reason for the meeting: asking Orbán to raise his voice against the sanctions. Putin told the reporters that he and Orbán discussed “the possibilities of the revival of a full-fledged dialogue between Russia and the European Union.” And Putin said that he greatly “appreciates the efforts of the Hungarian leadership and Viktor Orbán himself.”

With the exception of Jobbik, all opposition parties condemned Orbán’s pilgrimage to Moscow. Attila Ara-Kovács, DK’s foreign policy advisor, charged Orbán with denying all European values and cooperation and accused him of  “throwing the country’s energy independence” to the wind by making a secret agreement with Russia. Együtt considered the meeting not only superfluous but also troubling in the current international situation, a day before the summit in Brussels. LMP, as a green party, naturally concentrated on the issue of Paks II which, in the party’s opinion, should be scrapped altogether. According to MSZP, Orbán should have made clear at the press conference that Hungary is a trustworthy member of NATO and the European Union. The MSZP spokesman hopes that Orbán didn’t receive “party instructions from Moscow a day before the summit.”

From the Hungarian point of view this meeting was unnecessary and most likely injurious as far as the country’s relations with her allies are concerned. Suspicions about Viktor Orbán, which are already abundant in western political circles, will most likely intensify. But Orbán probably had no choice but to show up in Moscow. This is what happens when one is in the embrace of the Russian bear. With his decision sometime in late 2009 to turn to Russia to expand the Paks nuclear power plant on Russian money, he became the messenger boy of Vladimir Putin.

February 17, 2016

No, Viktor, illiberalism is not the key to economic growth

Today’s post was inspired by an article that appeared yesterday in 444.hu with the intriguing title “We only wanted to open the doors to Eastern dictatorships, but they were blown away by the Curse of Turan.”

What is the Curse of Turan? It is legend according to which Hungarians of the eleventh century were cursed by their pagan shamans when they abandoned their old faith for Christianity. And what about Turan? According to Persian mythical tradition, it was the name of an area which today is known as Turkistan.

We have spent countless hours discussing Viktor Orbán’s firm belief that western civilization and its market-based economy are on the decline while the eastern illiberal, autocratic, dictatorial regimes are thriving economically. They will eventually overtake the West. Orbán projected the recent spectacular growth in some of the Asian countries into a linear trend that might last–well, forever. He kept repeating that we live in a new world which only he was astute enough to discover. And he began making pilgrimages to these thriving eastern countries, courting them, praising their dictators so shamelessly that some Hungarians were outright embarrassed. He went so far as to return an Azeri murderer to Azerbaijan, although he must have known that he would be greeted as a national hero at home for killing an innocent Armenian army officer in Budapest.

This is what happens when someone with limited knowledge of the economic and political complexities of the world acquires unlimited power and begins to implement his idées fixes. Orbán’s theory was based on wrong assumptions and a flawed model. These countries’ economic growth was not due to the illiberal nature of their regimes, as Orbán believed, but to other economic factors–in most cases, to the commodity boom. Most of the countries Orbán so admired were flush with natural resources: oil, natural gas, and important minerals. As long as gas and oil prices were high, the political leadership of these countries was satisfied and did next to nothing to diversify. This is what happens when, as a result of the preponderance of state enterprises, no truly free market economy can develop that would ensure a healthier economic mix.

Viktor Orbán put enormous effort into his “Eastern Opening” project, with few results to show for it. 444.hu examined Hungarian exports to six countries east of Hungary between 2009 and 2014: Azerbaijan, Kazakhstan, Saudi Arabia, Turkey, China, and Russia. Hungarian exports to Turkey grew slightly, the others either stayed the same or actually decreased. 444.hu describes trade with Azerbaijan, Kazakhstan, and Saudi Arabia as microscopic. Investments from these same countries are so insignificant that the Hungarian National Bank doesn’t even record their size. But even Russian, Chinese, and Turkish investments are minuscule, only a few billion, which is very small indeed as a share of total foreign investments in 2014, which was 2.5 trillion forints.

The percentage of the six Eastern countries in Hungarian export between 2009 and 2014. Source: KSH

Hungarian exports to the six eastern countries between 2009 and 2014 as a percentage of total exports. Source: KSH

In the past Viktor Orbán’s admiration of Azerbaijan’s economic accomplishments knew no bounds. In April 2014 he compared Hungary’s  modest 3% growth to the fabulous Azeri growth of 17% between 2003 and 2010 and, after that, 5-6% percent every year. But a little more than a year and a half later Azerbaijan is in grave economic trouble. On January 28 Bloomberg reported the start of negotiations between Azeri officials and the IMF and the World Bank for a four billion dollar loan. The discussion centered around the liberalization of the economy and the improvement of the business climate in exchange for the money. Although the Azeri finance minister insisted that they are in no immediate need of the four billion dollars, the facts don’t support his claim. “The Azeri central bank moved to a free float on December 21 after burning through more than 60% of its reserves last year to defend the national currency … the manat which nosedived by about half last year and slumped further to record lows this month.”

