Month: August 2010

Hungarian civic courage: There is something one ought to learn from Slovak-Hungarians

Among the topics I lined up yesterday was an encounter between Slovak-Hungarian college students and László Kövér, speaker of the house.

There is an organization that was established in 1989 called the Rákóczi Association. Its mission is to foster cultural and intellectual life for Hungarian youth living in the neighboring countries. Looking through the list of the association's local chapters, one is struck by the high number of parochial schools, Catholic, Lutheran, and Hungarian Reformed. The association organizes a week-long summer camp for Hungarian college students from Slovakia, Ukraine, Romania, and Serbia. This year it was held on Pap Island near Szentendre. One of the speakers was László Kövér, not only speaker of the house but a powerful man within Fidesz. He holds the #1 membership card of his party!

Because Kövér's political opponents don't attend his speeches or, even if they do, they are not the sort who would ask embarrassing questions from the great man, it must have been a real surprise when several Hungarian students from Slovakia rose and called Kövér to account: why did the Hungarian parliament pass the law for dual citizenship two weeks before the Slovak elections? "Why couldn't they wait for two weeks," asked a student from Slovakia; "your being aggressive makes our situation worse."

I'm pretty sure that Kövér wasn't prepared for such "impertinent" questions and, given his temperament, he answered in kind. He began by quoting a Hungarian proverb: "cowardly people don't deserve a fatherland." (Actually the original simply said that "cowardly people don't have a fatherland.") He considered the question itself a shirking away from conflict and defensive in nature. Neither Fico nor Slota have any business meddling in Hungarian affairs. It is the Hungarian government's decision alone when and under what circumstances it gives citizenship to Hungarian-speaking people all over the world. Only the Slovak-Hungarian political elite can be blamed for the less than sterling performance of MKP (Magyar Koalicíó Pártja). As far as "being aggressive," perhaps the Hungarian political leaders in Slovakia should have been a little more aggressive. Maybe they lost because they are trying to avoid conflict which in fact only aids the assimilation of the Hungarian minority.

It seems that this answer didn't deter other Slovak-Hungarians from pressing issues they felt were important to them. Another student rose and complained that with the law on dual citizenship Viktor Orbán "further aggravated the already strained Slovak-Hungarian relations" and as a result the Hungarian minority's position might be made more difficult. Kövér had an answer. The former government tried to be accommodating in the last decades and the only thing they managed to achieve was that "on some village square Hungarians were beaten only once instead of three times" just because they used their mother tongue. And Kövér asked the student: "What do you think we should do?' The student answered: "I'm not the politician."

So, all in all, the encounter couldn't have been very pleasant. What struck me (and other Hungarian reporters as well) was that such an encounter would be totally unimaginable with a domestic audience. The Hungarian students are so indoctrinated or cowed that they would never dare talk to Kövér in this way.

But let's see what the reaction of the Slovak-Hungarian media was to this encounter. Here is an example. László Barak wrote an opinion piece in Új Szó (Bratislava) that was also published in parameter.sk, an internet newspaper. The title sets the tone: "The Cowardice of László Kövér." Barak starts by noting the inadvisability of confronting a politician who will answer with "arrogant and empty slogans." This is the first lesson. The second, which is much more important, is the fallacy that is still being entertained in the Hungarian community in Slovakia that Hungarian politicians passed the law on citizenship "in the interest of Hungarians who live across the borders."

Barak can't imagine that the Hungarian politicians in Budapest didn't suspect that the law on citizenship would immediately become a hot topic in the Slovak campaign and that its passage would only help Robert Fico and Ján Slota whip up anti-Hungarian sentiments. It was just a stroke of luck that it was not Fico and Slota who formed a government in Slovakia.

But if the Fidesz politicians in fact knew that the new law would strengthen Fico and Slota, then why did they insist on passing it before the Slovak elections? Barak suspects, and I'm sure he is not the only one in Slovakia or in Hungary, that in fact it would have been desirable for Fidesz to have an openly anti-Hungarian government in Bratislava. Fidesz politicians love conflict and aggressiveness. Slovak nationalism could have been answered by Hungarian nationalism. Barak calls attention to Kövér's reference to "avoidance of conflict" and "defensiveness." As for beating up Hungarian-speaking youngsters, it was a great exaggeration because even during the Fico period it happened only once with Hedvig Malina. And today Slovakia's new government  cannot be accused of "Hungarian devouring" behavior.

