Month: November 2010

The latest blow to freedom of the press

I have written a lot about the media law since June 18 ("Proposed law on the media"). In August alone I wrote three pieces, the last on the new council that was created to be the watchdog over the media and whose members were suggested by Viktor Orbán and duly voted in by the two-thirds majority. They speedily took the oath of office. Fidesz took care of the supervision of the media as well. At the top of the apex is the prime minister, then follows Annamária Szalai, who is truly one of the least likeable people on the face of the earth–and her appointment is for nine years. (Anyone who would like to have a good chuckle over Annamária Szalai's career can read: "Annamária Szalai: From porn magazine to the defence of family values.") Then comes the five-member council, all closely associated with Fidesz.

At this point we still didn't know all the details of the new law, nicknamed Media Constitution, but given the person of Szalai and the politically one-sided council, one had an idea what was waiting for the Hungarian media. Nothing good. Today György Bolgár had a lengthy conversation with Pál Eötvös, president of the Association of Hungarian Journalists, who acknowledged that the members of the media woke up a little late about the dangers lurking in the background. Most likely, I would suggest, because people are still too naive and simply can't believe what can be done in the middle of Europe. Interestingly enough, it was an English-language article, which appeared in waz.euobserver.com on November 24, that called attention to the media constitution that would become law very soon. The article described the new piece of legislation as something that goes far beyond any changes introduced by previous governments and that threatens the freedom of expression.

It took three days for the Hungarian media to really respond. The first article that dealt with the subject appeared in HVG on November 27: "The Elimination of the Freedom of the Press." According to the author, one cannot find words to describe the reaction of the people affected by the proposed law. The first problem is that the presidents of Magyar Rádió, Duna TV, and MTV will not be able to make too many independent decisions. Even the right to put together their news program will be taken away from them. News broadcasts from here on will be provided by MTI, the official state news agency of Hungary. Another  innovation, again involving MTI, is that from here on the news gathered by MTI will be given out to all organs free of charge. Until now one had to pay for the service. Surely, the aim is to make sure that all news will be filtered through MTI.

The council's powers are vast. If a a TV station says something that the council finds in violation of the media law it will have to pay a very hefty fine, perhaps as much as 500 million forints, but even daily papers and internet online papers might have to pay 25 million forints. Weeklies or periodicals will get away with a mere 10 million forints! Such fines may put an end to small radio stations like KlubRádió, which at the moment is asking for contributions from listeners because lately they have not been able to cover their expenses from advertisements.

László Majtényi, the chairman of ORTT (Országos Rádió és Televízió Tanács) that was replaced by the Media Council, called the proposal "a horror show." Majtényi, who also served as an ombudsman in his long public career and thus knows something about the law, claims that "regulating written, electronic and internet media on the basis of the same principle is by itself unconstitutional."

Until now complaints by individuals against newspapers could be filed only in court. Now Szalai and her five cohorts will take over the role of judges. That by itself will have a chilling effect.

The proposed bill can be read here. The bill is 170 pages long and one suspects that the three MPs who submitted it didn't even read it and certainly didn't write it. One of the three is Antal Rogán, who in the last eight years was often portrayed by the liberal press as a moderate and reasonable man. However, since the elections he has become a lion and lends his name to the most outlandish proposals, including this one.

According to the proposal, if a TV station violates the rules and regulations governing the media it will be forced to close shop, perhaps for as long as a whole week. Not only TV stations can be shut down for a prescribed time but also internet sites. If the owner of an internet site doesn't oblige, the internet provider will be responsible and will have to disconnect the site. Moreover, the editor-in-chief of the internet site can be personally fined 2 million forints in case the Media Council finds the site in violation. Hírszerző mentions two blogs that work like newspapers: Mandiner and Véleményvezér.

One can already see how "well-meaning" citizens will turn to a newly appointed Media Commissioner with their complaints which the commissioner will have to investigate. Hundreds and hundreds of complaints will pour in, I'm sure. The Commissioner will function as an ombudsman. He will be the defender of the interests of the readers and listeners. Each medium must sign a "behavioral code" and stick to it. As media experts pointed, out such a restrictive media law cannot be found anywhere else in Europe. One must go east which, I guess, is fine with Viktor Orbán who said not long ago that, although Hungary belongs to the west, lately the winds come from the east and "our sails must be adjusted accordingly."

