Ferenc Gyurcsány swings into action

It is almost inevitable that when there is really big trouble, Gyurcsány's adrenalin surges.This was the situation in late 2005 and early 2006 when MSZP trailed far behind Fidesz and Gyurcsány launched an incredible campaign to sell MSZP and his program. Miracle of miracles the MSZP-SZDSZ coalition won the elections. In the process he even managed to rally the normally apathetic MSZP troops: for instance, a huge spirited crowd gathered at an outdoor meeting and enthusiastically sang the catchy campaign song.

A similar burst of energy can be observed in the last few weeks, especially in the last few days. Most likely because the European parliamentary elections are near, Gyurcsány's verbiage is becoming sharper. Until now he was very careful not to emulate the tone of Fidesz politicians, although Gyurcsány can be devastatingly sarcastic if he is aroused. He was merciless when he made fun of Tibor Navracsics in parliament on February 16 and yesterday when in a speech he called his opponents "political con-men."

Yes, Gyurcsány is full of ideas and spares no energy to promote them. His latest is that he wants the European Union to arrange a package of as much as 180 billion euros to help East European economies, banks, and companies survive the economic storm. Here he is competing for attention with Viktor Orbán who on February 22 in Vienna scolded the west for not keeping its end of the bargain by not helping eastern Europe. He referred to a "contract" that had been broken, though it is not at all clear to me what contract Orbán was talking about. A couple of days earlier he apparently had talks with the prime ministers of Poland and the Czech Republic about some kind of cooperation among the East European countries. Today Orbán had a 50-minute talk with Angela Merkel. Since Merkel said nothing about the conversation with Orbán we have only Orbán's description of the meeting. According to him, he made three suggestions. (1) Western banks should resume cash flow to their branches in the region. (2) The European Central Bank should sell euros under the same conditions to non-eurozone countries as within it. And (3) Western governments should urge their companies to continue their investments in Eastern Europe. He didn't divulge Merkel's reactions, though he remarked that "minds are already open but not the pocketbooks." Orbán is even more ambitious than Gyurcsány: he wants 350 billion dollars or 276 billion euros. I think one can count one's blessing if Gyurcsány's suggestions bear fruit. Orbán's surely won't. For one thing, however bright his political prospects may be, he is not currently a major player on the international scene.

Gyurcsány already gave a name to his 180 billion euro plan: the European Stabilization and Integration Program. It would include short-term financing for governments, restructuring of private debt, capitalization of banks, and liquidity for companies in twelve different countries. Gyurcsány will present his plan at the March 1 European Union summit in Brussels. The Hungarian government already warned the Hungarian public not to expect results at the summit. It is not enough to convince the Western European leaders of its necessity; the plan would have to be put in place, which as we know only too well can be a daunting task. The program would help Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Romania. In addition two non-EU countries would benefit: Croatia and Ukraine. Meanwhile the European Bank for Reconstruction and Development and the World Bank launched major lending programs. The EBRD will lend 11 billion and the World Bank about 7.5 billion euros.

Gyurcsány has another favorite plan: to shorten the waiting period for admission to the euro-zone. Hungary has substantially reduced its deficit in the last two years. Right now the deficit is under 3%, comfortably below the 3.5% insisted on by the European Union. Inflation not surprisingly will also be low. Most likely well under 3.5%. According to the current rules Hungary would have to wait two years while holding the current figures before admission. This is what Gyurcsány would like to change. It seems that Poland will support the Hungarian proposal to shorten the waiting period. Whether the proposal will find support outside of the region is questionable. But Gyurcsány can be very persuasive. If he manages to pull this off his chances at the polls in 2010 would greatly improve. 

Comments

[Mark]

"Gyurcsány already gave a name to his 180 billion euro plan: the European Stabilization and Integration Program ... Gyurcsány has another favorite plan: to shorten the waiting period for admission to the euro-zone."

I'm very encouraged by the first plan - it is widely recognized that an EU-funded stabilization package of this size is essential, not only for Hungary and other CEE countries but for general European economic stability. I think Gyurcsány deserves support and credit for leading a campaign for this package (but he should really have been doing this in the autumn).

