Tag Archives: Russia

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the city had wanted to purchase new cars, especially since the old Soviet-made trains on Metro 2 had already been replaced by new modern Alstom trains and the brand new Metro 4 line also uses Alstom cars.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

Jean-Claude Juncker: “The dictator is coming”

More than a million people have looked at the YouTube clip of the by now infamous scene where Jean-Claude Juncker, president of the European Commission, greets Viktor Orbán with “The dictator is coming” and raises his right hand in a quasi-Nazi salute. The news spread like wildfire. I found well over fifty articles in the Hungarian media describing this 26-second video. I’ve seen an unusually large number of references to it in American papers, in addition to the usual German and Austrian avalanche of Hungarian news items. Those commentators who are critical of the Orbán government found it hilarious, while the two pro-government organs, Napi Gazdaság and Magyar Hírlap, decided to remain quiet on the subject. Orbán’s press secretary explained that there is nothing new in this exchange. Juncker always greets Orbán this way and, in return, Orbán calls Juncker Grand Duke. How jolly.

A commentator from the right Dávid Lakner didn’t find the scene at all funny. Instead, it struck him as embarrassing, especially at a time that more and more people view the European Union itself as a joke. Lakner called Juncker “an imprudent clown.” He suspects that the president was inebriated. (Juncker has been accused of heavy drinking by some of his critics.) On the other hand, journalists of Luxembourger Wort, who ought to know Juncker very well, were not not shocked, nor did they accuse him of drunkenness. They simply noted that “Juncker lived up to his reputation for straight talking … when he hailed Hungarian Premier Viktor Orbán as ‘dictator’ on his arrival at an EU summit in Riga.”

I have also have objections to Juncker’s joking mood, but on very different grounds from Lakner’s. Hungary’s sinking into a one-man dictatorship is no laughing matter. It is not a joke. It is a deadly serious business. Merriment over what Orbán is doing in Hungary is an inappropriate reaction from the president of the European Union.

And this brings me to an op/ed piece by Sergei Guriev and Daniel Treisman in yesterday’s New York Times titled “The New Dictators Rule By Velvet Fist.” Their short article is based on an earlier longer study, “How Modern Dictators Survive,” prepared for the Centre of Economic Policy Research in London. Their argument is that modern dictatorship no longer needs to have totalitarian systems and tyrants like Stalin, Hitler or Mao. Instead, “in recent decades, a new brand of authoritarian government has evolved that is better adapted to an era of global media, economic interdependence and information technology.” These new dictators achieve a high level of control over society by stifling opposition and eliminating checks and balances–and they achieve this without any violence at all.

Among “these illiberal leaders” we find Viktor Orbán alongside of Alberto K. Fujimori of Peru, Vladimir Putin of Russia, Recep Tayyip Erdoğan of Turkey, Mahatir Mohamad of Malasyia, and Hugo Chávez of Venezuela. What illustrious company! But at least the others are not being financed by European democracies the way Viktor Orbán’s dictatorship is being subsidized by the EU. I wonder how the taxpayers of Western European countries would feel if they fully realized to what end Viktor Orbán is using their hard-earned money. I doubt that they would find it a joking matter.

According to Guriev and Treisman, “the West needs to address its own role in enabling these autocrats.” This is certainly true about the European Union vis-à-vis Hungary. But the authors also talk about lobbying efforts on behalf of these dictators. We know from earlier posts what an incredible amount of money is being spent by the Orbán government on foreign propaganda just in the United States. The four-year contract Connie Mack and Századvég signed was for $5 million.

The authors suggest, and I fully agree with them, that “lobbying for dictators should be considered a serious breach of business ethics.” Although Representative Dana Rohrabacher, speaking to Kriszta Bombera of ATV, denied that he was coached by the Hungarian government through Connie Mack and said that holding the hearing was his own idea, the director of Századvég made no secret of Connie Mack’s usefulness as a top lobbyist in Washington in getting a hearing on U.S.-Hungarian relations during which the chairman and his Republican colleagues defended the Orbán government with full force. “It was a breakthrough,” said Kristóf Szalay-Bobrovniczky of Századvég.

