Hungarian Spectrum

Hungary and the East German "tourists"

Originally I was planning to write about the seven-month search for the murderer of a fourteen-year-old girl in Kiskunlacháza where the mayor of the town was sure that the murderer had to be a Gypsy. I wrote about the case on November 29, 2008, "A new murder and a new anti-Gypsy demonstration." A couple of days ago the real murderer was apprehended and he confessed. He is not a Gypsy but a red-haired young man who lived about 200 meters from the scene of the crime. But perhaps more about this at some other time.

Instead I would like to continue yesterday's theme--the events of the summer of 1989--because since I wrote that post I had the opportunity to read an interview with András Oplatka, the Hungarian-Swiss author and journalist (Neue Zürcher Zeitung) who only a few months ago published a book on point entitled Egy döntés története: Magyar határnyitás 1989. szeptember 11. nulla óra (The History of a Decision: Opening of the Hungarian Border, September 11, zero hour).

First a few words about András Oplatka. He was born in Budapest in 1942 and left Hungary with his parents in 1956. He attended high school and finished university in Zurich and worked for years as NZZ's correspondent in Stockholm, Paris, Moscow, and Budapest. He wrote several books both in German and in Hungarian: Hat Gorbatschow eine Chance? (1987), Der Eiserne Vorhang reisst (1990), Nachrufe auf den Ostblock (1998) Lennart meri--ein Leben für Estland (1998), Stephan Széchenyi (2004; translated into Hungarian as Széchenyi István, 2005), and Egy döntés története mentioned earlier. In addition he translated several Hungarian classics into German. His favorites seem to be Kálmán Mikszáth (1847-1910) and Mór Jókai (1825-1904), but he also translated Frigyes Karinthy's inimitable Tanár úr, kérem! (Please, Sir!) available in English on the Internet (http://mek.niif.hu/00700/00770/00770.htm).

Oplatka's book on the Hungarian decision to allow the East German refugees to cross into Austria is a thorough study based mainly on lengthy interviews with the main characters in Russia, Hungary, and Austria, as well as with Germans from both East and West. The only person he couldn't reach was Chancellor Kohl. Oplatka, just as I wrote yesterday, emphasizes that cutting a piece of the barbed wire fence was not an "opening of the borders." The decision to let the more than 60,000 East German "tourists," in reality political refugees, cross into Austria occurred on August 22, almost two months later. The decision was made by Prime Minister Miklós Németh alone, without consulting with the party functionaries, after a meeting with his advisors. Present at the meeting were Foreign Minister Gyula Horn, István Horváth, Minister of the Interior, and Gyula Borics, undersecretary in the Ministry of Justice. In addition György Jenei and László Mohai, two advisers to the prime minister, attended but didn't participate in the discussion. No minutes were taken, but Oplatka talked to all the participants and read a summary written after the meeting by György Jenei. 

Today there are some people in Hungary (I encountered one myself on the Internet) who are convinced that Németh and his government let the East Germans go because they were a financial burden on the already economically strapped country. This is of course an incredible proposition which might have something to do with the Hungarian right's reluctance to give any credit to the political leaders of the old regime. Or it may be possible that they are mixing up two events: dismantling the electronic alarm system along the border and allowing the German refugees to leave Hungary for the West instead of sending them back to East Germany. The latter was a courageous political move with far-reaching consequences. The dismanting the 260 km barbed wire fence was indeed an economic decision because Miklós Németh was horrified at how much money the government was spending on this absolutely superfluous remnant of the Cold War. Before 1955 the Austro-Hungarian border was mined so trying to escape was a risky business. However, once the Russian troops left Austria the mines were removed. I assume the Hungarian political leaders after October 23, 1956 were very sorry about this decision. Without it two hundred thousand Hungarian refugees wouldn't have been able to leave Kádár's Hungary. In 1957 the Hungarian government once again mined the border; the mines were not removed until the mid-1960s when the barbed wire electronic alarm system was introduced.