I am - for reasons I won't go into here - sceptical about the second part. Euro, or no Euro, a rescue plan on this scale will not be free. In fact, given that it implies that the EU as a whole should take some responsibility for ensuring economic stability in CEE, it should not be free. In the medium and long-term the issue must be that of the obligations the assisted countries should assume to fulfill their part of the bargain offered. Even in the absence of Euro membership there must be some managed currency regime. This also implies plans that ensure fiscal consolidation quickly once economies in the region recover - and committment to the kind of deep and radical reform necessary to bring budgets into balance over future business cycles. I also hope that the long-term pact rest on a long-term convergence plan - a real convergence plan, that aims to close the difference in the GDP levels of new member states and the rest of the EU - that imposes obligations on both new and old member states. This crisis represents not just a shock for the post-1989 economic model, but for democratic political systems as well, and by offering genuine improvement in economic conditions and material welfare a far sighted EU could do much to allow political systems to recover from this shock.

[Mark]

"Here he is competing for attention with Viktor Orbán who on February 22 in Vienna scolded the west for not keeping its end of the bargain by not helping eastern Europe. He referred to a "contract" that had been broken, though it is not at all clear to me what contract Orbán was talking about."

Stories like this - which is being reported in Germany, but not yet in Hungary - seem to suggest he might have a point:

http://www.thueringer-allgemeine.de/ta/ta.thueringen.ticker.volltext.php?kennung=ontaTICRatgeberMantel1235754953&zulieferer=ta&kategorie=TIC&rubrik=Ratgeber&region=Mantel&auftritt=TA&dbserver=1

[Eva S. Balogh]

Mark: He referred to a "contract" that had been broken, though it is not at all clear to me what contract Orbán was talking about."

Stories like this - which is being reported in Germany, but not yet in Hungary - seem to suggest he might have a point"

Not that kind of contract he was talking about but some kind of unwritten understanding that Western Europe will help the east.

[Mark]

"Not that kind of contract he was talking about but some kind of unwritten understanding that Western Europe will help the east. "

Well, yes, and no. Yes, in the sense that he was not speaking so specifically, and about something much vaguer and less realistic. No, in the sense, that international organizations and western European governments have been telling Central and Eastern Europe for years that all they have to do is make their economies fit for foreign investment and the second the going gets tough look what they go and do. It is in this more general sense he is completely right (and, as you may have guessed I am no Viktor Orbán fan)

[Jimmy the Tulip]

Dear Eva,

Long ago I have noticed your never ending admiration toward Fleto fellow. Could you convince him pls to pay a visit to you and stay there with you forever(in a mutual eternal love), wherever u r? Many here in Hungary would be truly thankful to you.

[Andras]

It was reported also in Hungarian
http://totalcar.hu/magazin/hirek/?main:2009.02.27.&376268

[Andras]

Actually, if Mercedes scrap the plant building project in Kecskemet for Eisenach, that decision will have will surely bigger effect beyond the fate of Daimler, Eisenach and Kecskemet. It would have major psychological effect across the board from the financial world to right wing extremists. It would make clear: globalisation within European continent is over, the doom the CEEC region is inevitable. It would outbalance the psychological impact of the recently announced smallish 25 billion package, which would have anyway only a lifeline for the next three-four months.

[NWO]

If it is cheaper and easier for Daimler to acquire an existing Opel plant located in a "risk free" but expensive country instead of building a green field plant in one of the world's most "toxic" countries, why would they not do this? This is not about breaking a social compact it is about business acument. If instead they are doing it because the German Government is effectively pushing/forcing them to do it, despite it not making good economic sense then this story is about the disintegration of the EU single market.
Finanlly, the fact is that Hungary is not an attractive investment destination, even with the HUF at around 300. The risks involved in investing in Hungary are substantial, and a wildly gyrating Fx rate is only one of the myriad of problems.
Last thing, Orban is not respected in Europe, but neither is Gyurcsany. Numerous times I have been told by EU/Brussels types and U.S. diplomats that Gyurcsany is not taken seriously, that he is a granstander, and that Hungary is always asking for concessions or favors but not actually being productive. It is hard to argue with the assesment.