So, it seems to me that the aggressiveness exhibited by Fidesz and formulated by Kövér at this summer camp simply doesn't work. It actually turns even the Hungarian minorities against Budapest. It is very possible that in a Slovak-Hungarian conflict the Hungarians of Slovakia would line up with their own government against Budapest.

Orbán on Hungarian foreign policy

Today is one of those days when I could have picked three or four equally interesting topics and reluctantly I had to settle on only one: the yearly gathering of the Hungarian ambassadors. The event, lasting a whole day, is normally attended by the prime minister and the foreign minister who give speeches outlining the direction of Hungarian foreign policy. A meeting of this sort a few months after a government takes office is much more important than at other times. Especially since this government is promising an entirely new foreign policy.

Of course, the most important speech was that of Viktor Orbán and I must say I found his messsage somewhat frightening. It is bad enough that Orbán in his intoxication with his electoral victory tells the Hungarian people that 2010 is "an exceptional year for Hungarians … because they regained their self-determination." But when on the basis of this obvious fallacy he says that because of this "radical change in power relations" Hungarian diplomacy has "new opportunities" one gets a bit worried. I for one don't see the connection between the two. A country's interests don't change with every change of government, and the geopolitical position of a country will not change because there is a new prime minister.

One can certainly shift emphasis in the conduct of a country's foreign policy, but one cannot radically change its course. For example, the fact that Hungary belongs to the European Union or that Hungary's neighbors for historical reasons are suspicious of Budapest are givens. That Hungary belongs to NATO is another given. Therefore, talk of a radical change in Hungarian foreign policy is, I assume, largely empty rhetoric. Of course, if Orbán and János Martonyi, the foreign minister, are planning to go through with truly radical change the results might be regrettable. Just as they were by the end of the first Orbán government in 2002.

How does Orbán see the world? In a peculiar way. According to him "the economic crisis is the result of the formation of a new world order and therefore the [Hungarian] government's goal is not to handle the crisis because in [their] opinion the world by the time the crisis ends will not be the same as before. Therefore the government's pursuit is economic growth, the growth of the GDP and of employment." By definition the world will not be the same tomorrow, next week, or next year as it is today. But that does not mean that one can ignore present reality and hitch one's wagon to an unknown and unknowable future.

What kind of Hungarian foreign policy would Viktor Orbán like to see in this new world order? Hungary needs "a much more courageous, much more aggressive foreign policy; we have to take the initiative more." I'm especially worried about the "more aggressive" (támadóbb jellegű) foreign policy. Aggressiveness is usually met with aggressiveness on the other side and such a foreign policy might result in isolation. Something like what happened between 1998 and 2002 when Viktor Orbán was considered to be "a pariah in western capitals," to quote The Washington Post's editorial of a couple of months ago.

What does Viktor Orbán consider a "courageous foreign policy" to be? The best example he found was breaking off negotiations with the IMF. He repeated that the IMF loan was necessary to save the country economically in the fall of 2008, but the agreement with the IMF was simply a loan contract and not  "economic cooperation" (gazdaságpolitikai együttműködés).  "Such economic cooperation must be concluded with the European Union."

There is only one problem with the economic policy Orbán outlined: it is unlikely that the European Union's attitude toward the Hungarian deficit will be any more lenient than the IMF's was. Most analysts actually claim that negotiations with the European Union will be a great deal more difficult than they would have been with the IMF. Only yesterday an interview with Ollie Rehn, the European Union Economic and Monetary Affairs Commissioner, appeared in which he made it crystal clear that Hungary "can't afford" to delay efforts to narrow its budget deficit. "In a period when the rest of EU-member countries are on the road of fiscal consolidation, Hungary can't afford to deviate from this path." That doesn't sound too promising for what Orbán has in mind.

In comparison to Orbán's speech János Martonyi was the embodiment of sanity, but if one has followed the affairs of the region of late one must conclude that the Hungarian foreign minister greatly exaggerates on several points. For example, he claims that cooperation among the Visegrád countries (Czech Republic, Slovakia, Poland, and Hungary) is so close and intimate that "some people within the Union are worried about the creation of a bloc and therefore they consider its existence a risk [to the Union]." Well, I doubt that too many people would consider Slovak-Hungarian relations intimate. Lately there even seem to be serious strains in the relations between the Budapest government and the representatives of the Hungarian minority in Slovakia.

