What now?

The situation is very fluid and I would hate to predict anything. Instead, I would like to give a short assessment of my own thoughts on the "political crisis."

First and foremost, I don't think that Ferenc Gyurcsány just blurted out his criticism of the SZDSZ blah-blah as some observers claim. They argue that Gyurcsány often improvises and that he simply didn't think through the consequences of his critical remarks about SZDSZ. No way, in spite of Gyurcsány's own protestations to the contrary. He is a savvy politician who would not cause a coalition crisis because he didn't weigh his words. I believe he actually wanted to provoke a split because decided that the SZDSZ had become a burden instead of an asset. If the coalition continues in its present form another referendum cannot be avoided and a referendum, this time on the whole health care program, is more than his government would be able to weather. Yes, Gyurcsány knew what he was saying and was actually hoping that the outcome would be SZDSZ's possible departure.

When did he come to that conclusion? Most likely the day before when he spent six hours with the inner circle of the party. The script was probably written during that meeting. The time to attack SZDSZ was well chosen since the party is deeply divided between the Fodor and the Kóka factions. Yesterday it seemed that the two factions would at least temporarily bury the hatchet and stand up to Gyurcsány as a united front. Kóka announced that under no circumstances would his party collaborate with this government; as of April 30th all the SZDSZ ministers and undersecretaries would officially resign. Moreover, between now and then they would not fulfill their duties. Then this morning there was the first crack in the purported unity. Gábor Fodor and his undersecretary, Kálmán Kovács, refused to sign the resignation papers prepared for them by Kóka and his friends. While Kóka, Horn, and others went to negotiate with Gyurcsány and other leading MSZP members, Fodor was nowhere to be found. Moreover, although Kóka although seems very determined, at least verbally, he didn't deliver the resignations to the prime minister. He kept them in his own safe. So, on the one hand, SZDSZ's current leaders claim that the coalition is dead, on the other hand, they go and negotiate with MSZP.

Meanwhile members of the MSZP caucus are ecstatic. Károly Tóth, the man who wanted to scrap the co-payment from the health care bill in order to avoid the referendum, is certain that if MSZP got rid of its coalition partner, public opinion polls would immediately jump 10-15% in favor of MSZP. He might be right. At least listening to MSZP voters' telephone calls this afternoon in György Bolgár's talk show at KlubRádió. Absolute jubilation! People who are in favor of a minority government claim that after all the MSZP caucus is only six votes shy of a majority and there is one independent from Somogy County who normally votes with MSZP. So they would need only five more votes. If Fodor's men in parliament were to vote with the government, there would be no problem. Moreover, there were many times when even MDF voted with the government.

And finally, Imre Mécs was the guest of Ferenc Vicsek (substituting for Olga Kálmán) this evening. A couple of things about Imre Mécs. He was sentenced to death after 1956. At that time he was an engineering student from a deeply religious family. His uncle László Mécs was a well known Catholic poet. Apparently, Zoltán Kodály, a friend of his uncle, interceded with János Kádár to spare his life. On appeal his death sentence was commuted to life imprisonment. In 1963 he received amnesty, eventually finished his university studies, and became an inventor. He was one the founders of SZDSZ and has served as a member of parliament ever since 1990. However, SZDSZ wasn't particularly kind to Imre Mécs. A couple of times they put him so low on the list that his chance of victory was slim. This is what happened again before the last elections and Mécs finally had enough. He suspended his membership in SZDSZ and offered his services to MSZP. MSZP was delighted to receive a "hero of the revolution" in its ranks and gave him an elegant position on the list. Mécs obviously has a very low opinion of the new SZDSZ leadership. He called Kóka "a stranger" who was dropped on the party. He predicted the demise of the party he helped to create. Vicsek tried to play the devil's advocate with not much success.

So now the question is whether MSZP is willing to drop SZDSZ as a coalition partner and perhaps offer Fodor some inducement to blend his followers into the MSZP fold. Only time will tell. 

