Hungarian Spectrum

Economic strategies of the Hungarian opposition

It's almost impossible to know what Viktor Orbán's economic strategy will be if he wins the 2010 election. His political opponents try their best to make him admit that under the present circumstances a Fidesz government couldn't do anything else but what the present administration is doing. For obvious reasons, no Fidesz politician will ever admit to that. After all, the party's popularity hinges at least in part on its promise that all the measures introduced by this bloodsucking government will be reversed. Young mothers will be able to stay at home at the government's expense for three years instead of two, a reduction imposed by the Bajnai government. The newly introduced property tax will be abolished. For a while there was even talk about the reintroduction of the extra month pension, but a couple of days ago Orbán said something very tentative to the effect that "perhaps one will have to be careful about its reintroduction" because that is a big item in the budget. The latest Orbán utterance on the deficit was revealing. According to him, the Hungarian deficit should be allowed to grow to the average of the European Union, which at the moment is 7%. It's no wonder that foreign financial analysts consider Orbán's rather irresponsible and obviously political statements a risk factor for Hungary. The latest warning came from Kai Stukenbrock at S&P Credit Research. He expressed his doubts about an Orbán-led Hungary's economic strategy.

However, one may make the same mistake I made in 1998 when Orbán and Fidesz campaigned on a populist, fiscally irresponsible platform. Everybody, including me, already saw the beneficial results of Lajos Bokros's belt tightening campaign disappearing. Squandering (osztogatás) will be continued. At the time Tina Rosenberg in an editorial in The New York Times (June 27, 1998)  talked about Orbán's "unrealistic economic promises." In response I wrote a letter to the editor (http://tinyurl.com/nxdxbq) in which I expressed the opinion that "we must hope that Mr. Orban's promises will remain only promises. Otherwise, the economic recovery of the last three years will come to naught." And indeed, they remained mere promises. The squandering started only two years later in anticipation of the 2002 elections. One head actually rolled because of indiscretion. László Urbán, the man who was picked to be Orbán's minister of finance, lost his bid for the post because he made the mistake of saying publicly that the "campaign program" and the "government program" are two different things. Orbán wasn't happy.

The situation is somewhat similar now, eight years later. "Unrealistic economic promises" are followed by cautionary statements made by economists close to Fidesz. Viktor Orbán is quite capable of making a speech at the time of the release of a hefty volume of essays by economists, some of whom are advisors to Orbán, and hail it as "our program." But when it turns out that in one of the essays an economist advocates the introduction of property tax, he then claims that, after all, the contents of the volume are only the personal opinions of the writers and not Fidesz's program. Strictly speaking, of course, he is right. One must say that it is a clever ploy.

The latest twist in the so-called economic strategy of the party is that György Szapáry, a close economic advisor to Orbán, gave an interview to HVG (July 16, 2009) in which he said certain things that contradict the "official" party line. First, let me say a few words about Szapáry. He is blue blood on both his father's and mother's sides. He is the grandson of a former Hungarian prime minister, Count Gyula Szapáry (1890-1892), and his father, also Gyula, was a wealthy landowner in eastern Hungary in Tiszabura, a village of about 2,000. He was born in 1938, and his aristocratic family didn't fare too well after 1945. In 1956 at the age of eighteen he left Hungary, ending up in Belgium. He received his degree in economics at the Catholic University at Louvain in 1961. In 1967 he went to Washington where he worked for the IMF until 1990. In that year he returned to Hungary as the representative of the IMF. Later he was one of the vice-chairmen of the Hungarian National Bank.  In 2008 Orbán asked him to be the unofficial ambassador of Fidesz within the international financial community that Szapáry knows well. He was supposed to allay the fears abroad about Viktor Orbán's intentions.

The first surprising announcement was that, as opposed to Orbán, Szapáry doesn't want to increase the budget deficit. "Increasing the budget deficit would eat away the trust that Hungary has slowly begun to regain, and that is something one must avoid at all cost." Hmm! As for what Fidesz is going to do after a possible victory, "we don't know, we have to wait until they form a government." However, Szapáry thinks that Hungary will need further loans from the IMF and the EU for at least two reasons. First, receiving more money from these sources would "increase the trust" of the international community; second, Hungary will not be able to obtain credit at such a low interest rate elsewhere. These loans would be accompanied by certain restrictions that would "force a certain discipline on the government."

Later in the interview Szapáry returned to the 7% budget deficit Orbán was talking about. He announced that he was almost certain that the IMF wouldn't never agree to a further loan on this basis, but he added that he didn't think that Fidesz had such intentions. But new loans will be necessary because the current agreement will expire in March. "The question is which government should conduct the negotiations." In Szapáry's opinion it should be the next one, although the elections will take place only in April and May. Of course, this is an impossible suggestion. No government two months before the elections will cede power to negotiate an international contract. It would be political suicide because it would be an admission of defeat before the elections were held. I don't know how good an economist Szapáry is, but he seems to be totally unfamiliar with political realities. I might add that just today the minister of finance announced that there might be no need for another IMF loan because today's sale of euro-denominated government bonds was a tremendous success. The Hungarian government could have sold three times as much as it offered. However, I can assure György Szapáry and Viktor Orbán that if Hungary needs a new loan from the IMF or the EU it will not be the Fidesz candidate for the post of minister of finance who will conduct the negotiations on behalf of Hungary. Moreover, who knows? He may lose his prospective job just as László Urbán did in 1998 when he told the truth.