[Andras]

NWO, it is likely that Daimler does not need any new plant at all within a period at least three years given the collapse of demand for their cars. I don't see what they could produce in Eisenach in the next 2-3 years, save the ECB needs a new printing shop. None the less, Daimler desperately probably needs a low cost plant for the long term future to cut down production costs in a cost-sensitive market, with heightened competition from China and Japan, and within Europa in competition with Audi and BMW.
In Hungary, fundamentals are fine for business. Infrastructure is good, labour is well trained and flexible, cheap, with devaluation very cheap in long term, geographical proximity very important factor, and the existence of a wide range of supplier firms and RandD support from universities. This is the reason of the success story of Audi, and these fundamentals are not changing. East Asia also have reborn after the 1998 crisis. Hopefully, around 2012, we are out of the depression, and we entering into recovery period. For that recovery period would be key for any European firm to have low cost production base alongside traditional ones, and to develop a new spatial distribution of production.

[Eva S. Balogh]

NWO: "Last thing, Orban is not respected in Europe, but neither is Gyurcsany. Numerous times I have been told by EU/Brussels types and U.S. diplomats that Gyurcsany is not taken seriously, that he is a granstander, and that Hungary is always asking for concessions or favors"

I assume it depends to whom you talk.

[Mark]

Andras: "Actually, if Mercedes scrap the plant building project in Kecskemet for Eisenach, that decision will have will surely bigger effect beyond the fate of Daimler, Eisenach and Kecskemet. It would have major psychological effect across the board from the financial world to right wing extremists. It would make clear: globalisation within European continent is over."

This is exactly why when I saw it in the press in the UK and Germany, I thought it was so significant. There are two major points that connect which I think people in Budapest and Brussels ought to address.

The problem with the single market is the lack of any legitimate political institutions to regulate it. In Europe the great political success of the past half decade is the nationally-organized welfare state. Its political success has created an expectation that national states defend citizens from problems in the world market. Given this split between the supranational location of the institutions that police the market, and the democratic/social institutions that are located at the national level, the political limits of the single market are going to become clear.

I don't go so far to say as this represents the end of globalization in the European continent, but, given the shifts to the extension of national state control over economies, this is the end of the illusion that foreign direct investment provides the key to the economic transformation of the region. This doesn't mean that all FDI will vanish - it does mean that countries like Hungary have to re-think dramatically their economic development strategies.

[Andras]

The pre-september 2008 world order provided a work-bench role for Hungary through FDI and inclusion of the cream of local industries into the lower layers of the vertically integrated supplier networks. There was not any other viable option, given the distorted national development route due to the integration into the soviet empire, and the consequent lack of capital and knowledge.
It is also clear, that we entered late into the party, and we did not have the lack of European mediterranian countries, which begun their integration into Europe two decades before us.
We may had have better policies (like czechs, slovaks, slovens), but we had not. Governments and their oppositions - together with the economist elite - had clear responsibility in this since 2000. The correction came too late, in 2006, and the crisis hit us before the correction ended. This made Hungary easy prey of the credit crunch. But that is history already. And I really dont want to enter into the blame-game.
The issue is what to do. Again, we have - although at different level - the same problems that we had in 1989:
1) Lack of capital. Instead of capital we have a major debt which practically put us into straitjacket and makes very difficult to counter the crisis.
2) we built up a knowledge base to be work-bench in a vertically integrated globalised economy, which is about to disintegrate within the broader context of de-industrialisation.
3) We are a small country, which lacks strategic depth to develop alternative strategy than integration into broader arrangements.

Actually, maybe alone the US has enough strategic depth and power to devise its own strategy. And it devises at the detriment of smaller economies.

Actually, the depth of the crisis is so big, that not we are in trouble, but most of European welfare states, and the whole European project as well as. European states, companies, banks are in debt up to their necks, and I see more and more clearly that US hungriness for backing up her own monetary system would starve Europe out as now international credit markets are starving CEEC now.

Really, the only one solution for Europe is to develop a strategic depth and interrelated political and economic structure to defend its interests. Without that CEEC would collapse under the burden of de-industrialisation and debt accrued in the past. Not now, we got a new lifeline, maybe 3-4 months later there would be an another package, which delays the inevitable, but...
At the same time, fringes of the euro-zone enters into parallel deflation and de-industrialisation, which would have detrimental effect on service economy and public finances. The combination of deterioration of both fringes makes impossible any major action anymore. This would be the moment, when the crisis would finally reach Germany, the engine of Europe as its economic model is based on the single market. Game over.