Comments

[Odin's lost eye]

Could by grafting in to MZSP some of the more disgruntled members of SZDSZ to displace some of the old, dyed in the wool, Hard Line "Red Men" be the beginnings of a new slghtly pink (just left of centre) MZSP on the lines pf the German Social Democrats or the U.K. New Labour? I have a feeling that this is the way that Ferenc Gyurcsány wants to lead MZSP. He is after all in close contact with the Euro-Socialist movement, can speak directly to most of them without interpreters (inc N Sarcozy). If MS Balough is correct, He is well aware of the major fault lines in the Hungarian economy. Fidesz has large lead in the POPs but this came about suddenly as a result of a leak from a party get together. May be that this is why some of the 'Old Timers' leaked this speech. The polls could quite easily be reversed. With 39% "don't knows" in the POPs and the volatility which caused Fidesz's lead the game is far from over!

[NWO]

Eva-

There are only two likely scenarios. First, SzDSz does really leave the coalition but keeps the MSzP in power through 2010. Second, as per the usual behavior of the last 15 years, the two parties cobble together some half baked compromise that allows a couple of SzDSz ministers and state secretaries to keep their jobs in Govt. Given the choice, I hope for option 1.

Either way, any real economic and social reforms, if they were not dead already, are now finished. I believe the PM and the Finance Minister will keep the budget deficit goals largely on track, but nothing else of substance will occur until the election approaches (late 2009) and the MSZP will then dump the PM and try a panic driven spending stimulus package. This will fail because interest rates will shoot up and the HUF will be threatened by a real collapse (above Eur/HUF 285 or so, the foreign currency mortgages really start to bite into the borrowers, and we can have our very own mortgage crisis). In the meantime, Hungary's neighbors will continue to grow at +5% p.a. rates and will use this prosperity to implement some but not drastic reforms.

By 2010, the debate will no longer be will Hungary catch up to Slovakia and Cz, but when Serbia and Romania will pass Hu in terms of wealth.

Of course, the one irony of all of this, is that if (as is likely) Orban then returns to power, he will have practically 0% leeway to do anything other than another serious budget deficit cutting exercise. Neither the international nor the domestic capital markets will allow the Government to engage in a new round of serious budget busting.

[John Hunyadi]

"By 2010, the debate will no longer be will Hungary catch up to Slovakia and Cz, but when Serbia and Romania will pass Hu in terms of wealth." That is an unnecessarily pessimistic statement. In terms of GDP per capita, Slovakia has only just caught up with Hungary, Romania is at about 55% and Serbia 40% of Hungary. It will be 13-14 years before Romania catches up if the current difference in growth rates continues, which is unlikely. Serbia's convergence with Hungary is more remote and less likely.

[Viking]

Nowadays I am in Hungary maximum only during the weekends, so I do not feel the pulse so much. I also miss out on not speaking Hungarian, but given that, I got this feeling coming home yesterday evening that "the whole country" is talking about the political *and* financial crisis.

So, if that observation is correct, then what we have is the traditional "get everyone into crisis-mode"-exercise. The typical thing a CEO has to do, when the owners ordered him/her to cut the cost with x%.

Most of us knows that the "organisation" will not react fast enough or even fight back to any demands for cuts. So the CEO has to do something drastic to make everyone a bit insecure on their position and make everyone focus on the main thing right now, normally to cut costs.

So, if we regard Gyurcsány's exercise with firing the SZDSZ's Health Minister in that light, it all make sense. If he can get Hungarians in general into crisis-mode and hence accept cuts, then he has found a way of controlling Orban, at least for the next 6-9 months. Orban has not been an advocate for spending-cuts, just tax-cuts. Maybe the future will be more who will cut the most and not the least and when the Euro should be adopted.

The bad thing with crisis-mode is that you cannot run it too long. Next year you need to start rewarding people, before the upcoming elections.

[Eva S. Balogh]

Viking: "I got this feeling coming home yesterday evening that "the whole country" is talking about the political *and* financial crisis. So, if that observation is correct, then what we have is the traditional "get everyone into crisis-mode"-exercise."

How interesting that I will be talking about this crisis situation in the next blog. The crisis is really not so serious as it seems on the surface. They whip it up: politicians and journalists together.