Martonyi further emphasized the excellent relations between Hungary and Romania and how important it is for Hungary that Croatia will soon be a member of the Union. "Yet, when it comes to [Hungary's] Central European foreign policy one must always take into consideration the 'national dimension' (nemzetpolitikai dimenzió)." In plain language the question of the Hungarian minorities takes priority in all questions when it comes to relations with the neighboring countries. And that doesn't sound too promising.

The attack on Bloomberg’s Hungarian reporter

Before I summarize a rather frightening editorial that appeared in today's Magyar Nemzet, let me translate back into English a ten-point summary of the Hungarian government's economic policy available only to subscribers of the Financial Times. Because I'm not one of them, I have to rely on the Hungarian translation as it appeared in today's Népszava.

1. Viktor Orbán at the time of the elections promised tax cuts and job creation in addition to renegotiation of the size of the deficit agreed upon earlier.

2. Viktor Orbán won the elections in a landslide; a few days later some members of his government compared the situation of Hungary to that of Greece.

3. Orbán announced his economic plan comprised of 29 points that included among other things a savings of 200 billion forints. He promised to keep the 3.8% deficit which was supposed to calm the nerves of international investors.

4. Fidesz politicians announced that they would like to extend the agreement with the IMF and would like to sign a new agreement from 2011.

5. But the negotiations between the Hungarian government and the IMF came to a halt, which created a whole series of political differences of opinion.

6. After that György Matolcsy, economic minister, said that the negotiations with the IMF are continuing from September on.

7. At the same time Viktor Orbán announced in parliament that he wants to restore the country's economic self-regulation and for that they do not need credit from the IMF. They will rely only on the assistance of the European Union.

8. In spite of protests the Hungarian forint stabilized mostly due to favorable global prospects. But at the end of August the forint started to fall again, shaking investors' confidence.

9. Then the Economic Ministry immediately announced that they are continuing negotiations with the IMF in the fall and they will definitely arrive at an agreement. However, Lajos Kósa later made it clear that this doesn't necessarily mean that Hungary will ask for another loan from the IMF.

10. What will happen next?

At this point the mouthpiece of Fidesz, Magyar Nemzet, felt that somehow they must explain this latest "confusion" that by now seriously threatens Hungary's already shaky financial state. They came up with a fantastic idea: speculators have media connections. As I mentioned earlier, Bloomberg's correspondents in Budapest are Hungarian nationals. So are those working for The Wall Street Journal. This arrangement has many advantages. It is less expensive and therefore these organs can maintain a constant presence in the country. Also, these people are bilingual and are privy to information that might not be available to those who are less familiar with the country and ignorant of the language.

However, this arrangement also has its pitfalls as Magyar Nemzet's editorial today shows. A Hungarian citizen reporting to a foreign news agency might be in some danger if his reporting doesn't suit those in power. Anna Szabó, the author, accuses Bloomberg's correspondent in Budapest, Zoltán Simon, of nothing less than treason. Because "when the Hungarian government bonds are being easily sold and when the former chairman of the Hungarian Accounting Office says that Hungary doesn't need the assistance of the IMF, and even the IMF agrees, can it not be considered treasonous that the Hungarian [emphasis mine] correspondent of Bloomberg claims that without the IMF the Hungarian economic strategy 'might end in crying.'"

Well, let's start with the the truthfulness of Ms Szabó. The Bloomberg correspondent said nothing of the sort. On August 25 Zoltán Simon reported that "Hungary Won't Seek New IMF Loan in Autumn Talks, Economic Ministry Says." At the end of this report Simon quotes Tim Ash, head of emerging market research at the Royal Bank of Scotland Group Plc in London. Ash said: "Why the government needs to make it so clear at this stage why they are not going to seek to renew the agreement with the IMF is beyond me. … They seem determined to prove that they can go it alone, a strategy which could still end in tears."

Anna Szabó presses her case against Zoltan Simon and Bloomberg, alleging a conspiratorial connection between speculators and the media. She cites a statement from October 2008 by the then president of the Association of Bankers who suspected that speculators were behind the fluctation in the Hungarian forint. But he wasn't talking about some secret understanding between speculators and journalists. He simply stated that in the foreign and Hungarian press there are journalists who "interpret the Hungarian situation in a one-sided manner" which he found suspicious and not sportsmanlike. It is quite an assumption to build a whole conspiracy theory on this statement.