A "successful" Hungarian strike without "results" and other happenings

I'm sorry if I have to give another Hungarian lesson to my readers but István Gaskó's choice of words forces me to. Gaskó's "general strike" that shrank from 3 million participants to tens of thousands and most likely in reality fewer than that abruptly ended today at noon. The strike began at midnight and was supposed last for eighteen hours. In plain language it was to end at 6 p.m. This is not the first time that Gaskó ends a strike earlier than announced. But he always finds some creative way of explaining that the early close actually meant a great victory. This time the explanation was a linguistic sleight of hand. He announced that "a sztrájk sikeres volt de eredménytelen." "Sikeres" means successful. Its antonym, "sikertelen," means unsuccessful but so does "eredménytelen." That is, it's a synonym of "sikertelen." I assume István Gaskó believes that most Hungarians are so ignorant of their own language that they will think that this debacle was in fact the greatest success in the history of Hungarian trade unions.

It was doomed from the start. During the night, that is between midnight and six o'clock in the morning, 70% of the trains were moving. After the shift change at six o'clock 90% of the trains left for their destinations. Mind you, there were not too many travellers because most people found other means of transportation anticipating the usual chaos at the railroad stations. I will be curious to see how Mr. Gaskó further embellishes his "success with no results" when he makes his rounds of the TV stations.

Meanwhile there is some good economic news. The first is that Germany is slowly recovering from its economic slump. In March, for the first time in half a year German exports and imports both grew. While in February imports shrank by 4.8% in March they were up by 0.8%. And this is a welcome development for Hungary because the country is heavily dependent on exports. Germany is perhaps the most important trading partner of Hungary. Another good piece of news was that in March Hungarian industrial production grew by 4.3% over the previous month. The forint has strengthened in the last few days. At the moment 1 euro trades for 277.993 forints while at the beginning of March it peaked at 316.5 forints. See chart below. Of course, Hungarian exporters were happy with the weak forint. According to a businessman friend of mine an exchange rate of 1:290 would be just perfect.  Those who took out loans in euros or Swiss francs would be less thrilled with a weak forint. Although it is true that some other currencies in the region have also fared well, the Hungarian forint has outpaced them. Even the most skeptical analysts admit that the Hungarian government's speedy reaction to the crisis and the parliamentary support it received made a difference. The Budapest Stock Exchange (BUX) is also showing signs of improvement. Like most world markets the BUX had a horrific start to the year, bottoming in early March. Since then it has recouped almost 50% of its value and is positive on the year. See chart. The situation is the same with OTP (Országos Takarékpénztár), Hungary's largest bank, and MOL, the oil refining company that plays an important role even outside the country. Another good bit of news is that after months of being unable to raise money by issuing government securities, yesterday not only were all issuances sold but they were oversubscribed. The ÁKK (Államadósság-kezelő Központ/Center for Handling State Debts) announced the availability of three-year, five-year, and ten-year bonds. Each offering was for five billion forints. The three-year securities were oversubscribed three times, the five-year four times, and the ten-year six times. Thus ÁKK eventually issued not five but six and a half billion forints worth of ten-year bonds. Some analysts hinted that it would be time to lower interest rates. All this gives a lift to the new Bajnai government.

Meanwhile the Pécs mayoral election, scheduled for Sunday, is heating up. MSZP decided to send 2,000 activists (mostly women) to Pécs to campaign in districts that used to be MSZP strongholds. Certainly not downtown. Meanwhile, Mr. Páva got cold feet. He and Katalin Szili were supposed to have a television debate tonight but in the last minute he bowed out. His alleged rationale was that his opponent's campaign is unfair and he demands an apology. One strange aspect of Páva's campaign is that although he is clearly Fidesz's candidate, he doesn't use the party logo or its orange color to identify himself on posters. I'm somewhat baffled. The only thing I can imagine is that Fidesz is unsure of itself in the contest and doesn't want to have too high a party profile in case of a loss. Whatever the case, I'm sure things will just get curioser and curioser.