It was Ildikó Lendvai who summed up MSZP's reaction to the proposal. She is a master with words and thus comes up with wonderful turns of phrases. When it came to the canned news from MTI, Lendvai recalled an old joke from the 1960s. At least this is when I heard it from a friend of mine who lived in Paris. Kohn visited a western country and stocked up on coffee, which was in short supply in Hungary in those days. In addition, it was very expensive. He had a whole sackful of the stuff. He landed in Ferihegy, the Budapest airport, and the customs official inquired from him what was in the sack. Birdseed for the parrot, answered Kohn. The official opened the sack and said: "But this is coffee, not birdseed." Kohn replied: "Whether he likes it or not, this is what he gets." (Eszi nem eszi, ezt kapja.)

Indeed, Fidesz propaganda is what the listeners of MR and the public television stations will get. As for the independent stations, they will have to be very careful to follow the behavioral code and will get their news, free of charge, from the same MTI that will put together the news for the public televison stations and radio. A lovely arrangement, don't you think?

Two verbal duels: Gyurcsány versus Orbán and European Commission versus Matolcsy

Quite a day. I must say that I was looking forward to it because I knew that Viktor Orbán could no longer refuse to answer Ferenc Gyurcsány in Parliament. Parliamentary rules stipulate that if an MP insists on an answer from the addressed government official he/she must do so within three weeks. It was three weeks ago that Ferenc Gyurcsány expressed his desire to address the prime minister. His brief interpellation bore the title: "What are you afraid of, Mr. Prime Minister?"

Gyurcsány began: "I would like you ask about freedom and democratic politics. What do you offer the people? Freedom or subjugation? Do you wish to transform Hungary into a western type democracy or into an eastern type, autocratic country?" It was difficult to hear the former prime minister because the Fidesz and Christian Democratic MPs began to clap and boo. The Jobbik MPs simply turned their backs to him, but before he said anything they yelled: "You lie!"

Gyurcsány went on. "Many years ago you still believed in the idea of a democratic Hungary. You talked about a country whose citizens dare, who are able and want to work and learn, and who take responsibility for themselves, for their families, and for their nation." He considers individual savings part and parcel of such responsibility and therefore a middle-class virtue. By "forcibly nationalizing" people's savings Orbán's government destroys the slowly developing self-reliance and thus civic (polgári) Hungary.

As for the creation of a new constitution, Gyurcsány claimed that Orbán has not received authorization from the electorate to unilaterally change the basic laws of the country. But if the government is bent on scrapping the old and introducing a new constitution, it should at least ask the people's opinion. "If you believe in the people, if you think that the people still believe in you, then allow the people to decide. I'm asking freedom for the people, so they could decide on issues of the constitution, their own retirements, and the future of the country." And finally he asked why Orbán is afraid of the people.

Orbán's answer came in the form of a counterattack. "It is an old truism that only those talk about fear who are afraid themselves." He understands that for certain representatives of MSZP fear is a personal problem. "That is called fear of retribution. The electorate decided that those people responsible for the sins of the last eight years must be named, must be called to account. It must be difficult for the socialists to get accustomed to all this because in the last eight years they could do anything without the slightest fear of consequences." In any case, "personal problems" shouldn't be discussed in parliament. Finally, he made it clear that there will be no referendum on the question of the new constitution because the issue will be decided in parliament. After all, this is how the parliamentary system works.

Gyurcsány answered in a few sentences. "You stole the money of three million people and you are even proud of it. In your place I would be ashamed of myself. … If you are a democrat, if you are a decent human being, if you are at all interested in what the people think of your constitution, then don't threaten us or anyone else, but stand in front of the people and tell them 'I have a proposition for the constitution of the country and I ask your support.' Don't hide, don't be afraid, don't be a coward and, most importantly, don't be a thief."

Viktor Orbán replied that he doesn't want to hear lectures about decency from MSZP, especially not from the former prime minister. "I understand that you're brave people. You were brave enough to beat and hurt peaceful demonstrators with rubber bullets. You were brave enough to falsify the budget, and led people by their noses… Thanks we don't need such bravery. The only thing we are doing is fixing all the mistakes you made, we are removing all the debris and are renewing Hungary."

Anyone interested in seeing the exchange should visit this site.

The other verbal duel took place long distance between Brussels and Budapest. The European Commission put out a forecast on Hungary's economic development in the next few years. According to their estimate the economic growth will be 1.1% this year, next year 2.8%, and in 2012 3.2%. The government's own forecast is more optimistic: 0.8% this year but 3% next year and 3.5% in 2012. On the question of the deficit the two estimates differ greatly. According to the European Commission the deficit will be 3.8% this year (if we are lucky), but next year it will be 4.7%, and in 2012 back to 6.2%.The government naturally has entirely different predictions: this year 4%, next year 2.4%, and in 2012 2.3%.