According to Oplatka, when Németh decided to get rid of the barbed wire fence he didn't think in terms of possible political consequences. However, from the beginning his policy was westward looking. His first foreign trip after becoming prime minister was not to Moscow but to Vienna to Chancellor Franz Vranitzky. Oplatka emphasizes that Németh wasn't a "reform communist." He knew that the system couldn't be reformed. He wanted to make a clean break with the one-party dictatorship and work for the introduction of a democratic regime. At the same time he maintained good relations with Moscow. Or at least Gorbachev always defended Németh and Hungary. For example, when Nicolae Ceausescu wrote to Gorbachev demanding Soviet intervention in Hungary, Gorbachev sent a copy of the letter to Németh. Or when Ceausescu and Todor Zhivkov demanded more "forceful steps" against the foreign policy of the Hungarians at the socialist summit in Bucharest, Gorbachev refused to budge.

Oplatka lauds Németh on the domestic as well as the international front. He argues first that Németh hasn't been given enough credit for his role in the change of regime. And second, "although the Hungarians didn't unite the two Germanies or Europe they made world history. The Hungarian decision notably speeded up the process."

I also heard an interview with László Kovács, currently a member of the European Commission and in 1989 an undersecretary in the Ministry of Foreign Affairs under Gyula Horn. He repeated that opening the border for the East German refugees was the sole decision of Miklós Németh and that he didn't consult with the secretary of MSZMP, Károly Grósz. However, the Foreign Ministry handled the details. Before the 60,000 refugees en masse drove across the border on September 11 there was a "dress rehearsal," known as the Páneurópai Piknik (Pan-European Picnic). On August 19, Austria and Hungary agreed to open the border; that day 600 East Germans managed to cross to the West. The picnic was a test case to gauge Soviet reaction. Gorbachev's Soviet Union said nothing. The Hungarians could act as they saw fit.

And finally I would like to say a few words about Prime Minister Gordon Bajnai's speech last night in the Opera House. He talked about the change of regime in 1989-90 as the common cause of the Németh government and the participants in the Round Table discussions, mentioning the most important actors in the drama including Viktor Orbán. He emphasized that the most successful periods in Hungarian history occurred when there was cooperation and compromise between the government and the opposition. Moving from "existing socialism" to democracy has been (and remains) a work in progress. Hungary has achieved great things in the last twenty years, but it takes a long time to change societal attitudes. Most likely generations. It was relatively easy to write a new constitution, enact new laws, and change the economic system. But Hungary's GDP is about 60% of the European average and one cannot close this gap overnight. Hungarians shouldn't harbor false illusions. It will take time and hard work. "The catching up process is unfinished and will remain so for a long time to come." All wise words but is there anyone listening?

Hungary and the Iron Curtain

Today is a great day in Budapest because it is the twentieth anniversary of the official fall of the iron curtain between Hungary and Austria. On June 27 Gyula Horn, then foreign minister of Hungary, and Alois Mock, his Austrian counterpart, together used wire cutters to open up the barbed wire fence on the border between the two countries. This was an official ceremony and it was more symbolic than real. By 1989 the fence built by the Hungarians during the cold war was not much more than a nuisance. By that time Hungarians were entitled to passports that were valid to any destination in the world. So Hungarians didn't need to escape across the border. In the last years before 1989 only a few hundred people were caught, and they were mostly foreigners from other socialist countries. However, since the fence was electrically wired there were many false alarms. Every year many thousands. I guess every time something hit the barbed wire the alarm went off. So the decision was reached earlier that the wire fence must go. The work began on May 2, 1989, but the world wasn't paying much attention. But then István Horváth, currently Hungarian ambassador in Vienna but then ambassador in Bonn, got the bright idea that a higher profile, public relations event was necessary for the world to notice that something important was going on. He convinced Gyula Horn, who then talked to Alois Mock, to have an official wire-cutting ceremony. That did the trick. All the newspapers were full of the story.

The East Germans who had been cut off from the world also heard about it, and within a few months thousands of East Germans arrived in Budapest hoping that the Hungarian government would allow them to drive across to Austria. That took a bit more finagling but in the end Hungary opened the border and the Germans poured into Austria by the tens of thousands. Helmut Kohl in December 1989 said that Hungary was the country that knocked the first brick from the Berlin Wall. Ever since, the Germans have been grateful to the Hungarians. In Wertheim-Reinhardshof they even named a street after Gyula Horn.