And finally, let me talk about other enablers, specifically the two Hungarian-American associations whose leaders claim that for years they have been tirelessly promoting better understanding between the two countries. They are the Hungarian American Coalition and the American Hungarian Federation. Although they claim to be politically neutral, in fact they are conservative lobbying groups which support right-wing Hungarian governments. I know from personal experience that the Coalition at least moves into high gear only when a right-wing government is in power. After Fidesz lost the election in 2002, the Coalition paid for a group of Fidesz members of parliament to spend two or three weeks in Washington to learn something about American democracy. When I asked why only Fidesz politicians were invited, I was told that the socialists were simply not interested in spending time in Washington. I found the explanation improbable. So I wrote to Ildikó Lendvai, who was the whip of the socialist parliamentary delegation at the time, and it turned out that the socialists had never received any such invitation. That should give you some sense of the true nature of these organizations.

I was therefore somewhat surprised when I heard that the presidents of these two organizations decided not to attend Rohrabacher’s hearing. I thought that perhaps they realized that something was very wrong in Orbán’s Hungary. Perhaps they decided that they would no longer stand by the Hungarian dictator with a velvet fist. I was hoping that the statement Maximilian Teleki, president of the Coalition, released on May 22 would explain his reasons for not participating in the hearing. Instead, we learned only about the dangers of Jobbik and the great achievements of the Orbán government, which in 2010 “faced a Greece-like economic and financial crisis” and which by now has achieved “a respectable economic growth.” As for Jobbik’s anti-Roma and anti-Semitic propaganda, the only thing Teleki could say is that “the Hungarian government has taken a zero-tolerance policy,” adding that much still remains to be done.

Maximilian Teleki with April H. Foley, former U.S. ambassador to Hungary ad a great supporter of Viktor Orbán

Maximilian Teleki with April H. Foley, former U.S. ambassador to Hungary and a great supporter of Viktor Orbán

In his opinion, the United States “has done little to assist Hungary in developing a long-term [energy] strategy and implementing an effective action plan.” He mentioned “Russia’s aim of reestablishing Cold War-era borders and spheres of influence in the region” but had nothing to say about the close Russian-Hungarian relations and Paks II. What should the United States do to improve the “bilateral relationship” between the two countries? The U.S. should offer more opportunities for Hungarian decision makers to visit the United States; more U.S. officials and decision-makers should obtain first-hand experience by visiting Hungary frequently; and the U.S. should “make possible meetings at the highest political levels: it has been more than 10 years since Hungary’s Prime Minister was received in the White House.” And yes, the United State should support educational and cultural programs sponsored by NGOs. In brief, the dictator with a velvet fist should be rewarded for degrading Hungarian democracy into a modern-style dictatorship.

Paks, the European Union, and the Russian threat

It looks to me as if Viktor Orbán has managed to maneuver his country into an untenable position between Russia and the European Union. It has taken five years, but he has succeeded in making Hungary the target of both Moscow and Brussels.

First, he tested the patience of the European Union, which under José Manuel Barroso’s presidency seemed infinite. After a while, drunken with success, he imagined himself to be a statesman who could be an equal player on the world stage with the leaders of the dominant EU countries.

At first, he was satisfied with waging verbal battles with unsuspecting western diplomats unaccustomed to Viktor Orbán’s way of dealing with those who stand in his way. Later, he decided to solicit “an ally” who would add weight to his words. The desired Hungarian “sovereignty,” in his myopic worldview, could be achieved by balancing Russia against the European Union.

Viktor Orbán did not realize that the world around him had changed in some fundamental ways. Vladimir Putin had over the years acquired the unsavory reputation of being a reactionary autocrat, one of the many his country managed to produce over the centuries. As far as the West was concerned, doing business with Russia was fine, but having cozy relations with the lord of the Kremlin was definitely not. And Orbán in his usual fashion went out of his way to ingratiate himself with Vladimir Putin, just as he did with the leaders of China while the West watched warily. Their concern only grew when Putin annexed the Crimea and incited a rebellion in the mostly Russian-inhabited areas of Ukraine. But it was too late for the EU. Orbán had already committed his country to having Rosatom build two new nuclear reactors with the help of a Russian loan. And it was also too late for Viktor Orbán. His quest for an “independent” Hungarian foreign policy was doomed as soon as it became apparent that the West would not take the Russian aggression against Ukraine lying down.

It wasn’t only the Russian-Ukraianian conflict that changed the political landscape. There was something else that Orbán didn’t take into consideration. Last November Barroso’s presidency came to an end and with it perhaps Brussels’ lackadaisical attitude toward Viktor Orbán’s antics. The front runner, Jean-Claude Juncker, was the worst possible choice as far as the Hungarian prime minister was concerned. Orbán, following David Cameron of Great Britain, voted against him in the European Council, but the two of them remained in the minority. The reason for Orbán’s opposition was that it was known that Juncker supports a stronger,  more unified European Union, the last thing Orbán wants. What was even more worrisome was that Junker named Frans Timmermans of the Netherlands to be his first deputy, and Timmermans was known to be an outspoken critic of Viktor Orbán’s illiberal views. Orbán found himself in a very uncomfortable position because there were signs that the European Union, with an entirely new leadership, would at last crack down on Hungary’s repeated infringements of EU laws.