Europe really should concentrate its efforts to avoid financial gotterdammerung. The construction of the European edifice was fine for the period of constant development. Now it reached its own end. It could still work until relatively small amount of money and small compromises are enough to avoid collapses. But if the crisis deepens, there shall be more all-European efforts.
I am sure that there are think tanks thinking on these scenarios. I hope that it was told both to Orban and Gyurcsany that they should co-operate to lessen the mess at home. We will see...

[Mark]

Andras: "Europe really should concentrate its efforts to avoid financial gotterdammerung ...... I am sure that there are think tanks thinking on these scenarios."

I'm rather sure that there aren't, or at least there aren't any that really understand what they are dealing with. For the past decade and a half at least the real economy across Europe has been characterized by low growth relative to the general record of the post-war period. This is the result of widespread cost-cutting in manufacturing intensifying competition (CEE policies contributed to this, but not as much as did East Asia - what is actually striking when compared with East and South Asia is how unsuccessful CEE's "globalization" has been!), combined with the policies of competitive deflation induced by the Euro convergence criteria. However, this has been paralleled by the growth of the London-based financial sector, and a huge paper-based economy that created a number of bubbles in countries like the UK, Ireland, Spain, and the Baltic states. Given the divorce between the real economy and the realm of finance it was always going to end very badly (what surprised me, and I admit, I've been waiting for this crash to happen for some time, is that it started in 2008, and not in 2005). Some of the irrationalities produced by this mismatch at least match those surreal stories told by those who pointed to the absurd effects of Soviet central planning. One friend of mine in Dublin in 2003 told me about the huge sums he had borrowed against his house, because he would earn more by borrowing than saving money in a bank, because of the effective negative real interest rate! British manufacturing entered a long recession in 1998, just as the UK's economy seemed to produce endless posh restaraunts in ever greater abundance. So much established opinion accepted uncritically the finance-driven dream of the future, and there seemed few intellectual alternatives to the liberal visions of leaving your fate to the market.

The first problem that has to be dealt with the collapse, continent-wide of the financial sector. There needs to be a co-ordinated, and I'd suggest European plan, to decide what of the financial sector can be liquidated outright and what can be saved, and rationalized. Those governments, like the UK's who are bailing out too much in the view that they can reconstruct the world that existed in August 2007 are merely delaying the process of liquidation. While this process occurrs there needs to be some state intervention to provide credit.

Then you've got to think about all of those spheres dependent on the financial markets. I suspect this has huge implications for how people think about welfare state reform. Pensions - given that individual account are linked to stock markets those are going to become unviable. Private health insurance - hmmmmm, no multi-insurer model on SZDSZ lines. What this suggests is a much more collectivist, state-based model with high rates of taxation.

Somehow then the real economy is going to have to be placed and organized on new lines. This is the bit I have difficulty imagining, for it can't be based on an export-led model in the way it has been in Europe, really since West Germany's Wirtschaftswunder in the late 1950s. I suspect contrary to András that this means not de-industrialization, but a re-orientation of employment to the production of things (I hesitate to talk about re-industrialization, because I suspect it will be different). Because of "peak oil" and climate change what will be produced (and consumed) will be quite different. Motor vehicles, the driver (apologies for the pun) of FDI-based transformation in CEE will have to be far less at the centre of Europe's manufacturing and consumer economy than they have been. It will be quite a different world.

[Andras]

EU has the following in-built time-bombs:
- oversized bank sector, with much bigger exposure to toxic assets than the US one,
-oversized industrial companies with much bigger credit burden than the US one,
-oversized welfare states, with huge amount of cash-hungriness and debt up to their necks,
- households are in debt-trap in most of the peripherical countries, where there was a credit boom in the last ten years.
- There are no data appeared yet about the debt situation of the service sector, but I guess, there also should be too much debt.

Further deteriorates the situation n Europe, that it has an unsustainable single currency tying together separate economies with different business cycles without proper correctional mechanism. This half-baked system even in the time of boom created major unbalances in forms of property booms in the periphery, and now the unbalances will be unbearable.

