The financial crisis and the Hungarian opposition

I'm afraid that the political leaders of the Hungarian opposition are behaving in (1--SZDSZ) an irresponsible and (2--Fidesz) a scary manner even as the ever-widening financial crisis starts to affect Hungary around the edges.

Let's start with the leaders of SZDSZ. Once again, they seem to be out of touch. Preoccupied with their petty games concerning their position vis-à-vis MSZP. They talk as if the Hungarian government's most important task would be "reforms." Reforms that ended, according to them. And therefore, isn't it wonderful that they left the coalition? As if today, mid-October 2008, when the whole financial world is teetering on the brink of collapse these so-called reforms will make or break Hungary. And there are the tax cuts.Two hundred or three hundred billion forints? This is what they are arguing about. Wake up man, I wanted to shout this morning when Gábor Horn went on and on about all this on Napkelte. However, even if he heard me it wouldn't matter because these guys are simply too dumb. Yes, too dumb, I'm coming to the conclusion. Meanwhile, these petty squabbles weaken the government's efforts to keep the country's economy in balance and avoid panic. It's important to pass the budget and move on. Because there's going to be a lot of hard work ahead.

Then there is Fidesz's chief, Viktor Orbán. He tried to explain to a group of important business leaders yesterday that Hungary's economic problems would be solved within three months if there were early elections and he became prime minister. He would turn the economy around. Alone, in Hungary. Of course, the problem is that in a global economy no country is an island. One way or another Hungary will be affected. Less so on the front lines than some other European countries because Hungary's banks are not awash in toxic paper and Hungary was not the favorite destination of currency traders and hedge funds. But the first signs are already here. Opel's sales are down, so the Hungarian Opel factory will be closed "for a while." However, Orbán claims that his economic team is ready with all the answers: drastic tax cuts, less bureaucratic handling of tax collection, decrease of bureaucracy and corruption, a smaller parliament, well organized public administration, and better handling of finances. Laughable? No, under the current circumstances this small-mindedness shows a lack of vision.

What is even more worrisome is that Viktor Orbán thinks in black and white when it comes to the root of the current crisis. He is certain that "liberal economic policy" is the cause of the problem and he spoke enthusiastically about those countries where democracy is not exactly in full bloom: China, Russia, some of the Islamic countries. Those are the successful ones, not the liberal democracies in the West. According to him the problem of liberalism is that it believes in "a mistaken anthropological notion" that man is born good and should be allowed to act freely. But man is greedy and corrupt and hence the current financial crisis. The West must learn from countries where there are restrictions. As for Hungary, the budget must be withdrawn and "a new contract must be drafted among the different interest groups" and in ten years, with his help, there will be one million new jobs.

It boggles the mind. But at least the truth is out. Orbán evisages a regime similar to Putin's Russia or communist China. However, as Tamás Bauer, an economist and former member of parliament, said, very rightly, Russia's (fading) economic boom was due solely to very high energy prices while other segments of Russian economy were stagnating. China's spectacular growth was the result of massive foreign investment and cheap labor. Not because they have more or less authoritarian regimes. God save us from a little Hungarian Putin.

Comments

[Adrian]

Eva,

Although I am as frightened of Orbán's vision as you, he is right both 'anthropologically' and economically.

The current financial crisis is the result of human weakness - though I prefer the more Humean 'vice' and 'folly' to greed and corruption. But Orbán would do well to remind himself of Lord Acton's dictum "Power tends to corrupt; absolute power corrupts absolutely"

More effectively regulated economies will have had less damage inflicted on them by the credit crunch because they would not have been allowed to invest in such dodgy assets. China's economic boom has been the result of cheap labour but not of foreign investment, in fact China has rather more invested in the world than the world has invested in China.

http://www.ft.com/cms/s/421c1fc8-95db-11dd-9dce-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F1%2F421c1fc8-95db-11dd-9dce-000077b07658.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FsortBy%3Dgadatearticle%26queryText%3DChina%2BNet%2Bforeign%2BAssets%26aje%3Dtrue

Similarly, as Hitler showed a well managed economic autarky can deliver growth and jobs in no short order:

Economic growth in Germany:

1933 3,2%
1934 5,2%
1935 6,2%

(source: Adam Tooze, "The wages of destruction" pg. 63)

In fact the Nazi regime was so successful at creating jobs that they had to resort to foreign guest/slave labour (thus making a nonsense of their pure German homeland idea).