This change in attitude on the part of the EU might finally have arrived. Those familiar with Viktor Orbán’s political tactics might consider his references to the death penalty no more than a PR move to boost his flagging popularity and steal votes from the neo-Nazi Jobbik party, but I think it was one of the issues that made the European leaders have second thoughts about giving Orbán so much leeway. In addition to withholding billions of euros from Hungary, this is the first time that an official of the European Commission talked about Article 7 as a real option in connection with Hungary for “solving crises and in the interest of holding on to the values of the European Union.”

Vladimir Putin and Sergey Kiriyenko, May 5, 2015 TAA / Photo Alexey Nikolsky

Vladimir Putin and Sergey Kiriyenko, May 5, 2015
TASS / Photo Alexey Nikolsky

And now comes Vladimir Putin’s bizarre conversation with Sergey Kiriyenko, head of Rosatom. First of all, although this conversation took place in Putin’s office and looks like a private conversation, it was shown on Russia’s state television. Surely, it was meant to be a message for a wider audience. The conversation was about the Paks nuclear power plant. According to Putin, “we offer good terms and advanced technology, so, if the partner is forced to refuse [to cooperate], which they could have done, it would be damaging to Hungary’s national interests.” Kiriyenko assures Putin that “we have received confirmation from the government of Hungary that all the agreements are in force on a wide range of projects…. Everything has been confirmed and coordinated and the contract is coming into effect.”

Practically all the Hungarian media interpreted Putin’s words as a threat to Hungary. One exception was the official “Híradó” (News), which provides news to Magyar Televízió and Magyar Rádió. There the headline read:”Putin is worried about Hungarian national interests.” The other exception was “Pesti srácok” (Kids of Pest), a far-right Fidesz Internet site, which claimed that “Putin is satisfied with the Hungarian government’s stand against the European Union,” a blatant misinterpretation of the conversation between the two men.

Although the available translations are rather poor and the subordinate clause “which they could have done” is not at all clear, I believe that Putin either suspects or knows that the European Union has already put pressure on Hungary and that Hungary might have to abandon the project. János Lázár has repeatedly assured the country that all is well and that work will begin on time, but these assurances were probably not grounded in reality. Although Euratom eventually approved the plan to have Russia supply fuel rods for the new reactors, there are still serious hurdles for Hungary to overcome. Negotiations are in progress and, judging from Putin’s unusual “conversation” with Kiriyenko, they might not be going well.

Not surprisingly, the Orbán government didn’t respond to Putin’s warning to Hungary and the European Union. Most likely the spin doctors are planning an appropriate response and perhaps tomorrow János Lázár, in his usual Thursday morning press conference, will say that all is well with Paks, the European Union, and Rosatom and that he doesn’t know what all the fuss is about.

Our man in Moscow: Szilárd Kiss

The big news in Hungary is still the financial collapse of the Quaestor Group, which may involve the loss of 150-200 billion forints to those who used the companies’ services. The consequences of the bankruptcy might be far-reaching, including a loss of trust in Hungary’s financial institutions.

The more we hear about the details of Quaestor’s ventures the clearer it is that the Hungarian government was heavily involved in the business affairs of Csaba Tarsoly, the CEO of the firm. As the story unfolds, it looks as if two ministries in particular are implicated: the ministry of foreign affairs and trade and the ministry of agriculture. A closer look at the cast of characters reveals that there was one man who had a close working relationship with Tarsoly as well as the two ministers: Szilárd Kiss. Commonly described as an adventurer of dubious reputation, Kiss may have posed, and in fact still may pose, a national security threat to the country.

I wrote about Szilárd Kiss once, but here I would like to say a few words about the likely relationships between Kiss and Csaba Tarsoly; Péter Szijjártó, minister of foreign affairs and trade; and Sándor Fazekas, minister of agriculture. Today, a month after I wrote a post on Kiss, I believe that he had a much more important role to play in Viktor Orbán’s “eastern opening” than I suspected earlier.