Hungarian pessimism

It's legendary. Hungary leads the pack in all of Europe, perhaps even in the world. Especially if one considers the relative economic well being of most of the country's citizens. This pessimism is nothing new. A 1991 piece in The New York Times entitled "Hungarians Are Thriving, Gloomily" reported that "Poll after poll shows this nation to be the gloomiest in Eastern Europe--more unhappy and more fearful about the future than neighboring countries where unemployment is twice as high, inflation is about to surge back into the double digits and nationalist extremists are whipping up old hatreds." The author also quoted Jozsef Antall who in an earlier interview had said, "A Hungarian will always see the worst. It comes in part from a peasant mentality, which will never predict a good harvest." Antall continued, "Just as there is American optimism, which is the motor of American life, so Hungarians have a tendency to be pessimistic. Every renewal in our history was always born in pessimism. Even our anthem is pessimistic."

Whatever the cause, people today in countries nearby Hungary with much lower standards of living are  more optimistic than the Hungarians. Hungarians bemoan the fact that they have always been the losers of history. All those horrible happenings: the Mongol hordes, Mohács, the Turkish occupation, Habsburg rule, Trianon, two lost wars, 1956. Should I continue? Poland certainly hasn't been luckier than Hungary in modern times. In fact, Poland disappeared from the map after 1795 and yet the Poles always believed that Poland would be reborn one day.

The 1970s and 1980s was one of the few times that Hungarians felt economically superior to some of its neighbors (which, of course, is not the same as feeling optimistic). Hungary was doing well in the sense that living standards were on the rise while in Poland, for instance, eventually there were only empty shelves in the stores. Then Hungarians were self-satisfied and made ugly jokes at the expense of their Polish "brothers." Just think of the Polish saying: "Polak-Węgier dwa bratanki - i do szabli, i do szklanki!" Oh, yes, every Pole knows the saying, including the Polish guy who worked on my roof when he found out my country of origin. But in those days of relative Hungarian plenty Polish-Hungarian brotherhood was forgotten. The saying in Hungary was--and I have to quote in Hungarian because of a word play--"keresztek helyett inkább búzát kellene vetniük." In rough translation, instead of crossing themselves they should work.

Well, now Hungarians think that Poles are doing splendidly while they are the nation that is the worst off, and not just in Europe. Of course, they are wrong. There is a severe financial and economic crisis the world over. But Hungarian politicians keep harping on the theme that the economic problems Hungary is experiencing are unique to Hungary. Certainly Hungary was the first country in the region to be in trouble because of the very high government and private indebtedness and it was the first to receive IMF and World Bank assistance. But just look around the region now. It seems that sooner or later all countries will be in pretty much the same boat. Romania is now trying to get some IMF loans and Slovakia, a country always brought up as a shining example of fiscal management, may end up in a serious recession due to its heavy reliance on the auto industry.

Yesterday I was asked by József Orosz, anchorman of Kontra (KlubRádió), to comment on the Hungarian doomsday attitude toward the economic crisis. He brought up some examples. A former minister in the Medgyessy government announced a few days ago that "Hungary is already in intensive care but not yet dead." Here are some Hungarian headlines of late: "The situation is worse than in October" (Index). "The German chancellor is reminded of the second world war" (Hírszerző). "Crisis: According to Bajnai amputation is necessary" (Hírszerző). "We are sitting on a timebomb of bloody social strife" (Hírszerző). "Hope is not in sight" (Heti Válasz). As opposed to generally more optimistic headlines in English and American papers. One of my favorites (Bloomberg) cited Jeremy Grantham, known as a "perma-bear," who nonetheless in a March 4 commentary entitled "Reinvesting When Terrified" urged a "shift to stocks before 'rigor mortis' sets in." And it was not the economy he was describing as dead; it was the investor. To quote a bit more from his commentary: "Every decline will enhance the beauty of cash until . . . 'terminal paralysis' sets in. Those who were over invested will be catatonic and just sit and pray. Those few who look brilliant, oozing cash, will not want to easily give up their brilliance. So almost everyone is watching and waiting with their inertia beginning to set like concrete. Typically, those with a lot of cash will miss a very large chunk of the market recovery." In brief, a call to action.

I heard an interview on Napkelte (MTV) yesterday morning. The reporter was interviewing a well known economist. Her very first sentences went something like this: "A few weeks ago you said that this recession would end by the middle of the year. What are you saying now?" The poor economist tried to explain that the situation changes from day to day and that it is difficult to predict the future. But that didn't satisfy our reporter who kept outlining the worst possible scenarios. When the economist tried to give a somewhat more nuanced picture, she contradicted him and tried to prove that the situation was dire. One could see that she was very frustrated when she didn't get an answer about the immediate economic collapse of the country.

Okay, one could say: this is just a not too bright reporter who doesn't know much about economics or finance. Or the headlines are simply sensation-seeking. But what about the chairman of the Hungarian National Bank who announced yesterday that the country is in such trouble that it can sink to the bottom of the ocean? In fact, the water is up to "our noses." András Simor, the chairman, almost daily (except during his vacation last week when the country was sinking!) makes some such horrific pronouncement and then seems to be surprised that the Hungarian forint is not doing well. The chairman of the central bank has to be very careful what he says and Simor ought to know that. So why is he saying these things? Inexperience? Ill will? Habit? Hard to say. His predecessor, a former minister in the Orbán government, certainly knew what he was doing. But Simor?