This is what the world celebrated today. Barack Obama's staff didn't forget to send greetings to the Hungarian people, read this morning at the commemoration held in the parliament. He called the day one of the most significant in recent history, a day that marked the beginning of a process that ended in the unification not only of Germany but of Europe. He expressed his admiration for the courage of those who took the first steps. In addition to Gyula Horn the man who was perhaps equally if not more important in this drama was Miklós Németh, who did a splendid job as the last prime minister of the old regime leading the country from a one-party system to a democratic one. I was glad to see Miklós Németh at today's celebration. Unfortunately Horn suffers from Alzheimers and is totally oblivious to the world. Gordon Bajnai, László Sólyom, and Katalin Szili greeted Miklós Németh this morning on the attached picture. The celebrations began in front of the parliament, on Kossuth Square. First came the military parade, then the flags of all the countries represented were brought in, followed by the Hungarian flag. And, of course, the band played the Hungarian anthem and Beethoven's Ode to Joy, the anthem of the European Union. Among those present were Horst Köhler, president of Germany, Heinz Fischer, president of Austria, Traha Halonen, the Finnish president, Danilo Türk, Slovenian president, Hans-Rudolf Merz, president of Switzerland, Günther Verheugen of the European Council, and Bronislaw Komorowski, president of the Polish Szejm. Even a former East German refugee was there representing the thousands of East Germans who a few months later could cross into Austria. In the evening there was a gala performance at the Hungarian State Opera House.

In today's Népszava there is an interview with István Horváth, Hungarian ambassador in Bonn in 1989 and the mastermind of the wire cutting ceremony. According to him Germany was so grateful to Hungary for letting the East Germans cross into Austria that the Germans offered material assistance to the Hungarian government. However, according to Horváth, József Antall kept telling the Germans that Hungary didn't open its border to the East German refugees in the hope of compensation. The Hungarian government missed a great opportunity when it didn't take up the offer, Horváth argues. Apparently Antall went to Bonn in May 1990 when the Germans suggested setting up "strategic working groups" whose job would have been to coordinate the offered financial assistance. The Germans set up such a group, the Hungarians didn't. To this day Horváth doesn't know why not. In 1994 when Gyula Horn became prime minister he tried his very best to revive the scheme, but by that time Germany was in distress itself because of the financial burden the incorporation of East Germany imposed.

Horváth also claims that Hungary in the last twenty years didn't take advantage of the pivotal role it played in 1989. There were no celebrations, no remembrances of the day. Horváth thinks that the reason for this is the deep division between right and left concerning 1989-1990. I believe Horváth has a point. Even today László Sólyom's celebratory speech struck a somewhat sour note. He emphasized that just opening the border and letting the East Germans cross over to Austria didn't lead to the unification of Europe. The barbed wire fence might have been removed but there were radically different political regimes on the two sides of the border. In order to unite Europe this difference had to be obliterated. His speech on the occasion of the anniversary, in brief, actually belittled the significance of the day. But this is a rather peculiar interpretation of the events of 1989-1990. Sólyom is trying to draw a sharp dividing line between before and after. As if the proclamation of the democratic Hungarian Republic on October 23, 1989, could be separated from the the reburial of Imre Nagy and his comrades on June 16 or from granting permission for the East Germans to cross the Austro-Hungarian border in August or from cutting that barbed wire fence on June 27. History is a seamless flow of events and it doesn't matter how much Mr. Sólyom would like to marginalize everything that happened before the first free elections, it cannot be done.

The Bokros package: pro and con

Today Figyelonet.hu (Figyelő = Observer) published two opinions on the austerity program introduced by Lajos Bokros on March 12, 1995, fourteen years ago. They interviewed economists László Gazdag, associate professor of economics at the University of Pécs, and Mária Zita Petschnig, senior researcher of the Financial Research Institute in Budapest. Gazdag is not widely known from his appearances in the Hungarian media unlike Petschnig who seems to be a favorite of television stations. But Gazdag and Petschnig are the foremost representatives of the two schools: those who think that Bokros did more harm than good and those who think that without Bokros Hungary would have faced bankruptcy.