Well, Matolcsy hit the ceiling and responded angrily. Although he answered in Hungarian, I'll bet that in a day or so his words will be reproduced in excellent English, German, and French in front of the European Commission. Matolcsy called the forecast "professionally unfounded and ethically unacceptable." He noted that not once in the last five years were the European Commission's forecasts accurate. In addition, the European Commission should keep quiet because it took part in two "large deceptions" when the Commission accepted in 2005-2006 the Hungarian budget that included a deficit prediction of 4.7% while it turned out to be 9%. In 2009 the Commission played along with the Hungarian government when it accepted the Hungarian budget with plans for a 3.8% deficit when the real deficit was much higher. If this current government didn't do something the deficit would have been 7% today. (They keep repeating this but actually it is untrue. Most of the additional deficit came as a result of their own tax cuts and extra spending.)

Well, this is how to make friends and influence people! I don't think that accusing the European Commission of incompetence and deceit will help Hungary's situation. After all, in large measure Hungary's fate depends on the goodwill of the European Union.

Meanwhile, the Hungarian forint fell precipitously against the euro during the day. On Friday it was still trading at around 280 Ft to the euro, by tonight it was 284.61. By now, it seems, most people in the financial world think that the Orbán-Matolcsy economic revolution will not succeed. And, as the Eurozone reels (one observer compared the current situation to a bunch of drunks trying to stay upright by leaning against one another), investors are in a "risk-off" mood. Even as the euro fell against the U.S. dollar, the forint fell against the euro. Hungary's currency and its government bonds seem like very risky bets right now.

Poland and Hungary

It seemed that wherever I turned today the comparison of Orbán's Hungary to the Kaczyński brothers' Poland cropped up. First I looked at The New York Times where there was a fascinating article about Poland that reminded me very much of the Hungarian situation. The title says it all: "Poland, Lacking External Enemies, Turns on Itself." Although Poles have every reason to celebrate their success–for example, Poland is the only country in Europe that managed to avoid a recession during the financial crisis–they feel insecure and pessimistic, and in their confused state they have turned against each other. The population is hopelessly split and therefore not surprisingly the politicians are also at each other's throats. The author reports that personal attacks and insults are daily affairs: they accuse each other of mental illness, collaboration with the Nazis or being agents of Moscow. Politicians even wished each other dead. Doesn't it sound familiar?

Groups of protesters have been keeping a nightly vigil in front of the presidential palace ever since President Lech Kaczyński died in a plane crash. In the beginning the protesters only demanded setting up a cross in front of the palace, but by now they demand the resignation of the newly elected President Bronisław Komorowski. Jarosław Kaczyński, who lost a bid to become president after his brother's death, refused to shake hands with Prime Minister Donald Tusk. That also has a familiar ring: recall when László Sólyom refused to shake hands with certain people who had just received decorations and when a recipient of a high decoration refused to shake hands with Prime Minister Ferenc Gyurcsány.

The Law and Justice Party of the Kaczyński brothers stands for a more conservative, more religious, and more nationalistic Poland. This vision stands in contrast with that of the right of center party of Prime Minister Donald Tusk who focuses more on Europe and on adopting the euro.

Viktor Orbán's first foreign trip as prime minister was to Poland, a signal to the world that Hungarian foreign policy will concentrate on the East European region. His predecessors' first trip was usually to Brussels or Paris, signaling a western orientation. While in Warsaw, Orbán naturally talked with Donald Tusk and Acting President Komorowski, but he also visited Jarosław Kaczyński who was at that time only a candidate for the presidency which a month or so later he lost. Although Orbán's Hungary has close relations with Tusk's Poland, his vision of the future more closely resembles that of the Kaczyński brothers' Law and Justice party. But for the time being the Fidesz government must settle for Tusk.

Viktor Orbán's talk of a revolution and lately even the illegitimacy of the change of regime twenty years ago strongly resembles the program of the Kaczyńskis. They also turned against the past and wanted to create a new society. They were completely involved with eradicating the alleged and real sins of the past, and there are many signs that Orbán and Fidesz are contemplating something similar in Hungary. However, one should remind Viktor Orbán that the Kaczyńskis' new world came to an abrupt end about a year and a half after their party won the elections. The majority of the Polish people had had enough of them.