It seems that Simon has committed other sins besides quoting a financial analyst. Anna Szabó objects to an earlier Simon report in which he dared to say that "in 2006 the popularity of the socialist party fell to a record low because they introduced an austerity program in order to lower the deficit." This according to Szabó is a falsification of the facts. The loss of the party's popularity was due to lies, their inability to govern, a lack of trust, and corruption. But again Ms Szabó is not telling the truth. Or rather she mixes up dates. The party's popularity fell immediately after the announcement of the austerity program while opinion polls did not indicate a huge drop after Gyurcsány's "lies" became known. The corruption cases becoming public is a relatively new development. So, in fact, Zoltán Simon reported the facts correctly.

Simon is also allegedly guilty of incorrectly reporting Péter Szijjártó's ill-fated interview in early June in which he confirmed Lajos Kósa's comments about Hungary's dire financial situation comparable to that of Greece. This time Simon's sin is one of omission. While Anna Szabó doesn't question that Bloomberg's correspondent correctly reported Szijjártó saying that "it is not an exaggeration to talk about bankruptcy," he had the temerity to leave out the sentence that "Hungary was close to bankruptcy a year and a half ago." Outlandish, isn't it?

Anna Szabó expects more from Bloomberg. Mixing up reporting with editorializing is not a good practice. In her opinion Simon is influencing public opinion when he dares to say, for instance, that "an attack against the chairman of the Hungarian National Bank may have an adverse effect." Or that "Fidesz may ruin the credibility that Gordon Bajnai and András Simor built by attacking the chairman of the central bank." All these reports were written by the same correspondent, she continues, who informed the world about the resumption of the negotiations. Thus, the conclusion is that he was falsely reporting the information coming from the Economic Ministry.

However, there is a problem with Szabó's conclusion. Simon asked the ministry in writing and the ministry answered in writing. Moreover, he received the answer not immediately but a day or two later. Thus, it is unlikely that a low level official misinformed Simon without proper authorization.

I'm just hoping that Bloomberg doesn't remove its correspondent in order to please the Hungarian government. This kind of pressure on the media is a bad sign and should be resisted because otherwise independent reporting from Hungary will cease to exist.

Work and business culture in Hungary

An article that appeared in HGV is the inspiration for today's post. It was written by Zoltán Novák, a research associate of the Méltányosság Politikaelemző Központ (Equity Center for Political Analysis), and was entitled "Repulsive Symptoms in the Hungarian Work and Business Culture."

Today is the perfect time to tackle this topic because I just finished listening to György Bolgár's talk show (Klub Rádió) which ended with a bang. A big bang. A grandmother of ten, screaming on the top of her lungs, went on and on about all those people who don't appreciate Hungarian culture, who make fun of Hungary's true heritage, who are enamored with other cultures, who want to force English on Hungarian students, and who want to teach all sorts of things about other countries while they are making fun of Hungary's past. Her harangue was not devoid of anti-Semitic remarks. And if that weren't enough, right after her came a man who suggested that since this government has achieved so much in the last three months or so, all newspapers should be supporting it instead of criticizing it. Well, this is the culture or rather the lack of culture that makes dialogue almost impossible in Hungary.

Zoltán Novák begins his article by asking whether a given society's culture can be changed. And should bad traditions be broken? Novák's answer to the second question is an unequivocal yes. Is there a need for change in a direction that is better, more effective, more helpful for the society as a whole? Again, the answer is yes.

Novák points out that in Hungary there is a lot of talk about the ills of political culture–an unwillingness to compromise and the presence of corruption. But this emphasis on political culture gives the false impression that "Hungary is a country of twenty million diligent hands" and that the bad political culture exists entirely independently of Hungarian society. But, as Novák says, "Hungary's political culture was not blown into the Carpathian basin from somewhere outside; it is the true mirror of our present conditions and organically attached to the culture of human relations. The quality of Hungary's political behavior is not worse than the average level of culture."

When it comes to work and business culture the biggest problem is that no healthy competition–either on the personal or the entrepreneurial level–has developed in the last twenty years. Apparently the situation on the individual level is really serious. According to Novák a fair amount of time is being spent "elbowing, backbiting, watching each other, checking on each other, reporting to the boss." This behavior shows a "misunderstanding of the nature of competition." Instead of concentrating on their own achievement Hungarian employees spend their energies discrediting the achievements of others. There are problems with the quality of leadership as well. There are bosses who want to control absolutely everything and those who let anything go. There are very few in between.

