The reasons for the popularity of the new Hungarian government

Many people in Hungarian intellectual circles express their amazement at the "sheep-like" attitude of the Hungarian people. How slightly over half of those who voted in April expressed total trust in the never revealed program of Viktor Orbán. Yes, there was something called a party program, but it was so vague, consisting almost exclusively of a critique of the Bajnai-Gyurcsány era, that it was really meaningless. Here and there Orbán dropped a few promises: an immediate drastic tax cut, a salary increase for doctors and teachers, money for the Hungarian public television station, and other such goodies. None of which, by the way, is being realized.

People who know something about economic realities kept saying that these promises cannot be fulfilled and that soon enough Fidesz's popularity will drop. Yet, the unusually high support for the government is holding, I think to the surprise of most observers. There are several reasons for the popularity. One is the government's assertive approach toward international lenders. Most people don't realize that the IMF's and the European Union's insistence on a prudent financial policy is in Hungary's best interest. However, "the economic independence" Viktor Orbán is talking about appeals to those who can't quite comprehend that today there is no such thing as "economic independence." People in hard times usually blame outside forces for their troubles and for some strange reason the IMF is the latest scapegoat. The IMF that saved Hungary from bankruptcy in October 2008.

Orbán's government is being fairly uniformly criticized by commentators for its less than perfect communication with the markets, the disruption of talks with the IMF, and the feisty tone with the European Union over how debt is reported to Brussels. But none of these has any major effect on how the public sees the ruling party. In fact, Hungarians like the government because it is feisty and tough-talking.

Another reason for the delayed disappointment in the new government is that the 29-point action plan--thrown together in a great hurry after it was made clear to the prime minister in Brussels that the 3.8% budget deficit promised for this year cannot be altered--has some points that on the surface seem to benefit the average citizen. But some of these perks are illusory. For instance, since the changes introduced in the tax code haven't been implemented yet, most people don't realize that only the "upper crust" will benefit from these provisions. The vast majority's take home pay will be smaller than before.

Taxing the banks is also extremely popular in the country. First of all, banks are very profitable in Hungary, in part because of the hefty fees they charge their customers. Accordingly they pay their employees well--from the ordinary teller to upper management--and their offices smack of opulence. All in all, banks and bankers are hated. And here is a prime minister who tells them off and blames them for not wanting to take their fair share of sacrifice in times of great difficulty. The ordinary Hungarian citizen would go even further: take the money away from the rich and give it to the poor.

There is also quite a bit of talk about helping Hungarian small- and medium-size businesses at the expense of large foreign firms. I suspect that this is just talk because the competition for large foreign investment is fierce and every country gives breaks to multinational corporations. This has been the case for the last twenty years and most likely the practice will continue.

I also doubt that too many people have noticed that in the last few months Hungary's debt burden has grown. The government is clearly not taking the advice of an analyst at the Royal Bank of Scotland who wrote that "even a modest reduction in the budget deficit would help to lower the debt stock, and help facilitate heavier borrowing ahead."

In the last two weeks the forint was holding up rather nicely at about 276 forints to a euro, but it got hit two days ago when the Hungarian National Bank didn't lower the interest rate and announced that economic recovery would be slower than predicted earlier. Some people even talk about a possible low of 290 forints to the euro. Such a development would increase the strain on those who borrowed rather heavily in foreign currencies, in Swiss francs and in euros. The debt in foreign currency is not restricted to private individuals. Most local governments, especially the ones in Fidesz hands, are also heavily indebted in foreign currencies.

Finally, most economists agree that without structural reforms the budget will never be in decent shape.  However, Orbán and his team know only too well what can happen if a government tries to introduce "reforms." People hate reforms because they perceive them as changes that are against their interests. To give an example. There is health care. In Hungary there are about 120 hospitals, about twice as many as are needed. But people want to have hospitals nearby and doctors who would have to move to another city to work in another facility are also antagonistic toward the idea of hospital closures. So right now there is only muddled talk about improvements without any mention of either money or reform.