Then there are those economists. Economics the dismal science as Thomas Carlyle called it. It may be dismal, but it isn't a hard science with confirming or falsifying experiments. There are economic theories, different economic schools, different beliefs, but Hungarian economists expound their own remedies as the gospel truth. András Gerő, the historian, rightly pointed out that it would be appropriate for these economists to preface their theories with "in my opinion." However, they do not. The economists of the Reform Alliance are certain that their remedy is the only appropriate one while Lajos Bokros is convinced that his "shock therapy" will be the salvation of the country. Lately he has been making the rounds from television station to television station, proudly announcing that he has just returned from Ukraine where he was obviously invited to fix up the Ukrainian economy. Good luck! His supporters point to the splendid results he achieved in Slovakia. But what will happen if in the next quarter Slovakia will also be in recession? Then what will they say about Lajos Bokros? That his remedies didn't work in the long run? Or that the Slovak government did something that mitigated the results achieved by the Slovak Bokros package? If Lajos Bokros is the key to solving the world's economic and financial crisis then maybe he should be invited to the United States where all the problems started and everything would be okay in a jiffy.

Hungary is not unique and at the moment not even as badly off as some other countries. However, all this negativism can be destructive, creating an adverse feedback loop. A weakening economy and a pessimistic population can become mutually reinforcing. I'm neither an economist nor a medical doctor but I know that in both fields optimism is a critical component of recovery. In the United States and in Canada people who perhaps are hit harder by the financial and economic crisis than are the Hungarians remain by and large optimistic at the same time they are scared. They know that this deep recession will end, even though they don't know when. And some, following the lead of Obama, believe that the downturn provides an opportunity for fresh ideas, new beginnings, a revitalization of American business and society. Who will start a campaign in Hungary to change people's attitudes? 

Orbán's mistakes?

Some people think that Viktor Orbán has made an awful lot of political mistakes lately. It was a mistake not to make conciliatory gestures at the National Summit, not to show up at a high-level meeting of politicians and experts on the economic crisis, not to take an active part in the hustle and bustle of everyday politics. He stayed aloof and sent emissaries to meetings.

A few days ago he decided to speak up. However, according to analysts, it would have been better if he had kept his own counsel. Here is an example of the criticism about what Fidesz and Viktor Orbán personally have been doing lately; it appeared in the English version of Portfolio.hu. "The main opposition party is frantically trying to escape even the appearance of having anything to do with the crisis management of the Socialist Party (MSZP). But what it will really accomplish with its shoddy communication is the brick-by-brick destruction of its professional credibility that it has been building up for years in opposition. Portraying Hungary's stand-by credit agreement with the International Monetary Fund (IMF) as a hugger-mugger deal is a mere blunder; the rejection of the fiscal responsibility package is a mistake of historic proportions and the call on the central bank to cut its base rate immediately to 6.00% is pure madness."

I think in one respect the analyst here is too kind. I don't see the professional credibility that Fidesz has been building up for years. There were no constructive suggestions to remedy the terrible situation in which Hungary found itself by 2006. The government tried its best and pretty well succeeded in decreasing the incredibly high deficit. Fidesz couldn't suggest anything to replace the austerity program that is "too hard on the Hungarian people." Here and there the party offered silly ideas to reduce taxes and thus further increase the deficit but nothing constructive. What happened with the IMF stand-by credit deal was definitely more than a "mere blunder." It was embarrassing. First there was the condemnation of the whole deal. Hungary didn't need IMF money. That early criticism was followed by emphasizing the "shame" that had befallen the country: Hungary was now somewhere between Pakistan and Ukraine! Once the stand-by credit agreement was a done deal and the document of intent signed and sealed, Mihály Varga, the economic expert of Fidesz, kept insisting that there must be some secret deal. When the IMF itself declared that there was no such thing Fidesz madly searched for a "contract." And when it turned out that there was no contract Varga tried to get out of hot water by claiming that that since Gyurcsány made references once or twice to "a contract" he must be a total nincompoop who doesn't even know that no contract had to be signed. If all this nonsense had been uttered only once or twice, it would have been bearable. But the sound bites are repeated over and over. A new messenger, the same message. So the same blahblah on Napkelte in the morning is heard again at noon, in the evening, and late at night. Mistakes are thus magnified.

The latest blunder was Orbán's "demand" to the Hungarian National Bank and the government to immediately lower the interest rate from 11.5% to 6.0%. In one fell swoop. This news first appeared in a regional paper called Észak-Magyarország. Instead of denying the report in an effort to maintain credibility, he repeated this nonsense in Veszprém where Fidesz bigwigs got together for a meeting. Here he added that lowering the interest rate might help Hungarian enterprises get credit more easily. Needless to say, the media jumped on the story because even those who are not too savvy in financial matters know that such a sharp reduction in the interest rate would have catastrophic results. The questions multiplied. Does Orbán really know so little that he can seriously suggest such a move? Doesn't he know that the Hungarian National Bank is independent of the government and the government, even if it wanted to lower interest rates, couldn't do it?