So, while I was thinking about the similarities between Orbán's Hungary and the Kaczyński's Poland, the topic came up in a conversation between Gábor Kuncze, former chairman of SZDSZ who became a radio and television host after quitting politics, and László Lengyel, an economist and political commentator. Lengyel pointed out that Orbán's political philosophy closely resembles that of Robert Fico of Slovakia and the Kaczyński brothers of Poland, but there is one big difference. They didn't want to turn the economic life of the country upside down. They pretty much left the economic setup they inherited intact. But Orbán's half a year proves that he is planning to introduce an economic revolution as well. Lengyel is quite skeptical of the success of such a revolution. Even the "nationalization" of the private pension funds will not solve the government's problems because more than half of these funds' wealth is in Hungarian government bonds. The government has to sell them to obtain cash, but who is going to buy them, especially in the current situation when most people are getting rid of bonds they purchased earlier.

Way back in May, Iván Scipiades, a journalist familiar with the Polish situation, warned Orbán that following the Kaczyński's example might not be the smartest move. After all, look what happened to the twins. But if the Orbán-Matolcsy economic revolution also fails, the possibility of defeat will be doubly possible.

In Poland's case, even with a more liberal-conservative Tusk government and a currently booming economy, some Polish economists are afraid that there will be serious economic problems soon. Because Poland didn't introduce any structural reforms either. All reforms ended in the 1990s, just like in Hungary where the only tangible reform concerned a restructuring of the pension plan. The very one Orbán is dismantling now. Polish economists predict that once the convergence money from the European Union slows after 2012, the country's economic situation will be perilous. In Hungary, the situation is much worse. So, if I were Orbán I would be careful not to put my party and government into double jeopardy. The population may eventually get tired of his autocratic rule, and if he cannot deliver the material promises he made he will be in real trouble. And that looks rather likely.

Socialist revival in Hungary?

It’s too early to tell how successful the battered MSZP’s efforts to regain its popularity and its electoral support will be, but the beginnings turned out a great deal better than I expected.

When I heard two or three weeks ago that MSZP isn’t officially supporting the demonstration of the Hungarian Democratic Charta and Ferenc Gyurcsány’s new Democratic Coalition but instead will hold a mass meeting on November 27, I really thought it was going to be a flop. How on earth can you organize a meeting protesting the government’s crippling of the constitutional court weeks after the fact? What I didn’t count on–how silly of me–was that the Orbán government would further attack the country’s democratic institutions in the interim and that there would be plenty of other issues to protest. And indeed, the government did a favor to the socialists: they decided to nationalize the private retirement funds. Well, that is an even bigger issue for the average citizen than the abstract notion of constitutional democracy.

I heard yesterday that the organizers were expecting a full house in the Sports Arena, which seats 10,000, and that in fact several thousand people were unable to get tickets. The crowd included MSZP supporters, the liberal Hungarian Democratic Charta, and Gyurcsány’s Democratic Coalition platform (which has about three times more non-party than party members). From the party leadership only Attila Mesterházy gave a speech, and the emphasis was on ordinary people and their grievances against the current government. (Videos they are available on MSZP’s website). Mesterházy was a great deal better than usual and even Index, not exactly sympathetic to the left, compared him to Ferenc Gyurcsány, who is indeed an inspiring speaker. The organizers chose a young man, Balázs Bárány, to deliver one of the speeches, and he turned out to be not only good looking but also an excellent speaker who wasn’t awed by the huge crowd.

 

Ferenc Gyurcsány is still very popular among the rank and file, and here I will quote the rather sarcastic description offered by Magyar Nemzet, a newspaper that is certainly not fond of the man. “But no one caused such rapture as Ferenc Gyurcsány. When he entered the arena, Zsolt Török, one of the spokesmen of the party, was just describing in what big trouble the country is. When the failed former prime minister stepped into the aisle he was followed by continuous applause. It was like ‘dolby surround sound’ in a multiplex movie. Meanwhile they were kissing and embracing him, but Török just went on about the ills of the country.”

The slogan of the gathering was: “Your place is here,” and the returning demand: “It was enough!” Mesterházy called on the people not to be afraid and to stand up for their rights and “pick up the gauntlet.” If the government doesn’t stop its current activities that aim at dismantling the foundations of Hungarian democracy then, come spring, MSZP will organize mass demonstrations. Mesterházy and the others managed to arouse the crowd, who wished Viktor Orbán to hell. And when certain Fidesz names were mentioned, such as Pál Schmitt, Péter Polt, Zsigmond Járai, and György Matolcsy, the people hooted and whistled.

Mesterházy promised compensation for anyone who suffered material losses as a result of the legislation of the Orbán government and swore that once they are back in power they will reverse all the discriminatory pieces of legislation recently accepted by the two-thirds majority. He called the people present “the ambassadors of democracy.” Each was given a “protest petition” to sign themselves and to ask their friends and acquaintances to join them. All well and good, but why they called this signature drive a petition, I can’t fathom. Subjects submit petitions to their ruler, asking for his favor. An unfortunate choice of words.