All in all, Fidesz doesn't want to introduce any structural changes before the local elections that will take place on October 3. In fact, they even postponed introducing next year's budget that by law was due in September for the same reason. Thus, the country doesn't know a thing about the government's financial plans for next year and what it will mean for the Hungarian people.

P.S. Just learned (Bloomberg, August 24, 12:44 PM ET) that the Hungarian Economy Ministry announced that they will resume talks with the IMF. The decision most likely has something to do with the Hungarian forint's very weak performance in the last five days when it dropped 1.6% against the euro. The trouble is perhaps bigger than we think. Otherwise, Viktor Orbán wouldn't have changed his mind on the negotiations before the October 3 elections.

Comments

[Mark]

"I also doubt that too many people have noticed that in the last few months Hungary's debt burden has grown. The government is clearly not taking the advice of an analyst at the Royal Bank of Scotland who wrote that "even a modest reduction in the budget deficit would help to lower the debt stock, and help facilitate heavier borrowing ahead."

If I were wanting to fire off a cheap shot I might comment that given that the Royal Bank of Scotland is now owned by the British taxpayer as a consequence of its own reckless borrowing to acquire ABN Amro on the eve of the financial crisis, its analysts ought not to issue lessons about anyone else borrowing irresponsibly ..... But as we know from the behaviour of the CEO who led them into this mess, RBS doesn't do shame ......

However, my serious point is that what you don't mention is that the ratio of public debt to GDP was rising rapidly under the Bajnai government - it was 72.9% of GDP at the end of 2008 when the IMF was called in; at the end of the second quarter this year (and note that Viktor Orbán had only been Prime Minister for 33 days - a third of that quarter, and so scarcely had much chance to deal with the situation)it was 82.9%. The reason for this is obvious - a state budget is not like a household budget; and that cutting spending in a severe recession will depress growth further, and leave the country more indebted, not less.

As the MNB has admitted, Orbán has inherited a pretty dire situation. The economy is trapped in a state of stagflation; in terms of growth it is flatlining, and its export-oriented manufacturing sector is simply not strong enough to lift the economy, the rest of which, practically speaking is in a near death state. Inflation will be higher than in the Eurozone, which means the erosion of Hungarian competitiveness is set to continue. Furthermore, Bajnai's "stabilization" hasn't even managed to stabilize public finances, let alone lay the foundations for growth. The "stabilization" has produced a deficit level, before Orbán was elected, that is simply too high to reduce the debt burden.

One can legitimately ask the question as to whether Orbán is capable of getting Hungary out of this mess, and I have to say I think he is driving Hungary over a cliff. But Orbán or no Orbán, if liberals believe that the way out of this mess is through neo-liberal dogma then they have learned nothing from the experience of the last two years. People who believe in the sustainability of the IMF/EU programme that has been abandoned have to ask themselves a simple question about its political sustainability. Where is the democratic majority in Hungary going to come from that will be prepared to support a stable government that will continue these policies? Because the 21% that supported the MSZP and MDF is not a majority; indeed it isn't too much more than the 16.95% the MKP won in 1945. And that is leaving aside the question of whether such policies have any chance of working economically.

[Eva S. Balogh]

Mark: "One can legitimately ask the question as to whether Orbán is capable of getting Hungary out of this mess, and I have to say I think he is driving Hungary over a cliff."

One can say all sorts of bad things about Bajnai but under the circumstances he did pretty well. What Orbán is doing is an erratic mess. Did you read my P.S. about crawling back to the IMF?

[Mark]

Éva: "Did you read my P.S. about crawling back to the IMF?"