It seems that this latest suggestion caused consternation even within the party. Fidesz is a very well disciplined organization. What Orbán says is Holy Writ. Everybody follows. No cracks in unity. But his call for the immediate reduction of the interest rate by almost 50% was more than his followers could take. Even the very right-wing Magyar Hírlap called it "perhaps too sweeping a suggestion" and suggested a more cautious, step by step, reduction of the indeed very high interest rate. Mihály Varga repeated the same and Zsigmond Járai, former minister of finance and head of the National Bank who did everything in his power to keep interest rates high and thus make the Gyurcsány government's situation very difficult, also explained that such a reduction must be gradual. (Mind you, I remember when Járai raised the interest rate by 3-4% for no apparent reason.)

Orbán apparently had another brilliant idea: to have a referendum to stop the privatization of the Budapest Gas Works (Főgáz) pretty well decided on by the city. After all, with the same strategy he defeated government plans for healthcare copayment and tuition. But the likelihood of a successful referendum today is very much in question. Fidesz's popularity has plummeted of late in the capital. Moreover, it seems that István Tarlós who was narrowly defeated in the mayoral contest two years ago and who is now the head of the Fidesz caucus in the city council is dead set against a referendum; apparently he managed to gather nearly the entire inner circle of Fidesz against Orbán on this issue. Another sign that Orbán's hold on the higher echelon of party leadership might be loosening. A few more mistakes would certainly help those who deep down are worried about the future of the party as long as Orbán is leading it.

The Hungarian Economic Summit

A few weeks ago, right after it became obvious that the international financial crisis hadn't left Hungary untouched, Ferenc Gyurcsány convened an emergency national summit which even Viktor Orbán attended. All party representatives, economists, bankers, even to some extent heads of trade unions tried to be helpful and displayed some willingness to assist the government in its efforts to solve the financial crisis. The lone exception was Viktor Orbán who made it clear that in his opinion the Hungarian government was solely responsible for the current situation. They created the mess, they have to fix it, and he and his party will not move a finger.

A few days ago Gyurcsány came up with the idea of another summit, this time under the aegis of the parliamentary committee on the economy. Invitations were sent to about fifty people, including party chiefs, heads of the parliamentary delegations, union leaders, and representatives of Hungarian economic and financial life. Viktor Orbán announced that he wasn't going to attend. As he said in an interview with HírTV (a right-wing news channel), it was his way of protesting the austerity program. The other opposition parties followed suit: Ibolya Dávid couldn't be there because she was in the United States; Zsolt Semjén, head of KDNP, of course wouldn't attend if Orbán didn't; Gábor Fodor didn't give any explanation, he just didn't show up. Gyurcsány was the only party leader present. I think that the people who refused to attend for one reason or another made a mistake because the summit, to everybody's surprise, including mine, was a success. Even Fidesz delegate György Matolcsy, former minister of finance (2000-2002) who is often accused of having started Hungary on its slippery slope by overspending and creating a huge budget deficit, had to agree that the government's six-point plan is the right move in the right direction. Of couse, he added that the trouble is that the government is not trustworthy and there ought to be a political change. But what else can one expect from the economic advisor to Fidesz?

The keynote speaker was Gordon Bajnai, minister of economics. First, he emphasized that credit is the oil of a country's economic engine and if it dries up the engine is ruined. Therefore the Hungarian government will make sure that in the next two years a sufficient amount of money will be available for small and medium-sized companies (that is companies employing fewer than 50 workers). While a couple of weeks ago, Bajnai talked about 800 billion forints, then 1,000 billion, the final figure (for the time being anyway) is 1,400 billion forints. With a very low interest rate: 2-3%. Second, another aim of Gyurcsány's government is job creation. To promote the creation of new jobs they will lower labor related taxes on any worker newly employed. They have enough reserves for 20,000 new jobs. Third, they want to stimulate the market by spending 2,000 billion forints on investments. Fourth, they want to reduce the cumbersome bureaucracy still in existence in Hungarian business life. Fifth, because of a large unskilled working force they want to assist economic activities that could employ these people: agriculture, the building industry, and tourism. Sixth, they want to revive the abandoned reforms.

I would like to say a few things about this last item. Ferenc Gyurcsány's second government, right after the elections, began two things at once: (1) an ambitious reform program, especially in healthcare, and (2) an austerity program designed to reduce the budget deficit, which at that point was over 10%. Launching these two programs at the same time was perhaps not the smartest thing to do. However,  the budget deficit had to be reduced because otherwise Hungary wouldn't have gotten the European Union grants that were crafted to help the country grow closer to the economic level of western Europe. Whether it was wise to start the healthcare reform at the same time is debatable, especially since everybody knew that the changes would not be received with great enthusiasm by the medical profession. The proponents of the reform argued, with some justification, that the reform was long overdue. For almost twenty years no government had dared to touch it. As we saw, not without reason.

