The financial crisis and the Hungarian response

Fidesz has been talking about a "political, economic, and social crisis" for at least two years if not longer. At a time when there was no crisis whatsoever. Now the crisis has arrived, not from within but from without. Fidesz always claimed that for all the alleged ills of Hungary the government or, more specifically, Ferenc Gyurcsány was responsible. Even a couple of days ago Viktor Orbán was still confidently talking about the immediate remedy he and his government would bring to the country in "three months." Ah, but two days have gone by, and nowadays two days seem like an eternity. The Hungarian forint has been dropping precipitously. While on September 7 a person paid 243.00 Ft. for €1.00, today the exchange rate is 261.05 Ft. to the euro. (Earlier in the trading session the forint hit a two-year low against the Euro at 272.) And, of course, as the U.S. dollar strengthens against the euro, the Hungarian forint weakens even more against the U.S. dollar. While a few weeks ago for $1.00 one paid around 150 Ft. today it is 185.25 Ft. The BUX (Budapest Stock Exchange) is more in sync with the global equity rout. It has lost about 24% of its value since October 1. The Dow Jones Industrial Average and Germany's DAX have each declined by about 22%

Anyway, by yesterday afternoon Fidesz decided that it was finally time to come out with a seven-point list of demands that they wanted to discuss with government representatives in public. The demands include the withdrawal of the current budget and the tax relief proposals, greater tax cuts than proposed by the government, guarantees of the security of bank accounts, an end to all "luxury" government purchases, (repeating an earlier demand) a vote on a budgetary ceiling, and a nonpartisan council that would be a watchdog over spending.

Some of these demands have already been met or promised. Yesterday János Veres talked about the changes that would be necessary in the proposed budget in light of the new international financial and economic situation. Surely, a projected economic growth of 3.2% is no longer realistic. The government guaranteed all bank accounts yesterday. As for the creation of a budgetary ceiling, days ago the government indicated that they had no objection to passing such a law. But they are against deeper tax cuts; such a move under the present circumstances would be "madness," as several economists have already indicated.

Before Tibor Navracsics could present his party's seven-point plan to the government, it was Ferenc Gyurcsány's move. He, Veres, and András Simor, president of National Bank, came up with a twelve-point plan they immediately presented to the leaders of the five parliamentary delegations.  Here are Gyurcsány's twelve points:

(1) Unlimited guarantee of all bank accounts as he already indicated in the middle of the week. The necessary changes in the law will be voted on Monday in parliament.

(2) Gordon Bajnai's plans to help Hungarian small- and middle-sized companies to the tune of 807 billion forints will be racheted up.

(3) The government will step in to improve the credit worthiness of banks in order to stop fear and mistrust.

(4) The government will change the rules and regulations governing mutual funds and pension plans to increase interest in investing in treasury bonds.

(5) As far as this year's budget is concerned the plan was to lower the deficit to 4% but the government wants to decrease this amount to 3.4%. That would fulfill the demands of the European Union for the country to join the euro zone within two years.

(6) New, less ambitious plans will be prepared given the recessionary international situation.

(7) In the 2009 budget the deficit will be lowered to 2.9% instead of the proposed 3.2%.

(8) The government will postpone its plans to lower taxes. If there is a surplus as a result, they will return to the subject next year.

(9) In 2009 discussions with the "social partners," i.e. the trade unions and representatives of employers, the government will suggest freezing real wages from the beginning of the year until July.

(10) Because of the recent performance of the stock market, the goverment plans to suspend the "New Ownership Program" (letting individual Hungarians purchase shares at a favorable price in some state companies to be listed on the stock exchange).

(11) Gyurcsány's suggestion is that parliament vote on all these in one package which would also include the establishment of the budgetary ceiling and the budgetary council. He hopes that the vote on these very important questions will be overwhelming--at least a two-thirds majority.

(12) The government is planning to widen the authority and competence of the National Supervisory Board of Financial Institutions (Pénzügyi Szervezetek Állami Felügyelete). At the same time Hungary will continue to support the creation of a new central financial supervisory board.

The fact that this twelve-point plan has the blessing of the president of the Hungarian National Bank will certainly give it weight. And it includes most of Fidesz's demands. There is one sticking point: the tax cut. Fidesz repeated that they demand drastic tax cuts. SZDSZ's position will surely be the same because Gábor Horn only yesterday said that especially in a crisis situation like this deep cuts are needed. Well, this is not what economists say. The question is whether SZDSZ and Fidesz can be persuaded. I assume that the president of the National Bank might have a role to play here.

Will the plan help ease the fallout of the global financial crisis?  Who knows? Real damage has been done to the credit markets, and there will undoubtedly be a spillover into the global economy. How deep, how long is anybody's guess.

Comments

[Kertész]

Hungary is beyond salvation (from inside). The country is naked and exposed. We are repaying debts by getting into even more debts. This stupid Gyurcsány goverment's only answer to every problem to squeeze out all the juices from people, businesses. Soon, we will be the poorest beggars of Europe.

[Kertész]

Hungary is beyond salvation (from inside). The country is naked and exposed. We are repaying debts by getting into even more debts. This stupid Gyurcsány goverment's only answer to every problem to squeeze out all the juices from people, businesses. Soon, we will be the poorest beggars of Europe.

[Eva S. Balogh]

Kertesz: "Hungary is beyond salvation (from inside). The country is naked and exposed. We are repaying debts by getting into even more debts. This stupid Gyurcsány goverment's only answer to every problem to squeeze out all the juices from people, businesses. Soon, we will be the poorest beggars of Europe."

The government handled the situation very well. Of course, Hungary's debt load is too large but that is not only this government's sin. Unfortunately, under the circumstances it is almost impossible to cut taxes.

[Lia]

@Eva "Unfortunately, under the circumstances it is almost impossible to cut taxes."

...But not impossible to cut expenses...which no one is willing to do...

[svk]

tak vam treba vy madari

[svk]

tak vam treba vy madari

[svk]

tak vam treba vy madari

[Eva S. Balogh]

svk: "tak vam treba vy madari" Although I managed to get the meaning of your message, I don't quite understand what your problem is. I reread my piece and I don't quite understand why this is so "according to you, Hungarians." Please, try to explain it in English because my Slovak is very rudimentary.

[hypotheek nieuws]

This report looks interesting however I don't have a right kind of comment on this issue.