According to Gazdag in 1994 there was no economic crisis in Hungary but because of Bokros's austerity program by 1996 there was one. It is true, says Gazdag, that between 1989 and 1993 the Hungarian economy had drastically contracted, but by 1993 the country had reached "the bottom of the barrel." In 1994 there were signs of economic recovery: the GDP grew by 2.9% and exports by 16.6%. The benefits of foreign capital investment began to show. It seemed that the painful transition from a planned to a market economy was more or less over. But then came Lajos Bokros's austerity program. In 1995 economic growth stopped, inflation increased from 18 to 28%, and exports decreased by 50%. Domestic business activities slowed and many businesses went bankrupt. Because of the high inflation rate the Hungarian National Bank had to raise interest rates and because of the higher rates the economy lost about 160 billion forints. The unemployment rate went up. All in all, this was a situation economists normally call an "economic crisis." But, Gazdag continues, "in Hungary it was called 'side effects.' The only thing I don't know is what was the main effect." Gazdag claims that the real effect of the austerity program was widespread misery, with 1.5 million people beginning their journey toward poverty. As the result of Bokros's remedy real wages were only 75% of those in 1989 and pensions 79%. All in all, according to Gazdag, the Bokros package created a genuine economic crisis in 1995 and 1996 at a time when there was no longer any need for a drastic austerity program because in 1994 there were already hopeful signs of a recovery.

Mária Zita Petschnig is on the other side. According to her, the introduction of the austerity program was unavoidable. She admits that the results of the progam were painful but without it Hungary would have been unable to meet its foreign loan obligations. Petschnig goes a bit farther back in time than Gazdag. In 1993 the Hungarian national debt was 3 billion dollars. A year later it was 3.9 billion. These numbers are considered very high by any international comparison. The problem was noticed during the Boross government (1993-1994). Béla Kádár, minister responsible for foreign trade, and Iván Szabó, minister of finance, warned the government that without a drastic correction a complete meltdown might be approaching. Gyula Horn, the new socialist prime minister, also knew about the problem but was hoping to avoid the introduction of a painful austerity program. In August 1994 the government devalued the forint by 8% and quickly adopted a supplementary budget. At this point came the Mexican peso crisis that made investors even more cautious. László Békesi, Horn's minister of finance and today one of the architects of the Reform Alliance, resigned. So did the chairman of the central bank after the prime minister made his life miserable. (Péter Ákos Bod is today one of the supporters of Fidesz.) Gerhard Schröder, the German chancellor, told Gyula Horn that Germany no longer could finance the country. According to Petschnig, Bokros's program managed to pull the country from the abyss. It's true that the austerity program hurt large segments of society, but the planned devaluation of the forint over time and other changes in custom duties cushioned the economy as a whole. Yes, the GDP slowed somewhat but after the 1994 high (2.9%) in 1995 it grew by 1.5% and in 1996 by 1.3%. According to Petschnig it is an illusion to think that Hungary without Bokros's intervention could have grown out of its indebtedness, especially when the budget deficit was 8.6%.

Without making any judgment I'll let my readers decide which economist to believe.

A new Bokros "package": Not likely

Lajos Bokros is one of the leading economists in Hungary. He was minister of finance from March 1, 1995, to February 29, 1996, when he resigned. Apparently he had threatened to resign before; every time his advice was not taken his inclination was to step down. Just to give an idea of his mercurial temperament: in 1990 it took him only two months as a member of parliament to be fed up with politics. He resigned.

A brief summary of his career: He was born in Budapest in 1954. He studied at the Karl Marx University of Economics, graduating in 1978. Two years later, in 1980, he received his Ph.D. and became a research fellow at the Financial Research Institute of the Hungarian Ministry of Finance, where he served as Chief of the Public Finance Division in 1986. From 1987 he was Deputy General Manager and then from 1989, Managing Director of the Hungarian National Bank. In the first half of the 1990s his positions included Chairman and CEO of the Budapest Bank, Chairman of the Budapest Stock Exchange, and Director of the State Property Agency. After his short stint as minister of finance he worked for the International Bank of Reconstruction and Development (World Bank) and currently is a professor at the Central European University attached to the Department of Public Policy. In addition to his administrative duties he teaches one course: Macroeconomics and Public Finance.