Fidesz did everything in its power to ruin the government's chances of success. They complained about the austerity program: the government created the large deficit, let the government pay for it, not the "people." As for the medical reform, the party managed with the help of the constitutional court to undo some of the reforms that had already successfully been introduced. At this point Gyurcsány and his government lost their nerve and retreated, putting an end to any reform anywhere. Admittedly, the government's popularity was very low. Gyurcsány thought that he could revive the popularity of his government by proceeding slowly. The austerity program, the lowering of the deficit had to go on, but he offered tax reduction as long as Hungarians would be better taxpayers. If more tax money were received, if more people paid taxes, then the rate of taxation could be lowered. But only to the extent that the black and grey economy becomes whiter. He called that the "Contract" outlined in an essay. If no more money is received the taxes will have to go back to their original level. That would have been the extent of the socialist government's reform. A few billion forints of tax relief if and only if the tax base became wider.

The international financial crisis and the looming economic crisis give the government a second chance to initiate reforms. They can argue that without reform there is no hope of economic health in the long run. Perhaps now that the Hungarian people realize the seriousness of the situation they will be more willing to make the necessary sacrifices and will bear the burden of the "reforms" more willingly. Moreover, perhaps Fidesz, under pressure from the population, will be more cooperative. Of course, these are just suppositions. First of all, it doesn't seem at the moment that the Hungarian people actually realize the seriousness of the situation. For instance, personal consumption hasn't dropped. Matolcsy's less antagonistic reaction may not reflect Viktor Orbán's intentions. But one thing is sure, Fidesz is losing ground in the polls measuring party preference. Polls also show that the population would like to have cooperation among the parties.

Whatever the long-term outcome, this economic summit seems to be a government success. Gyurcsány got so excited that immediately after the meeting he sat down and dictated some triumphant lines in his blog. We will see what happens tomorrow and the day after.

IMF, Hungary and the banks

For at least two weeks the Hungarian opposition has been making strenuous efforts to lay their hands on the details of the agreement between the IMF and Hungary. The hope was, I guess, that there are provisions in the agreement that the Hungarian government has hidden from the public. The government refused their demand because there was no final document; negotiations were still under way. Well, today the long demanded document, dated November 4, was made public. It must have been a huge disappointment because there is absolutely nothing in the Hungarian proposal that was not divulged in earlier government communications about the deal.

The document released today is not a contract between the IMF and Hungary. Rather it is a carefully crafted grant proposal, obviously written to conform to IMF demands and perhaps even with the help of the IMF. The document is written in impeccable American English, if one considers U.S. Federal Reserve Bank statements impeccable American English. To quote the first paragraph of the document: "Financial market stress in Hungary has intensified in past weeks as a result of events in global financial markets. In response, the government and the central bank of Hungary (Magyar Nemzeti Bank, MNB) have developed a comprehensive strategy to firmly anchor macroeconomic policies and reduce financial market stress. We request that the Fund support our program through a Stand-By Arrangement (SBA) for a period of 17 months in the amount of SDR10.5 billion (€12.5 billion)."

And what is this strategy? Exactly the same as Ferenc Gyurcsány outlined when he first announced the  impending agreement with the IMF. Nothing new here. I am not going to copy all the details of this strategy but I have to mention two of the restrictive measures: "keeping nominal wages in the public sector constant throughout 2009" and "eliminating the 13th monthly salary for all public servants." I repeat these two measures here because Fidesz spokesman Péter Szijjártó today had some interesting things to say about these two items.

Fidesz is not satisfied with the document. This is nothing, said Fidesz's financial expert and former minister of finance Mihály Varga, but a loan request. I assume like a small business going to the local bank. Well, it's a bit more. This document formalizes the terms on which the IMF agreed to extend the stand-by credit to Hungary. Negotiations took place, the Hungarian government acceded to certain IMF demands, and the final request to the IMF (which would obviously be approved) was submitted.

Szijjártó tonight repeated the same objections in an interview with Olga Kálmán of ATV. But Szijjártó added a few more accusations. One was that somehow in the "English version" of the document the government sneaked in something that was not in the Hungarian original. First of all, one can say with certainty that the English version is not a translation of the original Hungarian. It is the other way around. If Szijjártó doesn't know English well enough to notice that, it would have been enough if he had paid attention to the link in Népszabadság taking the reader to the English original and another link sending one to "the rough Hungarian translation" (nyers fordítás). Let me quote here the Hungarian translation of this specific passage about the nominal wages and the 13th month salary: "1. a közszféra nominálbéreit végig azonos szinten tartjuk 2009-ben, (2) kiiktatjuk az összes közalkalmazott 13. havi fizetését." According to Szijjártó there is a mistranslation in English (that is what was sent to IMF) that leads one to believe that more people will be victims of frozen salaries and lost benefits than the Hungarian public was told either verbally or in the "Hungarian original." I simply don't know what Szijjártó is talking about. "Közszféra" is the same as "public sector" and that includes all state employees and not only civil servants. Unfortunately Olga Kálmán didn't clarify this whole issue with Szijjártó. Moreover, on ATV's homepage the editors made a big thing about this (I don't blame them!) and next to the video of the interview one can read: "Szijjártó: because of IMF the salaries of public employees will be frozen." Hmmm? I can't believe that he doesn't know that he is purposely misleading his audience.

