Negotiations broke down between the Hungarian government and the IMF and EU

This will be a short note because the news broke only three minutes ago and was reported by Index. We know only the following details. The original plan was to hold a press conference on Monday, by which time an agreement had to be reached between the Hungarian government and the members of the delegation of the IMF and the EU. However, the delegation is heading home today. As they announced, at the moment the differences are so great between the two sides that they cannot be bridged. The IMF, however, is willing to resume negotiations at a later date and is therefore giving the Hungarian government more time to mull things over and to provide more details about its financial plans.

The IMF sent the communique to Index, but the Hungarian govenment has said nothing yet. We know little about the details at the moment, but Index suspects on the basis of the IMF communique that the measures taken by the Hungarian government are not sufficient even to maintain the 3.8% deficit this year, much less the 3% next year. "Consolidation demands long-term measures which the authorities need more time to work out." In my interpretation, that means that the IMF is demanding structural reforms which the Fidesz government wants to avoid because of their political risks. Although it is not clear where Index's information is coming from, it seems to know that the EU's objections are even more specific. Apparently they complained that the steps taken to avoid immediate dangers "are not sufficient and only temporary in nature."

I will keep you posted if anything more comes up.

Comments

[Jules]

"In my interpretation, that means that the IMF is demanding structural reforms which the Fidesz government wants to avoid because of their political risks." And therein lies the rub. If they were real leaders and not just populist jokers, they would buckle down and get the work done once and for all, but I doubt these guys can see the forest for the trees...

[Eva S. Balogh]

To Jules. One can say all sorts of things about the socialists, but that they buckled down and did what had to be done although they knew what the price was going to be is commendable. Some people thought that they should have resigned and held early elections. Then Fidesz should have been faced with the crisis and the austerity program. Sure, but what would have happened to the country?

[Mark]

"Although it is not clear where Index's information is coming from, it seems to know that the EU's objections are even more specific."

Their press release is much less polite and more specific than the IMF's one.

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/964&format=HTML&aged=0&language=EN&guiLanguage=en

[Eva S. Balogh]

Mark, thank you for the original press release. When I wrote the blog nothing else was available but Index's summary.

[John T]

Once again, this exposes the total ineptitude of the Hungarian political class. As I've said many times before, where are the decent, savvy Hungarians who can step up to the plate and provide proper political leadership? The plain truth - they don't currently exist and the whole country reeks of mediocrity as a consequence.

[Sophist]

Interesting Op-Ed from portfolio.hu including discussion of the "Lex Járai"

http://www.portfolio.hu/en/cikkek.tdp?feed=1&k=2&i=20525

[John T]

Sophist - thanks for posting. It's an interesting read. It occurs to me that as well as the political ineptness, the EU/IMF negotiators have come up against one of the more negative traits - they hate being told what to do by foreigners :-)

[John T]

opps, that should read "more negative Hungarian traits".

[nwo]

The odd thing for me is that people are speculating that the intention of the Government is to delay a new deal until after 3 October (Municipal elections). I would have thought the single biggest risk to Government success in those elections is a total collapse of the Forint, thereby threatening the 700k or so households with CHF loans. That will be felt much more immediately, than an agreement to undertake real structural reforms commencing in 2011(and anyway in that case the Government could have with some justification placed much of the blame on the past Government).

Instead, I really think the impasse is about power and the Government's inability to realize that the real power rests with the IMF/EU and not the Government itself. Furthermore, I still am not convinced the top people in Government understand the relationship between the IMF agreement/interest rates/exchange rates.
For those of us not burdened with a lot of Fx liabilities, the next days and months should be interesting. Finally, I am really looking forward to watching Orban pinning the blame for this on someone else in the Cabinet, and Orban being taken to the "woodshed" again by Brussels.

[Mark]

NWO: "The odd thing for me is that people are speculating that the intention of the Government is to delay a new deal until after 3 October (Municipal elections). I would have thought the single biggest risk to Government success in those elections is a total collapse of the Forint, thereby threatening the 700k or so households with CHF loans."

Quite. The people who will be most directly affected are those who elected FIDESZ in April. Furthermore, since the transition to a credit-driven consumer society, unlike the UK, Ireland, or even Spain, the experience of a squeeze on middle-class disposal incomes through escalating mortgage costs will be a new and especially shocking experience. I don't know how far HUF will fall and when, but given that it is trading way higher than its equilibrium rate it is vulnerable.

I wonder whether they understand too that the language being used by both the IMF and EU is fairly unprecedented. It is as close as one will ever hear from these bodies as "these guys in power in Budapest are bad news".

[Eva S. Balogh]

Mark:"I wonder whether they understand too that the language being used by both the IMF and EU is fairly unprecedented. It is as close as one will ever hear from these bodies as "these guys in power in Budapest are bad news"."

Mark, I have the feeling that they don't understand that kind of language at all. One has to hit them on the head and if the opponent is using "diplomatic" language they simply don't realize the real meaning of the message that is packed nicely inside of those polite words.

[Alias3T]

Well it's two things, isn't it?

They are anxious to avoid unpopularity at all costs. And I think it's a red herring to focus on the local elections: OV's fear of unpopularity is pathological. If you want to be some kind of nation-redeeming nemzetbacsi, then unpopularity is something you want to avoid full stop.

And a corollary of that is an inability to countenance cuts. OV made a revealing statement after his meeting with the LMP. Civil servants, he said, should no longer relate to people as if they were "subjects". Rather, they should see people as "citizens needing help." [segitsegre szorulo allampolgarok]

It's revealing because it shows a really crippled vision of the state: the state exists only to smooth out the ripples in people's lives. Absent is any sense of mutual rights or obligations, or indeed the sense that those citizens may have initiative, may not need help, and may indeed actively prefer not to be seen as supplicants by the state. But if the state really is there only to provide help to the needy, and if you have a pathological need to be popular, well, then you can't risk any cuts.

I assume there are some people at the top who can spot the relationship between the IMF, exchange rates and interest rates, though I can't imagine OV is one. But how could you come close to spotting that relationship if you're a devotee of the state as deus-ex-machina?

[Jordan 1]

I recently to visit your blog, reading, I very much enjoy, and above the content is great.

[Juicy Scottie Bling Collection]

so great between the two sides that they cannot be bridged. The IMF, however, is willing to resume negotiations at a later date and is therefore giving the Hungarian government more time to mull things over and to provide more details about its financial plans.