So, I think it will come:
- about 50% collapse of industrial production across Europe. The euro-regime, until stays afloat, outprice Spain, Italy, Portugal and Ireland. These countries would see de-industrialisation by market forces. Their fate will be even faster as German and French governments will order their companies to cut jobs everywhere to save jobs at home. The same goes for lesser extent to Slovakia, and non Euro-zone countries with pegged currencies. Countries with floating currencies, in principle, may have better chance to compete for jobs. They are making so cheap themselves, that cash-stripped companies would be crazy to cut production in these countries. But political pressure, nationalistic commitments, and special credit-lines provided by government or nationalised banks may force companies act against their own interests (case Kecskemét).

De-industralisation alone would have produce major stress on service economy, banks and state budget resources, while putting new debts on state expenditures. The crisis driven spatial reorganisation would completly unbalance the euro-zone, putting unbearable burden on the fringe.

Major European economies mired in the euro-zone, and they would have no real means to In time of credit crunch, when still there are one magnet of safe heaven of last resort - this spells for colossal trouble in the short run.

Europe because of the internal inbalances of the euro could not be a safe-heaven. The US Dollar will remain the only save heaven, and the resulting lack of confidence would produce unbearable burden for Euro-zone economies.

De-industrialisation would alone cause major troubles, but the real problem is the oversized and overdebted bank sector. That alone cumulated such an amount of toxic assets and grown so big, that nation states could not save them in case of further deterioration of conditions and bank-runs. Ireland, Italy, Austria, and Spain within the Euro-zone already virtually bankrupted countries, just needs bad times to continue to be forced to reckon this dire state of reality. Outside the euro-zone UK is the prime example of banking system too big to fail, to big to save.
Such a dire situation, of EU projects want to survive need European level action: more balanced de-industrialisation, balanced reshaping national welfare states and creation of european level welfare mechanism in major scale to deal with bankrupted counrties and regions, new stronger central bank mechanism to deal with collapse of cross-border banking system and new compatition policy, which agressively would ensure competition and able to block emergence of too big palyers.

Unfortunately, in a competitive world, such a reorganisation only could happen if similar competition policies is enacted at other major players, like US, China, Russia, India and Brazil.

Unfortunately, it may happen that at least one of the major powers has different economic war game, and the house of cards is already collapsed.

[Mark]

Andras: "about 50% collapse of industrial production across Europe"

I suspect this is too apocalyptic. If this happens on this scale then the demands for state intervention will become so great and the economic implosion so huge that we will see the creation - probably by default, more by design - of predominantly publicly owned economies regulated by state mobilization to drive economic growth, and also with a state monopoly of foreign trade. From the recent Hungarian past such an outcome might seem a little like history repeating itself. We will certainly be writing History differently if you are right - 1989 will not mark the collapse of Communism, but the beginning of capitalism's Indian summer before it was overwhelmed by its terminal crisis. Ironic indeed.

But this isn't going to happen! At the very worst we will have a very painful clearout of a lot of redundant capacity both in manufacturing and the service sector over the next decade, before capitalist growth resumes on a new basis. Obviously, firstly we have to get through this, and History suggests to us that this will not be easy (after all the last crisis on this scale played no small part in the world war that ended it). We should try and manage this transition and spread the pain over a longer period to avoid catastrophes. And we should start preparing for the new growth regime, in which energy consumption, and mass consumption in the contemporary sense will play less of a role. Given new technologies virtual mobility will play a much greater role within work and consumption than actual mobility.

[NWO]

Having spent the last couple days in Warsaw, it is clear that Gyurcsany's plan was met with scorn. Poles have absolutely no interest in being associated with his bail-out or with anything having to do with Hungary. The Poles feel they have been unfairly brought down by being unfairly associated with the weaker parts of the CEE already, and are trying their best to dispel the notion of a CEE in the first place.
What does this mean? I think Gyurcsany misplayed the politics of his proposal (regardless of the merits as an economic matter) and it has no chance of gaining any support going forward. This also makes Hungary for the moment much more vulnerable.