The country's economic situation was disastrous in 1995. But Prime Minister Gyula Horn was loath to introduce an austerity program of the magnitude that seemed necessary. For eight months he did nothing while his first minister of finance, László Békesi, proclaimed the end of the world every second day. Hungary had fallen into the abyss, he said, but he couldn't convince Horn to allow him to introduce the necessary changes. He therefore resigned in January 1995, though his resignation took effect only on March 1. Meanwhile for two solid months Horn interviewed prospective candidates for the post, including Zsigmond Járai, later Viktor Orbán's minister of finance of decidedly right-wing political views. At last Lajos Bokros was named on March 1 and twelve days later came the cold shower: an unprecedentedly severe austerity program later to be known as the "Bokros package."

What was the situation at the time Lajos Bokros took over? From 1990 to 1993 the GDP had shrunk by more than 20%, industrial production by 35%, and agricultural production by 40%. Consumption that had already dropped prior to 1990 further shrank by 10%. In 1994 the value of real wages was 22-23% less than in 1989. Unemployment was 2% in 1990; by 1993 it was 13%. Between 1990 and 1994 1.4 million jobs disappeared. Inflation was more than 25%.

Bokros achieved what seemed to be a miracle: by 1997-98 the Hungarian economy was on the right track. The greatest beneficiary of this was Viktor Orbán and his government that took over the reins of government that year. Perhaps one day I will detail the remedies Bokros used, some of which turned out to be unconstitutional and had to be withdrawn. Among other things, social services were curtailed and public outcry was great.

Bokros has for some time been trying to sell a second "Bokros package," but there doesn't seem to be taker at the moment. His latest laundry list was published last Thursday in Élet és Irodalom. It is a lengthy essay of about 30 typed pages. The suggestions, perhaps economically sound, are politically unacceptable. No government can possibly follow Bokros's advice. Even if Gyurcsány and his economic team were willing to listen to Lajos Bokros, the fact is that today's political situation is in no way comparable to that in 1994-1996. Then the government had more than a 75% majority in parliament. The right-wing parties--Christian Democrats, MDF, and Smallholders--were weak and ineffectual. Fidesz was the smallest party and barely got into parliament. Orbán and his friends were not quite sure whether they were a liberal or a conservative party. Today they are very strong and their attitude has hardened. They refuse to cooperate with the government in anything, and they certainly would do their utmost to torpedo each and every one of Bokros's latest ideas.

Let's see what Bokros suggests. (1) Compulsory private insurers in healthcare. If you recall the Fidesz-initiated referendum killed that already. (2) Competition among healthcare facilities. (3) Every person over eighteen years must pay health insurance. Right now students and pensioners do not. (4) Change in pension policies that would include individual record keeping of amounts paid. (5) No more thirteenth month pension or salary. (5) Fewer but bigger schools because small village schools cannot provide high quality education. (6) Instead of 77 accredited colleges and universities, keep only 20-25 institutions. Close the rest. (7) These institutions would have governing boards. (8) Competition among high schools. (8) Four to five villages should share one local governmental structure. (9) Widen the number of taxpayers. (10) Taxes should be paid even on minimal wages. They should pay a tax rate of least 10%. (11) Exceptions should be abolished. (12) Real estate taxes based on value. (13) Abolish EVA, a simplified taxation system for freelancers with a lower rate. (14) Abolish the tax free status of small businessmen.

I'm sure that some of his suggestions would do a world of good for the Hungarian economy but I can't see how Bokros's ideas could possibly be introduced. The opposition would launch another referendum,  and hundreds of petitions would be sent to the Constitutional Court that, given its composition, would undoubtedly kill half of the proposals.

The Gyurcsány government, confronted with the country's own economic problems, compounded by the world economic crisis, will have to do something. But it can't try to shore up the budget by collecting health insurance from pensioners and students. Or, unless it wants to commit political suicide, by abolishing the thirteenth month pay of all public employees and 3.5 million pensioners. Or by introducing private health insurers when once a couple with the help of Fidesz managed to get more than 200,000 signatures to hold a referendum against the introduction of private insurers. The Constitutional Court only recently announced that real estate taxes based on property values are unconstitutional. So what are we left with? It seems to me that Bokros, whose policies were so instrumental in righting the economy in the mid 1990s, can no longer offer realistic proposals to the government under very different political circumstances.