Orbán also sang the praises of Kazakhstan in June 2014. He found the achievements of the country in the last fifteen to twenty years absolutely spectacular. According to him, “the importance of Kazakhstan in the world economy will grow year after year.” Well, that forecast hasn’t panned out either. Because of falling oil prices Kazakhstan’s export income dropped by two-thirds after 2013. This year analysts predict a recession. The Kazakh currency, the tenge, crashed in a spectacular fashion in the middle of 2015. Bloomberg remarked that “Kazakhstan is a textbook case on why economies must diversify” and added that “powered by natural resources ranging from oil to uranium to copper, including the world’s largest proven zinc deposits, the economy has remained hamstrung by corruption and political controls.” Political control, which Orbán believed to be a necessity for economic growth, is in fact an impediment according to economic analysts.

Orbán was also very enthusiastic about the prospects of the Turkish economy. Western analysts, however, are less sanguine. Al-monitor, in an article written in August 2015, said: “Any one of the following problems would ring alarm bells for an emerging market: a slowing economy, rising inflation, distrustful citizens exchanging local currency deposits for dollars whenever possible, a rising tide of violence scaring away foreign tourists and hurting hard currency reserves, and concerned foreign investors eyeing the exit because of a bearish stock exchange and a possible hike in interest rates by the US Federal Reserve. Not content with just one, Turkey is facing all of those headaches and more.” The Turkish economy is still growing by about 3% per annum, but given the growth of the Turkish population this is considered to be a weak performance.

It was at the beginning of 2014 that Orbán visited Saudi Arabia and, as usual, lauded the greatness of the country and its leadership. Saudi Arabia has nothing but oil to export, and if the price of oil falls precipitously for a longer period of time the country is in trouble. At the moment the yearly deficit is 20% of the GDP. Foreign currency reserves are dwindling, and the Saudi princes are becoming visibly nervous. They are entertaining all sorts of measures that may or may not work. There are analysts who predict that the government of the House of Saud may collapse in the not too distant future.

Russia, which also relies heavily on its natural resources, is in trouble as well. As The Economist said a few days ago: “Russia’s economic problems move from the acute to the chronic.” Between mid-2014 and today Russia’s exports and government revenues collapsed. Its GDP shrank by nearly 4%; inflation was close to 13%. The ruble lost half its value against the dollar in 2014 and, after rebounding somewhat at the beginning of 2015, now stands at 80 rubles to the dollar. In March 2014 the exchange rate was 36 to 1. The latest is that Russia is exploring an international bond issuance, which signals that there is a shortage of funds as the economy heads for a second year of recession.

Finally, 444.hu reminds its readers of Orbán’s words at the Chinese-Central-Eastern European Summit in November 2015: “In the past there were many who had doubts about China’s long-term economic future. It was then widely held that the strengthening of the Chinese economy was only a temporary phenomenon and that the financial crisis would undermine its economic growth. But today we see exactly the opposite of this prediction. China is marching along with a permanent and sustained development, and we all know that it will soon be the strongest economy in the world.” But China’s economy is slowing, and worse may come in the wake of the greatest construction boom and credit bubble in recorded history. As an analyst described that bubble: “An entire nation of 1.3 billion has gone mad building, borrowing, speculating, scheming, cheating, lying, and stealing.” He called it a “monumental Ponzi” scheme. In any case, China’s economic growth in 2015 was the slowest in 25 years, and its economic decline is probably even more serious than its questionable figures indicate.

So much for Viktor Orbán’s belief that illiberal leaders are the only ones who know the secret of sustained economic growth.

Is the Hungarian far-right Jobbik party financed by Russia?

It’s amusing to watch an old piece of news reemerge and be heralded as an important discovery. This is exactly what happened a few days ago when the British conservative paper, The Telegraph, published an article with the title “Russia accused of clandestine funding of European parties as US conducts major review of Vladimir Putin’s strategy.”

Suspicions of Russian financial assistance to far-right parties in both Eastern and Western Europe are not new. For instance, ever since Jobbik surfaced as a substantial political force in Hungary, people have questioned the source of the party’s financing. How was it able to spend so lavishly on its 2010 political campaign?

Suspicions were further aroused when articles appeared in Index and elsewhere about Béla Kovács, a Jobbik member of the European Parliament, who was accused of spying for Russia. He is also thought to be the man through whom Russian financial contributions reached Jobbik. Those of you who are unfamiliar with Kovács’s shady activities should check out two of my posts about him, one from April and the other from May 2014. At that time the Hungarian chief prosecutor, Péter Polt, expressed his intention to start an investigation of the case, but for such an action to take place the European Parliament had to lift Kovács’s parliamentary immunity. The European Parliament took its sweet time but finally, more than a year and a half later, on October 15, 2015, the European Parliament acted. Since then Polt has been free to investigate and to question Kovács. To this day, however, nothing has happened.

In December 2014 newspapers were also full of stories about a €9.4 million loan from the First Czech-Russian bank in Moscow to the French National Front. Putin’s goal, it seemed evident, was “to undermine the European Union.” The Guardian called on Europe “to wake up to [Russia’s] insidious means of funding, or risk seeing its own institutions subverted.”