As for business culture it is very similar to interpersonal relations within the firm. There is stiff competition among big businesses, but once again the business owners don't concentrate on the effectiveness of their own firm. Instead they do everything in their power to discredit their competitors. Contracts between businesses are sometimes 10-15 pages long, yet it is often impossible to enforce their provisions. Then come the lawyers and the endless court cases.

The situation is no better in the world of small and medium-size businesses, which is especially worrisome given the new government's decision to pour money into this sector. In small and medium-size businesses formulating business strategy is almost unknown, and as a result even firms that are relatively well endowed can come close to bankruptcy in no time. Most of them spend whatever money comes in, and they irresponsibly take up loans. If Novák is right, it is very possible that the new Széchenyi Plan will not bring the desired results.

Novák focuses on the work and business elements of social intercourse, but there are others that in his opinion would need drastic change, such as ethnic intolerance. Some people like to blame the Kádár regime for all this, but the author suspects that "the problem is much more deep-seated." In any case, although they themselves create the atmosphere that surrounds them, it is a well-known fact that Hungarians don't like their own surroundings.

Finally, Novák poses the question: can deep-seated cultural traits be changed? The answer is yes and his examples are Finland, Ireland, and Spain where, according to him, a few decades were enough for "a cultural change that brought in its wake economic prosperity and political consolidation."

Let's hope that Novák is right–that some of the "repulsive symptoms" will eventually disappear and a better culture will emerge.

Hungarians and democracy

A few days ago I was pretty much forced to engage in a verbal duel with an ardent supporter of the Orbán government who wrote an article in Die Welt, a conservative German daily. Her piece was not only a vehement defense of the current government; it was also an attack on the majority of German journalists who in her opinion misinform the German reading public with their slanted reporting on the Hungarian political situation. Among other things she was especially outraged by the often heard opinion that the majority of Hungarians prefer authoritarian rule to democracy. This sounds like "a birth defect," she said, which she rejects. I, in my answer, suggested that we leave "the birth defect" theory alone and concentrate on Hungarian history. I asked when there was real democracy in Hungary. Perhaps never, and therefore Hungarians' lack of appreciation for democracy is not really surprising. It is not a "birth defect" but the result of a historical accident.

In the past I wrote a lot about Viktor Orbán's ideas concerning the necessity of building "a central power" that has such an overwhelming majority that for fifteen or twenty years no other party has a chance to challenge its dominance. This new "regime" would not be a one-party dictatorship because there would be other parties and the parliament would be a functioning body, but it could be called a "quasi democracy." Hungary has a long history of this kind of "one-party rule," starting with the establishment of the parliamentary system after the Compromise of 1867.

Between 1867 and 1918 basically one party, first led by father and then son, was the only political power in the country. The name changed once from the Liberal Party (Szabadelvű Párt, 1875-1905) to the National Party of Work (Nemzeti Munkapárt; 1910-1917) but the ideology remained the same. The organizers of the two parties were Kálmán Tisza and his son István Tisza. During the Dual Monarchy the Hungarian political system was formally a multi-party democracy but because of limited electoral rights one political group was able to hang onto power for decades. Before 1918 only 6% of the population had the right to vote and there was no secret ballot.

The old regime fell in 1918, but soon enough another quasi-democracy was in place. By July 1920 the various smaller parties decided to form a large Party of Unity (Egységes Párt). The first election after the war took place in early 1920, and it was held under the so-called Friedrich election law, named after István Friedrich, prime minister between August and November 1919. It was a liberal law that included suffrage for women and a secret ballot. However, the old conservative political elite, left over from the pre-war years, was not satisfied with the composition of the parliament of 1920. The majority of the members belonged to parties of far-right coloring. The remedy according to István Bethlen, future prime minister, was to restrict voting rights once again so that neither the far right nor the social democrats could challenge the Party of Unity. By 1922 they managed to change the election law, excluding women without a higher education and making voting once again non-secret in the countryside. According to Ignác Romsics, quoted in HVG, this 1922 election law enfranchised only 28% of the adult population as opposed to the earlier 40%.

With the establishment of the Party of Unity, in a parliament of 213 members the opposition shrank to 20 people. The party may have changed names over the years, but basically the composition of the party remained very much the same. First it was called the Christian Peasant, Smallholders and Civic Party, later it changed its name to the Party of National Unity, and after 1939 it became the Party of Hungarian Life.