[Odin's lost eye]

Mark If I read you aright what you are saying is that because the capitalist system is in reality an amorphous mass of small units/people its destruction is most unlikely. Again we come back to the micro-economic world of the little man and the little company. These are mobile, quick to respond to change and can be very efficient. So long as they do not try to rush (or are pushed into rushing by desperate authorities) their growth these will succeed. What they need are ‘Trading Houses’ that will represent them in the markets of the world. There is no alternative to Capitalism even Communism was state run Capitalism ie the ‘corporate state’ fails when faced with real non global capitalism.
The real problem which lies at the back of it all is the decline in the value of assets held buy bankers etc. They have spent their depositor’s money on ‘flim-flam’ and so have lost ‘trust’. This was done to raise their share values in the market to give their shareholders greater returns, which I have always felt was a big ‘No-No’. but many of their market orientated shareholders believed that 10 minutes was a very long time to hold a share. I am a share buyer and share keeper. I use a calculation which tells me (in years) how long it will be before those shares pay for themselves and start to earn me real money.

[Eva S. Balogh]

NWO: "The Poles feel they have been unfairly brought down by being unfairly associated with the weaker parts of the CEE already, and are trying their best to dispel the notion of a CEE in the first place."

First, we will see what happens to Poland in the next few months. Second, it seems that Poland wasn't so fussy when it came to the question of adherence to the eurozone.

[Mark]

Odin: "Mark If I read you aright what you are saying is that because the capitalist system is in reality an amorphous mass of small units/people its destruction is most unlikely."

This isn't quite what I think. What is happening to the global economy has happened before - it happened after 1929, and after 1873. There will come a point when the destruction of redundant capacity stops and investment again becomes profitable, and the conditions for self-sustaining growth return.

Secondly, while this a crisis, it is not, I would suggest, the terminal crisis of capitalism envisaged by Marx and his followers. Globalization may have been a relative failure in CEE and the former Soviet Union, but there is no question that it has raised the general standard of living across the planet. The transformation of material conditions in East and South Asia (even though at times this process has not been pretty)is the great economic success story of our times. The real problems stem from the fact that we regarded the market as a self-regulating panacea, and we failed to develop the kinds of co-operative global institutions that would have allowed us to regulate the global imbalances produced by export-led growth models, while allowing a process of financialization that created a poisnous coctail. The world is now forced to confront real issues about the distribution of wealth and power necessary to re-stabilize the global economy. This will involve radical changes, but not, I think, anti-capitalist changes.

Lastly, with the partial exception of parts of Latin America, there is no serious political alternative to capitalism - certainly not in the "developed countries". And, what is more there doesn't seem to me to be one on the horizon. I don't rule out large protests - especially in Europe - led by people who have an explicitly anti-capitalist position. Nor, do I rule out the growth of anti-capitalist movements. I just don't see a political alternative articulated on a global scale that provides a concrete alternative economic form in the way Marxist-Leninism did (I'd probably question how far even Marxist-Leninism was ever a viable alternative, but there we go).

[Andras]

It seems that Mercedes stays with its original investment plan.
http://www.hirado.hu/Hirek/2009/03/03/13/A_Daimler_kitart.aspx

[Mark]

András: "It seems that Mercedes stays with its original investment plan."

Maybe Gyurcsány's interventions in Brussels were not as ineffective as everyone first assumed!

[Mark]

NWO: "Gyurcsany's plan was met with scorn. Poles have absolutely no interest in being associated with his bail-out or with anything having to do with Hungary."

I'm sure that although he was not the perfect messenger, Gyurcsány did the right thing. The view from the UK is different to that in Poland: the Hungarian government is presenting the only alternative to an outright regional collapse that is on the table. On the New York Times blog yesterday, Paul Krugman criticized the EU for their rejection of the Hungarian package - getting the most recent recipient of the Nobel Prize for Economics is not the same as getting the money, but it does suggest that the "scorn" was far from universal. I think that in the end the EU will have no alternative but to accept something like the Hungarian plan - just as I think Hungary should have put something like it on the table much earlier. The question is how much damage will be done first.

There is something tragi-comic about the reactions of the various CEE leaders, and in my eyes Gyurcsány comes out with more credit than any of them. Hungary unveils a plan for "Eastern Europe". The Czech presidency, presumably still wanting to prove that "Prague is west of Vienna" and fearful that its western partner might not think that it is actually "Central Europe", distance themselves from Hungary's plan to prove their point. Slovakia, well known for its tense relations with Budapest and seeing an opportunity to put the boot in, joins in. The Polish government is anxious to prove in the face of all available evidence of mounting problems that it is an economic paradise decides not to be associated with those spendthrift Hungarians. And Germany is in the most ludicrous position of all - Die Welt criticizes Hungary for sending a third of their population onto generous social benefits, when this is precisely what Germany did in the former GDR (after wrecking its economy with an unrealistic conversation rate to the DM in 1990) - the most remarkable case of the pot calling the kettle black that I've seen recently!