Fidesz has another objection. He found the important sentence easily enough: "We will consult IMF staff on adjustments to the primary balance target and on eventual corrective measures in the event of a larger-than-expected shortfall in government financing, the level of public debt exceeding its indicative target path by more than 300 billion HUF, or a further significant deterioration of the macroeconomic outlook. We will also follow closely developments in local government finances and will consult IMF staff on possible corrective measures in case the aggregate deficit of local governments exceeds expectations." What? Possible corrective measures in local government budgets might be necessary? No way, says Szijjártó. The country can go to hell, but they are not agreeing to any further restrictions.

Another development is that the Ministry of Finance and the Central Bank put aside 600 billion forints to help out, if necessary, three big banks. For the time being, these banks don't seem to need an infusion of public money but Fidesz is already upset. Until now they thought that the government wanted to help the people, but now it looks as if the people's hard earned money is being given to banks. And banks owned mostly by foreigners. (The split between Main Street and Wall Street is bad enough, but in Hungary Wall Street has a foreign zip code.) As we know from It's a Wonderful Life, banks and people cannot be neatly separated. Banks hold people's money and banks give loans to people. However, Mihály Varga, the financial expert, seems to have forgotten that simple truth. So this is where things stand at the moment.

The Hungarian "umbrella package"

In 1995 we had the "Bokros package," named after the newly appointed minister of finance, Lajos Bokros. The prime minister at the time, Gyula Horn, was most reluctant to introduce the absolutely unavoidable austerity program that meant a drop in real wages of about 17%. The "Bokros package," although painful in the short run, resulted in healthy economic growth from 1997 until about 2000 when the Orbán government started the usual irresponsible spending because of the approaching elections. Although the government spent a lot of money trying to buy votes, Viktor Orbán and his party lost the election. Fidesz was not the only party to offer all sorts of goodies to the electorate. The other side, the socialists, did the same, and Péter Medgyessy, the new prime minister, made the mistake of actually fulfilling his extravagant promises. Not like Orbán in 1998 who promised all sorts of things before the elections but prudently didn't pony up.

As a result of misguided fiscal policy between 2000 and 2006 both the national debt and the budget deficit became unbearably high. In 2004 Hungary became a member of the European Union and therefore was no longer free to pursue irresponsible fiscal behavior. Hungary had to come up with a timetable for its deficit reduction program in order to receive financial assistance from the EU. It was obvious that a new "package" was needed. Unfortunately, this package was named the "Gyurcsány package." Not the best advertisement for an already beleaguered prime minister. Gyurcsány and his economic advisers figured that an austerity program at the beginning of the government's tenure would bring positive results by the time of the elections in 2010. The improved economic situation should benefit the government in power. Well, it didn't work out that way, and now we have the "umbrella package." At least this is the name the newly proposed austerity program got today.

The proposed "umbrella package" was devised in part to meet IMF requirements for Hungary to access its lending facility. The Hungarian government has promises of standby credit from the European Central Bank and the International Monetary Fund. The IMF credit (possibly 12.5 billion dollars) has strings attached. According to newspaper reports, Hungary must reduce its expenses by at least 300 billion forints. If that is the case, the Hungarian "sacrifice" is not overwhelming, especially if we recall that some Hungarian economists, among them the venerated Lajos Bokros, were talking about cutting 1,000 billion forints from the budget.

The announcement of the IMF rescue package bolstered investor sentiment. Today the Budapest stock exchange soared 9 percent. The forint has also become considerably stronger, presumably at least in part as a result of the recent interest rate increase by the central bank.

Fidesz and the Christian Democrats have very serious reservations about the IMF loan. After all, what a terrible fate. Hungary in the same company with Ukraine and Pakistan? A country that belongs to the European Union? It was a huge mistake, according to them, to even contemplate IMF help. Instead, Lajos Kósa of Fidesz suggested that the prime minister resign. Unless this happens, Fidesz will not cooperate with the government. Crisis or no crisis. It is very unlikely that Gyurcsány will listen to Kósa especially since it seems that SZDSZ and MDF will cooperate with MSZP, and therefore there will be plenty of votes to pass the "umbrella package."

So what's contained in this "umbrella package"?

(1) They will freeze the salaries of all ministers and undersecretaries. The salaries of board members in state-owned companies will be reduced by 10%. Managers of state companies will not get year-end bonuses. There will be new furniture purchases for government offices.