The organizers, the strong men, of these parties all argued for more rational governing. They felt that if they wanted to achieve something, an overwhelming majority in the House was necessary. Otherwise party squabbles would intrude and the real interests of the country would not be represented by anyone. Governing would become impossible.

Viktor Orbán makes no secret of the fact that he shares this view of effective government. If Fidesz manages to take over the position of a "central political force" then it will be able to represent "the real interests of the nation." That is, Fidesz's view of national interests. In his opinion the views of others are wrong and therefore there is no need for discussion of their vews. We might recall, however, that both István Tisza of the Party of Work and István Bethlen of the Party of Unity believed that they represented the interests of the nation, yet the party leaders led the country into two wars which Hungary lost. Therefore, perhaps the quasi democracy that Orbán finds so appealing may not be the best solution for the country's problems.

Viktor Orbán, when he complains about party squabbles, is simply articulating what many Hungarians feel.  People want peace and quiet and "unity." But perhaps one day they will realize that squabbles are still preferable to what is in effect one-party rule.

Hungarian-IMF negotiations that will not take place

It would be good to know what the real story is. Is it simply another case of bad communication or it is something more? Within twenty-four hours the Hungarian government seemingly reversed itself on the question of impending negotiations with the IMF.

It all started with the National Bank's decision not to lower the interest rate. András Simor, chairman of the central bank, normally gives a press conference at the conclusion of the meeting of the Monetary Council. Simor indicated that he was expecting higher inflation next year and a slower recovery than originally thought. The journalists also asked whether he knew of any government plans to resume negotiations with the IMF. Simor answered in the negative. As soon as the press conference was over, the Hungarian forint, which had been inching up during the previous week, began to slide. Earlier the exchange rate was hovering around 278 forints to the euro, by Monday night it reached 283. The next day at one point it traded at 286.23.

It was at this time that Bloomberg learned from the National Economy Ministry (NEM) that "negotiations [with the IMF] will likely continue in the autumn and an agreement will be reached." Today an economist and earlier central bank chairman, Péter Ákos Bod, wondered whether the reporting by Bloomberg was perhaps just a misunderstanding. However, what Bod most likely didn't realize was that the information reached the Budapest representative of Bloomberg by e-mail. It could have been no misunderstanding. The reporter quoted parts of the e-mail verbatim.

When the Bloomberg report was published, MTI, the Hungarian news agency, didn't quite believe it and inquired from NEM whether it is really the case that Hungary will resume talks with the IMF come fall. The ministry's spokesman confirmed the news although the packaging was somewhat vague. He didn't go into details but indicated that negotiations will continue since they were never broken off.

The Financial Times reported the beneficial effects of the news which "provided a boost to the forint, which had lost more than 2 per cent this week amid doubts about Hungary's growth and inflation outlook." However, there were people who had their doubts. "I am taking this statement with a very, very large pinch of salt…. This move is very odd given the strong anti-IMF rhetoric from the government," Peter Attard Montalto of Nomura said.

Well, Mr. Montalto was right. Late at night yesterday, Lajos Kósa appeared on TV to set things straight. Hungary will be in touch with the IMF but there is no question of new negotiations or receiving another loan. Well, that short appearance and announcement on TV2 had the predictable effect: the forint began to fall and Hungary once again was breaking news on CNBC. The forint, which had strengthened a bit the day before (around 281 forints to the euro) immediately weakened and by early afternoon it was over 284; the situation hasn't changed since.

Origo, an internet paper, tried to get in touch with Lajos Kósa, Mihály Varga, and György Szapáry, economic advisor to Viktor Orbán, but to no avail. Commentators simply cannot figure out what is behind this confusion. Perhaps "some sober voices managed to have the upper hand in the circle of economic advisors," but within twenty-four hours the political leaders torpedoed the plan because they considered such a move politically unpopular at home.

Bloomberg also reported "internal conflicts within the party," but most people simply don't understand what's going on in Budapest. Tim Ash, head of emerging market research at the Royal Bank of Scotland Group Plc in London, said: "Why the government needs to make it so clear at this stage why they are not going to seek to renew the agreement with the IMF is beyond me…. They seem determined to prove that they can go it alone, a strategy which could still end in tears."

 

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.