[Eva S. Balogh]

Mark: "I'm sure that although he was not the perfect messenger, Gyurcsány did the right thing."

I just heard Péter Felcsúti (Bank Association) who claimed that if Poland came up with a similar plan then Germany et al would have been more sympathetic to the plan. Ridiculous.

[Mark]

Ėva: "I just heard Péter Felcsúti (Bank Association) who claimed that if Poland came up with a similar plan then Germany et al would have been more sympathetic to the plan."

Obviously this begs the question of why Poland didn't come up with the plan. Poland has some significant and growing problems that may not yet be as severe as Hungary's, but are more significant than many have recognized. Also, their Minister of Finance is a well respected academic economist with a real track record as a specialist researcher in CEE's economic transformation.

Felcsúti should realize that the imminence of a federal election is not irrelevant to Germany's stance, and that while CDU/CSU while almost certainly be the largest block, it is far from certain what governing combinations will be possible after.

[Andras]

The funny thing is that Orban also argued for a 350 billion aid-package before the March 1 meeting. I really dont understand why fidesz is now attacking Gyurcsany, instead of working together for an aid package. It is really beyond comprehension.

[NWO]

Mark:

I do not disagree with you on the merits on a region wide solution. I do believe a lot of the problem, however, as Felcsuti suggests is about the messenger. Hungary, given its fiscal position and given that Gyurcsany is not popular at home, is not a particularly credible "leader for the region" [See, Anne Applebaum's [wife of the Polish FM]piece in yesterday's Washington Post]. Whether it is true or not the other CEE countries see a path to salvation for themselves through an accelerated Euro entry and a decoupling of the CEE association. If the problem of the Western European banks is systemic then they are wrong. The bet in Poland, however, is that capital is limited and that when push comes to shove with limited capital the western European banks would prefer to save their Polish operations than their Hungarian ones (given the relative size of the markets and Poland expected early entry into the Euro, this is not a bad bet).
If Gyurcsany really wants to promote his plan, he does really need to talk less ad find someone more credible to do the hard work.

[Eva S. Balogh]

András: "The funny thing is that Orban also argued for a 350 billion aid-package before the March 1 meeting. I really dont understand why fidesz is now attacking Gyurcsany, instead of working together for an aid package. It is really beyond comprehension."

Péter Szijjártó had a very difficult time trying to explain that to Olga Kálmán on ATV yesterday. No wonder.

[Andras]

NWO, I agree with you. Well before Gyurcsany, Austrian banks and the Austrian FM begun to rally for a similar sized package, and Merkel was sympathetic towards the Austrian initiative. Gyurcsany had to ally with Austrians and only retain for himself a background diplomacy to drum up other CEECs. That would have been the wise solution. Instead of this, he begun a roadshow to pose like Tony Blair as savour of the region and to match the initiative of Orban. Unfortnately, this is not the time for such vote-chasing grandour. We are in really trouble, the region is in real trouble. We really need serious work, background diplomacy and coordination among FMs, National Banks, ECB and Commission.

[Mark]

András, and NWO - with all due respect I don't think here the point is the messenger, - it is the message. I can't but feeling that overly focussing on Gyurcsány's shortcomings runs the risk of a fairly spectacular loss of perspective.

I think we agree that Gyurcsány is a politician with deep flaws that have been manifested in his making of unguarded comments with microphones present (the 2006 ones were only some of a number). I am absolutely sure that the audience he needs to convince are other politicians, and although they may not have admitted to it with a mircophone present I'm willing to bet quite alot of money that most of the other heads of government have "lied morning, noon and night" when their own elections were on the horizon! And also, yes, Hungary was profligate - but if one looks at the extent of irresponsible public and private borrowing around the EU during the 2001-2007 business cycle it wasn't the worst offender, not by a long way. It has the misfortune/fortune (depending on how you look at it) to have been noticed first by the financial markets. Nor is it unknown for leaders with deep moral flaws to command the international political agenda - Tony Blair's role in launching the war in Iraq did not prevent him being named the quartet's Middle East "peace envoy" in 2007 (I don't want to compare Gyurcsány and Blair, I just want to point out that when it suits them other world leaders can have short memories regarding the flaws of colleagues!)