Yes, I did. But you will remember that Matolcsy has always said when asked that talks "may" resume in autumn - and the report uses exactly the same formulation. You might note also that Bloomberg is not widely read by the Hungarian public, and that FIDESZ has a reputation for spreading mixed messages. No, this is about manipulating the currency markets to halt the slide in HUF and to keep it below that critical 220 to CHF below which lots of the middle class might be tempted by LMP in Budapest, or might even forget their problems with the MSZP. They think they can do this by interrupting the narrative in the business press in the last week that Orbán is nothing more than a dangerous populist. Does it figure a real change? Who knows - but I'm sceptical. Orbán is too invested politically in his current position to go back to an IMF/EU loan, without quite a serious loss in credibility, especially if the terms of that loan impose costs on the population. And I just don't see Orbán stood there giving a Gyurcsány speech from 2007 about the importance of reform.

As for Bajnai. Well, economic crises demand political courage - and an ability to confront the real problems. Essentially he acted as a mouthpiece for the class interests of a financial elite that were determined the costs of the crisis be born by ordinary people. In so doing he has weakened the labour market, rather than protected it, and exacerbated problems of unemployment and employability - and given that the population is ageing, and shrinking it needs people to be contributing to grow. But more fundamentally he didn't confront basic problems (here I give Gyurcsány slightly, but only slightly more credit)- the need for public and private debt restructuring, so that HUF can fall to a level where the private sector can start producing to create jobs. I expect worse from Orbán, not better .....

[Eva S. Balogh]

Mark, I also thought that this turning to the IMF suddenly might be one of Orbán's tricks but I think something is going on for real. Portfolio.hu reported that it was more or less confirmed by the IMF in Washington.

Another interesting point. Bloomberg's article reported that "Hungary's cabinet said it will resume talks..." while MTI confirmed it but as "may resume talks." MTI received the confirmation from the press department of Matolcsy's ministry. Even more interesting what Reuters published: "The credit line agreement with the IMF expires and after that we can stay in touch, but it does not stem from this that we would like to open a new credit line...," ruling Fidesz party vice chairman Lajos Kosa told TV2."

So, it is possible that there is one line for the west and another for home consumption. But this will not work.

As for Bajnai. He was heading a caretaker government. He had only one year to go. He couldn't start structural reforms. Gyurcsány tried and look what happened to him.

[Mark]

Éva: "So, it is possible that there is one line for the west and another for home consumption. But this will not work."

Of course it won't work. Sometimes in the way it reduces problems of policy or political conflict to ones of political communication FIDESZ reminds me sometimes of Tony Blair's government here in the UK. The problem with relentless media management is at the end of the day no-one knows what is true, and consequently nobody believes what the government says. And of course the risk of sending mixed messages is that huge confusion results. Look what I found when I logged onto Portfolio this morning:

http://www.portfolio.hu/cikkek.tdp?k=3&i=137632&is=1

What an almighty mess!

Of course rationally Hungary needs considerable international support and goodwill from its creditors if it is to restructure its overall debt (which is the condition for getting out of this mess). But "nationally assertive" rhetoric Hungarian style is not going to win it that international support. FIDESZ have their two-thirds majority and they can use it in one of two ways. They can continue in the way they are doing and hope to hang on while presiding over an economic collapse (there would be a kind of tragic historical irony though here, as a "civic" government would end up wiping out the middle class economically in the name of crude national populism), or they can start to speak a language of reform, co-operation with international organizations, their neighbouring countries, and even opposition parties, and pursue policies that address the underlying problems.

Then I think you have to ask two questions. Are Orbán and his allies capable of pursuing the second course? And how many of his supporters, who, let's face it, are pretty drunk on national populist delusion willing to follow them if they do?

[Eva S. Balogh]

Mark: "Then I think you have to ask two questions. Are Orbán and his allies capable of pursuing the second course? And how many of his supporters, who, let's face it, are pretty drunk on national populist delusion willing to follow them if they do?"

To the first question: I don't think that I have ever seen Orbán and team acting rationally, wisely, prudently, and professionally. As for their followers: they have been just following the lead and I don't think that they would know what on earth to do if suddenly Orbán behaved differently which, I am convinced, he is incapable of doing in the first place.