Orban's first move should be to cancel scheduled interest and debt repayments on foreign loans. This would liberate 25-30% of national budget for job creation schemes.

I am also intrigued by his apparent move away from the far (sic) right:

http://www.politics.hu/20081009/fidesz-chief-expects-farright-and-left-will-discover-they-have-more-in-common-than-they-think

Does he think that the coming economic catastrophe will enable him to go it alone?

[Sandor]

Adrian, I am afraid your recipe is a recipe for disaster. Luckily we don't have to contend with its prospects.
The silly suggestion of the German example is resting on the tacit admission that while the bulk of the labour force was busy on the front, they imported slave labour. Indeed there is no unemployment problem, if the men are sent to die.
What happens, when a country suspends the payments of debt obligations is amply demonstrated by the example of Argentina in the mid 1990s: immediate collapse of the economy. The withdrawal of all investments, interruption of imports and exports. In short, it is like stopping the world: everything flies away by its own inertia.
Now, China is the largest foreign investor in the US economy, to the tune of 1.4 trillion, and the country with the largest risk in case of a collapse.
Luckily, Keynes, whose name apparently is not familiar to you, has incorporated all those human frailties in his calculations and as we are sadly witnessing, the hardline monetarist government of the US, and with it the whole world, has nowhere else to turn but to the keynsian model of massive government intervention.
If it were not so gut-wrenching, it would be "amusing" to see this massive and fatal experiment, under actually uncontrolled conditions, whether the keynsian model works, or not.
One thing is certain, the monetarist, trickle-down economy is an abject failure.
Orban, the pipsqueek, on the fringes of this maelstorm is really more stupid then even I thought him to be! Does he really think, that pissing against the storm he will stop it? He wont. The only possible help and the only available remedy is to co-operate with the international effort in correcting the system.
If you look at what his "maverick" stance got for Orban when he said stupid things about 9/11 and the Iraq war, just imagine what he would get if he would refuse to co-operate this time. He is close enough to it now, but then he would certainly be the punching bag and international pariah of the world. (The Korean dictator comes to mind for comparison.) Not to mention that the derision would apply to Hungary as well, thanks to this clown.
Finally; do you really think that the far right riff-raff would help anyone resolving economic problems? How would they do it? Increase the production of Arpad-striped flags and the turul per capita?
Surely, you must be kidding.

[Ricsi]

Why do you left liberals always attack Putin ??
Putin put his country first and rebuilt it after the disgraceful rape of Russia in the 1990's under "Yeltsin the alcoholic"s tenure.
Would that Hungary could have a REAL leader who put his country first,only then might we see progress,and stop the rot caused by lying,thieving socialists.

[Eva S. Balogh]

Ricsi: "Why do you left liberals always attack Putin ??"

I'm not a left liberal, but I consider myself a democrat and therefore Vladimir Putin's way of thinking is alien to me. I'm not terribly fond of KGB men.

[Hettie]

"The only possible help and the only available remedy is to co-operate with the international effort in correcting the system."

An alternative view is that the member states of the EU should be able to impose their own financial rules in their own states which they cannot. It isn't just the sceptics, apparently Pres. Sarkozy came up with this idea last weekend, but the member states (which ones?) did not endorse it.

A case in point is the possibility of suspending or revising the mark to market rule.

[Sandor]

Hettie, that has been tried in the thirties. All countries worked for themselves contrary to all the others.
The result was the great depression.
To avoid that ever happening again, was the Bretton Woods system created. Although revised and adjusted a few times, its principles are sound and if there is the choice between doing nothing and getting an even greater depression, or applying the co-ordinated international control, then the only thing to avoid a depression is applying the BW controls. True, this may not work, but the other certainly won't.