If not Gyurcsány, then who? When one looks around at Austria and the other CEE states one can't help but think of the rats attempting to be the first to get off the sinking ship, leaving their partners behind. I doubt that there is any space for them on the lifeboat called the Eurozone. In this context Hungary (I admit for its own reasons) has done the creditable thing, and understood that the problems of any one CEE state can be solved in a European context. Looking at the reaction in the financial, and other press here in Britain, and how they report the reactions of the London market, it seems to me that any pan-European rescue package will be associated with "the Hungarian plan". It is now too late for anyone else to argue for it, or any variant of it and avoid association with Gyurcsány. In actual fact, all the current heads of government in the EU have credibility problems, because all pursued or carried some responsibility for policies suitable to an economic order which at the popular level is discredited. Right across Europe - west as well as east - there is huge anger, which all those leaders will, sooner or later, have to face.

The real reasons for the reception of the package have little to do with Gyurcsány. The EU leaders are floundering around with very little idea of what has befallen them, and are trying to keep to show on the road, by doing as little as possible to plug the holes. By being the first to demand change Gyurcsány has put something on the agenda that drives a coach and horses through their complacency. But what he has achieved is that he has placed the problem firmly on the agenda, and has ensured that his package will be the basis for an eventual policy response, simply because no-one else has been thinking of the alternatives. I suspect as the crisis in CEE deepens, Gyurcsány's political stock will rise.

[NWO]

Anyway, it appears the other CEE countries have voted Hungary "out" with their communique today that appears specifically designed to distinguish their plight with that of Hungary's. In turn, the Fx markets have also worken up to this, as the Forint (going to 312 to the Euro when I last checked) has now begun to decouple from the other regional currencies. It would probably be suicidal, but the MNB is probably thinking about another emergency rate hike. A month ago a HUF 300 level was considered unbearable. The market now assumes HUF 320 is a given.

[Eva S. Balogh]

András: "The funny thing is that Orban also argued for a 350 billion aid-package before the March 1 meeting. I really dont understand why fidesz is now attacking Gyurcsany, instead of working together for an aid package. It is really beyond comprehension."

Péter Szijjártó had a very difficult time trying to explain that to Olga Kálmán on ATV yesterday. No wonder.

[Mark]

NWO: "Hungary, given its fiscal position and given that Gyurcsany is not popular at home, is not a particularly credible "leader for the region" [See, Anne Applebaum's [wife of the Polish FM]piece in yesterday's Washington Post]"

I read this article yesterday with a great deal of amusement. She misrepresents Hungary's position - have a look at the sentence "the Hungarians have, it is true, requested, and been denied, an extraordinary $240 billion loan", suggesting the package would just be for Hungary (pretty willful misrepresentation of the facts by any measure!). She then runs of roughshod over the normal rules of evidence - arguing that the size of Ireland's downturn suggests that the problems in western Europe are worse than in CEE, when the figures actually show the economies contracting fastest are those of Latvia and Ukraine! And then she concludes by saying that if only European states avoided actually listening to their citizens and trusted in the failed god of the market, all would be well! If I were a subscriber to the Washington Post, I'd seriously wonder why I was paying to read this nonsense!

[NWO]

Mark

You are correct on the points you make in Applebaum's article. The larger point is, as far as Hungary is concerned, is that (righ or wrong) the other CEE members (and informer or ilinformed observers like Applebaum) judge their chances better if they are not associated with Hungary. The Fx markets, today, seem also to have woken up to this risk.

You have long argued with some merit that an orderly depreciation of the currency is one step in an unwinding of of the Hungarian problems. However, a disorderly drop in the currency has only destabilising affects, and will only increase the speed of the full fledged banking and perhaps again sovereign crisis in the country.

[Mark]

NWO, I don't disagree with anything you say. I do think the disorderly drops in currencies have already gone too far, and it is high time that everyone involved recognized the bankruptcy of the policies pursued so far. The question is how long to go before everyone that needs to wakes up?