Even the U.S. decision to investigate the funding of far-right parties isn’t exactly new. It was on June 17, 2015 that the Senate authorized “appropriations for fiscal year 2016 for intelligence and intelligence-related activities of the Unites States Government.” Among the long list of “duties” was an “assessment of funding of political parties and nongovernmental organizations by the Russian Federation … in [the] former Soviet states and countries in Europe” since January 1, 2006.

What is new, however, is that The Telegraph’s reporter had the opportunity to see a “dossier of Russian influence activity” which identified Russian operations running in France, the Netherlands, and Hungary as well as in Austria and the Czech Republic.

US Intelligence Community

The Telegraph article was naturally met with great interest in Hungary. Most of the articles simply summarized the story, but there were a few that went beyond Jobbik-Russian relations and focused on Putin’s designs on Europe. For example, Propeller published an article on the subject with the headline: “It is because of Putin that the American secret service is investigating us.” The article talks about Hungary as a “danger zone” of Putin’s designs.

Fidesz is delighted. The party doesn’t even mind that the so-often maligned U.S. intelligence service has extended its activities to the sovereign Hungarian state. According to Szilárd Németh, one of the newly elected vice-chairmen of the party, Gábor Vona, Jobbik’s chairman, “must avow the party’s relations with Russia not only to the people of Europe and of Hungary but also to the American authorities.” Suddenly Viktor Orbán and his party are worried about the future safety of Europe and even care what the “American authorities” think.

The government paper, Magyar Idők, has published two articles on the topic in two days, even though it is ideologically conflicted. On the one hand, the pro-government journalists working for the paper are delighted that Jobbik might be in trouble but, on the other hand, they don’t quite know how to handle the involvement of Putin’s Russia and the United States in such an investigation. Magyar Idők, just as its predecessor Magyar Nemzet, is pro-Russian and anti-American. It must be quite a challenge to combine joy over Jobbik’s troubles with an adoration of Russia and hatred of the United States. In the paper’s second article they solved the problem:

The widening of the Russian sphere of interest is obviously a thorn in the side of the United States and that’s why it is important for the American intelligence services to investigate the activities of the European parties with strong eastern ties. At the same time one ought to note that U.S. authorities haven’t moved a finger against kuruc.info, which uses a server operating from the United States. … It is not the radicalism of Jobbik that worries the leaders of the United States but the possibility of Russia’s European expansion.

May I add that the editors of kuruc.info, an openly anti-Semitic neo-Nazi site, write their articles in Hungary. The Hungarian authorities know full well who they are and could start proceedings against them at any time, but they choose not to.

How did Russia react to the news published in The Telegraph? Finian Cunningham, in a fairly lengthy article titled “Russian Red Scare No Longer Works” in Sputnik International, lashed out at the American and British governments, accusing them of a media campaign to demonize Russia. During the Cold War, “in the good old days,” they could control their public with scare stories about the “Red menace” or the “Evil Empire,” but these old formulas don’t work anymore. So now the U.S. and Great Britain are adopting different tactics. They are portraying Vladimir Putin “as a malign specter trying to break up European unity by funding political parties.” There is “not a scrap of evidence … to substantiate the story of alleged Russian conspiracy to destabilize European politics.” The problem is not Putin but the “massive numbers of ordinary citizens who have become disillusioned with the undemocratic monstrosity,” meaning the European Union.

But the real “problem is that the EU has shown no independence from Washington. The European governments under the harness of the American-led NATO military alliance have blindly joined the US in its disastrous, illegal wars for regime change.” It is clear that “Washington wants to isolate Russia for its own self-interest of displacing Russia as a major energy supplier to the continent. Talk about shooting yourself in the foot.” Cunningham’s article didn’t forget about Poland either. According to him, “Europe’s pathetically servile deference to Washington’s economic and foreign policies is manifesting in forms of protest and dissent towards the entire EU project. The rise of Poland’s rightwing, nationalist ruling party is another sign of the times.” The similarities in style and content between Sputnik International and Magyar Idők are striking.

For the time being, Jobbik is facing the attacks with confidence. An English-language communiqué was issued by the party today:

Fidesz welcomes the news that the US Congress has instructed James R. Clapper, Director of National Intelligence, to conduct an investigation into any Russian influence operations or funding of political parties in EU member states…. Jobbik requests the US authorities to reveal the findings of their investigation as soon as possible since the public has the right to know which political parties are funded by external powers. In the meantime, we request Russia to also disclose the findings of its own intelligence services regarding the potential US funding of European political parties. European citizens deserve to see a clear picture.

We attribute a special significance to the US Congress’ initiative in light of the ongoing political farce which was launched by Fidesz against MEP Béla Kovács, a representative of Hungary’s strongest opposition party one and half years ago, and so far has been unable to produce any evidence to support the allegations. We hope that the earliest possible disclosure of the report will reveal the truth and unveil Fidesz’ vicious political game solely designed to divert public attention from the rampant corruption of the government party.

January 20, 2016