(2) Salaries of civil servants and state employees (doctors and teachers, for example) will be frozen at their nominal value in 2009 and they will not receive the customary extra month salary.

(3) With great reluctance the government will also make some adjustments in pensions. Although MDF wanted to suspend the extra month payment across the board, the government made only a modest cut. People who receive pensions but who have not yet reached the official retirement age (62) will not receive the extra month payment. People with higher than average pensions will receive the extra month's pension but it will be capped at the value of the average pension, which is 80,000 Ft.

Otherwise, the ministry of finance based its calculations on what it considers the worst possible scenario: a negative print on the GDP of 2% and a 2.6% budget deficit.

Of course, these are only the government's suggestions. What will come of the package depends on further negotiations. As things stand now, I don't think that one can count on the assistance of Fidesz and the Christian Democrats; it is not in their interest to lend a helping hand to the MSZP government. They simply say that this whole mess is the government's fault and that the government will have to solve the problem it created. But they are against any of the cuts suggested by the government. They stick with their idea that the best way of handling the situation is to introduce massive tax cuts. I don't think that I have to emphasize the absurdity of this suggestion.

Viktor Orbán's "explanation" of the financial crisis

The amazing thing about Viktor Orbán is that he can change his messages rapidly depending on the occasion. If he talks to religious leaders of the Catholic Church then the message is such that would appeal to Catholics. If he goes to the Protestants he quotes the Bible. After all, Hungarian Protestants (Hungarian Reformed Church) put a great deal of emphasis on the Bible. I recall that one of the princes of Transylvania, perhaps Gábor Bethlen, read the Bible from A to Z forty times in his lifetime.

Not long ago Viktor Orbán was an atheist who made fun of the Catholic Church and called priests "csuhások," a derogatory term for those wearing a cowl. But once he shifted his party's ideology from liberalism to the right he allegedly became a believer. He had his children baptized. First, a Methodist minister active in SZDSZ did the honors, then came a Hungarian Reformed minister baptizing a boy who was supposed to follow his father's stated religion, and finally the last two girls became Catholics following the mother's religion. I'm personally not convinced that Orbán "found religion," but he's taken a lot of cues from the U.S. Republican Party. And in the United States every viable politician, Republican and Democrat alike, has to have some religious affiliation and go to church often enough to appear sincere.

Yesterday Orbán was in the Hungarian Reformed mold because he happened to be talking at the Hungarian Reformed conference in Budapest. The theme was the financial crisis but appropriately dressed in religious terms. His speech writer found the obvious Biblical passage: "For the love of money is the root of all evil:  which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows." (I. Timothy 6:10) And just as people who strayed from biblical teachings caused the current crisis, so the remedy is not regulation of the banking sector but "a spiritual transformation." As if the crisis began in Hungary where greed and the love of money caused the financial difficulties MOL, OTP, and the forint are experiencing. Did anyone make a movie entitled Bux with the classic line: "Greed is good"?  Oops, no, the film's name was Wall Street.

Moreover, Orbán contended, the old "literati" (írástudók) must be replaced because their ideas are outmoded. Let me state up front that I hate the term "írástudók" from the bottom of my heart. I translated the word as "literati" but basically it is a somewhat effete description of intellectuals who take an active part in public life. And what is their sin? Why are their ideas outmoded? They believe in the basic goodness of man. But one ought to take the biblical interpretation of human nature seriously: man is evil unless he receives special divine grace.

The current international financial crisis, Orbán argued, is actually a God given opportunity to switch from the "liberal anthropology" of human nature to the biblical one. Therefore, every Christian Democratic politician should spread the message. Europe is Christian. As József Antall said, even a European atheist is Christian because Europe has Christian roots and therefore in a future European Constitution the mention of Christianity is a must. I know that the Pope definitely advocates such a clause, but whether Protestants think the same way, I somehow doubt. Given the widespread irreligiosity of Europe the whole idea is a bit bizarre. Another problem I see with talking too much about Christian Democracy in a Hungarian Reformed church and at a Hungarian Reformed conference is that it has specific Catholic roots (Pope Leo XIII's Rerum Novarum [1891]) both in Germany and in Hungary.

In any event, according to Orbán, the solution to the present crisis is simply spiritual transformation. He never passes up an opportunity to invoke the "lying and cheating" of the present political leaders as if the 2006 campaign had anything to do with the current global financial crisis that started in the United States. Not only must his political opponents disappear but also those who belong to the liberal intellectual elite. He gave the example of "the Hungarian economist who is considered to be the greatest" and who said that actually it was a very good idea that Ferenc Gyurcsány and his colleagues didn't tell the whole truth about the state of the economy because then the trouble would have been even greater. Who can that be? János Kornai, by any chance? He is one of the most decent men I have ever had the privilege of meeting. It seems that not only Ferenc Gyurcsány must disappear but also János Kornai because he "has nothing to say to us in the twenty-first century." An incredible idea.