[Sandor]

Ricsi you are saying: "Why do you left liberals always attack Putin ??
Putin put his country first and rebuilt it after the disgraceful rape of Russia in the 1990's under "Yeltsin the alcoholic"s tenure.
Would that Hungary could have a REAL leader who put his country first,only then might we see progress,and stop the rot caused by lying,thieving socialists."

I don't quite understand what the hell you are claiming here.
Hungary does have a "REAL leader," Orban Viktor, who never misses an opportunity to express his anti-Russian sentiments and to condemn the Russians and Putin.
Does this mean then, that Orban is a "left liberal"?
Or a corrupt tinpot dictator, like Putin is a REAL leader? Is this what you mean to say?
Russia is a more corrupt and more miserable country than Hungary is, but it had a good fortune of a period of high oil and gas revenues. Yet, it has hardly anything to show for it. And in any case, it is over now. Just watch Russia and Putin, the REAL leader, collapse under the weight of this present economic crisis!
At the same time the right, to which you probably belong, is constantly accusing Gyurcsany of being dictatorial. How come then that Gyurcsany is not a REAL leader?
I must say, you are ingenious when it comes to condensing a lot of contradictions and nonsense in a very short posting

[Hettie]

"To avoid that ever happening again, was the Bretton Woods system created. "

Sandor, Bretton woods is one thing. Not being able to act when your country's financial market is upside down is another. I was referring to the latter.

[Adrian]

Sandor,

"Surely, you must be kidding" - Well, sort of: I wasn't advocating economic autarky just pointing out that in the medium term it CAN reflate an economy, IF you are prepared to accept the massive loss of Freedom.

Hettie,

"Not being able to act when your country's financial market is upside down is another"

Without capital controls you can't - look what happened when the Irish unilaterally declared 100% deposit insurance - money flowed from the UK to Ireland. Or when the Icelanders refused to guanrantee UK depositors - a further/deeper run on Icelandic banks - then the UK threatened to sieize Icelandic assets under a prevention of terrorism act. In actions like this History looks like repeating itself.

Sandor,

I think capital controls were the difference between 1930's Germany and 1980's Argentina.

[Sandor]

Adrian, If you refer to the legislated prohibition of removing capital from the country, you may be right, although I admit, I don't know how the Germans did this at the time. In the case of Argentina, or any other country ever since, the controlling of capital flows is simply impossible today.
The electronic transfers of money is invincible, no matter what governments say.
The only viable remedy is the international co-operation that we see and that we need.

[Adrian]

Sandor,

Hungary had capital controls at least until 1997, when I transferred money from the UK to buy my flat here. In essence no bank was allowed to transfer money to or from any foreign bank without going through the National Bank which would approve - or presumably otherwise - the transcation.

At the same time there were customs restrictions on how much cash you could carry in or out of the country. There was a flourishing black market in the forint centred on Régi Posta utca. But I got around these restrictions at the time by using my UK credit cards, which were outside the legislation. MKB took the profit rather the blackmarketeers.

[Sandor]

Yes, I remember this. I also got around it regularly, by bargaining for my rate with the counterparts.
But don't you think this is even more a case in point?
The legislative measures weren't worth a spit in the bucket, when anybody was resourceful enough to circumvent them.
And now, the restrictions lifted, they don't have any chance to be effective.
I could also offer you the example of the Canadian wage and price controls, introduced by Pierre Trudeau, that also were mostly just words, without any substantial effect on the economy at the time.
Both these and all the similar symptomatic treatments are suffering from the same problem: they aim at the symptom instead the system.

[Adrian]

Sandor,

The point I want to make is that for a period of time and at a cost physical and legal controls can be effective. Over time human ingenuity overcomes these controls. As in the case of credit cards in Hungary, and the recent financial meltdown - which was caused by the innovation of securitized debt and debt based derivatives. Government has to be an ongoing process, not an abandonment of responsibility to 'free' market dogma.

[Adrian]

Sandor,

you are not the only one to think of Argentina...

http://hungaryeconomywatch.blogspot.com/