[Odin's Lost eye]

Mark I see what you mean from your link (even though the Google Translation is a bit wacky). As to our good hostesses reply to your questions that ** “I don't think that they – his supporters- would know what on earth to do if suddenly Orbán behaved differently which, I am convinced, he is incapable of doing in the first place.” **. My opinion is that he does not give a tinkers curse as to what happens to the people so long as he is the ‘Top Boss’ and deemed to be the greatest Hungarian ever.
It is absolutely revolting that any nation should be dragged down into the pit of oblivion, degradation and despair to satisfy the personal lust for power and the trappings of power of one demagogue. This man who I refer to ironically as ‘The Mighty One’ is a good political manipulator, is now playing the populist/nationalist card for all it is worth. He does this knowing that his people know very little of the ‘ways of the world’ and how things work. They do not understand the E.U. and that it has rules which are for the benefit of all –even for those who are not in the ‘Euro’ and the ECB-. The Hungarian people do not understand that they are, once again, being hoodwinked into blaming ‘outsiders’ for their own predicament. The Monday evening after the IMF left one man, in the Koscma, asked me why the IMF people had gone to New York could they not fly direct to Tel Aviv? Was it a leg pull? No I do not think it was, their ignorance is so profound it must have taken them many long years of deep study and self denial to know so little about the world.

[Kirsten]

I read your blog with great interest, in particular now when Hungarian politics seems a bit incomprehensible to the outside world. Today you used a number of times something like "people don't understand" or "people don't realise". Democracy requires that people try to be informed to reduce the danger of too mighty governments, would you suggest that this is not the case in Hungary? And if so, what would you think why this is the case? It was often suggested that the gradual transition of Hungary or a transition led by the former Communist party could not end in a real break with the past (defined as collectivist thinking), which is what Fidesz appears to have exploited now or even intensified with their national programme... Or is the (so it seems) unsettled issue of how to define a "small Hungary" more important than any other political issue?

[kincs]

There is nothing at all surprising about the continued popularity of Fidesz. They have not made any unpopular decisions. That they have annoyed the big money boys of the IMF, the banks and international markets would only make them more, not less, popular in Hungary. A poll out today confirms that alienating the IMF has gone over well here. As may have been stated on this blog before, most people don’t read Bloomberg news.

In a normal democracy disappointment with the new government is just an inevitable matter of time. In Hungary, it will be an unusually long time before disillusionment with Fidesz sets in.
Even if the economic situation does get worse through Fidesz missteps, it will be easy to blame the eight years of Socialist government.

It’s not all about economics, though. Partly, people just want to feel good about their government for a change after at least four years of feeling bad about them. Put another way, people want to have hope. I was in the UK the week after Tony Blair got elected in 1997 and I could sense the euphoria in the streets. It took Blair a long time to squander that goodwill.

Moreover, loyalty to Fidesz is intense. As has been stated here before, Fidesz is not so much a political party held together by common rational beliefs and values, but is more like a religion or cult of personality.

Its supporters have a huge emotional investment in the party. So if and when Orbán makes any serious mistakes, his voters will be slow to recognise them as mistakes. Facing up to his fallibility would mean admitting that they have been wrong for the past 8, 12 or 15 years they have been supporting him.

More immediately, I don’t believe that the anti-IMF rhetoric is merely for home consumption ahead of the local elections; I think it’s a deeply entrenched view on Orbán’s part and won’t change after October. What the consequences of defying international finance will be remains to be seen. But the economy could fall a very long way before Fidesz’s popularity goes with it.

[Kirsten]

Kincs, I heard the following sentence from a Hungarian: "Now that Orban has introduced the Trianon-emlek-day, he can do whatever he wants..." (But still for me it is puzzling how such strong loyalty could emerge when Fidesz did not get elected in 2002 and 2006...)