As we know, Kiss has been living in Russia at least since 1990, where he moved in the hope of exploiting business opportunities. His specialty was agricultural products. Eventually, he worked as an unofficial lobbyist for Hungarians who wanted to do business in Russia. But how did Péter Szijjártó and Sándor Fazekas come to know Kiss? I suspect through Csaba Tarsoly, whom Kiss most likely tried to entice into some Russian business venture. Their relationship goes back to 2002 and 2003, way before Viktor Orbán ever dreamed of any “eastern opening.” Szilárd Kiss could be persuasive. As early as 2003 he was named to the board of Quaestor Financial Consulting. Three years later, in 2006, he became a board member and part owner of Quaestor Energetics. He resigned both positions in April 2011 when he became a civil servant.

After the 2010 Fidesz victory and the announcement of the “eastern opening,” Szilárd Kiss’s time arrived. It must have been Tarsoly who called the attention of Péter Szijjártó, an old friend from Győr and the key person in the new foreign policy introduced and directed by Prime Minister Viktor Orbán, to Szilárd Kiss, who allegedly had important connections in Russia with both businessmen and officials in the ministry of agriculture. Although at present Sándor Fazekas doesn’t want to remember anything about Szilárd Kiss, it had to have been the ministry of agriculture that named him agricultural attaché in the Hungarian Embassy in Moscow.

Szilárd Kiss / válasz.hu

Szilárd Kiss / válasz.hu

István Íjgyártó, the Hungarian ambassador to Russia between 2010 and 2014, knew about Kiss’s shady business dealings and even his brush with the law. And in September 2013 Kiss was about to be dismissed from his diplomatic post. What was behind this sudden decision when apparently both Fazekas and Szijjártó were satisfied with Kiss’s work? The foreign ministry, it seems, learned that Kiss had been vetted by the national security office and had failed the test. It had become evident during the investigation that Kiss had connections to the Russian mafia. His dismissal was not automatic, however, because the Orbán government had changed the law on the vetting of officials. An official’s superior can make his own decision about the dangers involved. Fazekas suggested to Kiss that he resign, thus avoiding the stigma of dismissal. In compensation, Fazekas immediately appointed Kiss commissioner of eastern economic relations. Why the change? Because the new appointment was based on a contractual agreement for which one didn’t need national security clearance.

Szilárd Kiss was also involved in a profitable “visa business” on the side, which he continued even while he was a member of the Hungarian diplomatic corps. All told, he was responsible for getting Hungarian visas for about 2,500 Russian citizens. Considering Kiss’s relations with the Russian underworld, it is very likely that some of his friends from the Russian mafia are today the happy owners of a Hungarian visa. Kiss was also known to be involved in human trafficking. Hundreds of prostitutes received visas through his good offices. How did he manage to acquire all these visas? It was fairly simple. He approached one of his influential Hungarian businessmen to invite Igor, Olga, or Natasha, and with this invitation he managed to convince the Hungarian consulate in Moscow to issue them visas. There was a 2011 case which came to light during a court proceeding against Kiss where a certain Yevgeny Dubrovin gave him 80,000 euros to acquire visas “for his friends.” At the exchange rate at the time, this transaction alone netted Kiss 20.8 million forints. Apparently Kiss had powerful backers in the government and the local officials could do nothing to stop his activities even if they wanted to.

Consulates in general are run quite independently from the foreign ministry, and the Moscow consulate was considered to be a hotbed of corruption. It was for that reason that some officials familiar with the situation in Moscow welcomed the idea of setting up a visa center. A lot of other countries had established such visa centers, all of them run by an Indian company, VFS Global. The Orbán government doesn’t like “orthodox” solutions, however, and therefore the Hungarian visa center in Moscow, VisaWorld-Center Szolgáltató, is owned by Csaba Tarsoly of Quaestor fame and Yelena Tsvetkova, wife or girlfriend of Szilárd Kiss. In addition, Index found out that Tsvetkova has a joint business venture with the same Yevgeny Dubrovin who earlier wanted to buy visas for his friends. There is a good possibility that both Kiss and Tsvetkova have friendly relations with the Russian secret service.

According to a well-informed source, the VisaWorld-Center in its present form may well be a hole in the “shield of Schengen.” In his opinion, it is impossible that the Russian secret service wouldn’t have a fair idea of what’s going on there. Altogether Hungarian consulates have issued more than two million visas since January 2008. The Russian share is staggeringly high: 400,000. That is, every fifth visa has been issued to a Russian citizen.

I think that even this brief description of the network that exists among politicians, businessmen, and the Russian and Hungarian underworld highlights the dangers the Hungarian government poses to the security of the European Union.