Mesterházy promised to organize street demonstrations and mass meetings in the spring if the Orbán government doesn’t change its behavior. Well, I don’t think that Orbán will change: his present policies reflect his very essence. The only possibility would be a real threat from Brussels that would carry serious material consequences. For example, if the European Union refused to accept the Hungarian government’s methods for achieving the 2.9% budget deficit and withheld the subsidies originally planned for Hungary. But even that wouldn’t help the situation as far as the constitution, the constitutional court, or the media are concerned.

As for street demonstrations, it is very possible that the trade unions will take their people out on the streets even before springtime. It is also possible that there will be a strike at the Budapest Transit Authority (BKV). Before the elections Gordon Bajnai and Csaba Horváth (MSZP), then deputy mayor of Budapest, worked out an arrangement by which the central government would help out BKV with a 12 billion forint subsidy. Fidesz won the elections and naturally the new government refused to fulfill the obligation of its predecessor. It seemed that Fidesz was waiting for the municipal elections after which the new Fidesz mayor, István Tarlós, could restart negotiations. Then the gift of 17 billion forints would come from Viktor Orbán and not his predecessor. Indeed, the agreement was reached but BKV has received no money. The Transit Authority is in such a bad financial state that it is unable to pay its workers’ end of the year bonuses due on December 5. The trade union is threatening a strike. The government employees are also planning a demonstration. So it is very possible that there might be more people out on the streets than Mesterházy is thinking of at the moment.

From Fidesz only Lajos Kósa had something to say about the MSZP mass meeting. According to Kósa, MSZP took ordinary people’s money (13th month pension, freezing civil servant salaries) while Fidesz taxed banks, multinational companies, the energy sector, and telecommunication companies. So, the majority of the people support the decisions of the Orbán government. As for the threat of going out on the streets, Kósa expressed his belief that everybody has the right to do so, “but the question is whether it makes any sense or not.” Of course, Fidesz in opposition took great advantage of street protests and mass meetings. If it made sense then, it certainly makes sense now. Unless of course Kósa thinks that it doesn’t matter what happens outside the charmed circle of Fidesz. No protests, no strikes, no demonstrations make the slightest difference. They are on top and they will remain there forever. But that’s not how things work in politics.

Péter Polt will again be the supreme prosecutor

Before you read this post I highly recommend that you get acquainted with Péter Polt, who was the supreme prosecutor between 2000 and 2006. I wrote about him at length a year ago. Polt was a Fidesz party hack with practically no prosecutorial experience. He turned out to be an excellent appointment from Fidesz's point of view because after the party lost the elections in 2002 Polt was pivotal in preventing any investigation of the Orbán government's corruption and the alleged criminal cases linked to the government. For weeks now there has been no question that President Pál Schmitt will fulfill his duties and nominate Viktor Orbán's choice, Péter Pold. Thus the "suspense" is over. Polt is Schmitt's candidate.

First, a few words about the current status of the prosecutor's office and the rather unusual designation of the chief prosecutor as "supreme prosecutor." Perhaps you will not be terribly surprised to find out that the current structure dates back to the communist takeover in 1948. Prior to that date the prosecutor's office was not "independent" as it now is, at least on paper. It was, as in most western countries, under the jurisdiction of the minister of justice. Interestingly, the "independence" of the prosecution was introduced because the communist party wanted to have direct access to the prosecutorial hierarchy. As for the silly name "supreme prosecutor," that was also a communist invention borrowed from Soviet practice. Prior to 1945 the chief prosecutor was called the "crown prosecutor."

One of the mistakes made by those responsible for the new constitution and the reorganization of the government in 1989-1990 was that they left the "independence" and the whole structure of the prosecutor's office untouched. Instead of restoring the prosecutor's office to a position subordinate to the minster of justice, they came up with the idea that the "independent" supreme prosecutor should be answerable only to parliament. In plain language, to no one. If the supreme prosecutor did something truly outrageous, and under Polt's six years that happened often, he was hauled into parliament, was questioned, his answers were never accepted, and he went home unscathed. It was a useless exercise.

During the first Orbán government, before the appointment of Polt, Ibolya Dávid (MDF), who was minister of justice between 1998 and 2002, tried to change this impossible situation and abolish the "independent" status of the prosecutor's office. The opposition (MSZP-SZDSZ) fiercely opposed any such move. I think if you asked them today they would readily admit that they erred. Because if the prosecutorial hierarchy were responsible to the minister of justice, the minister could be called on the carpet in case of wrongdoings. He would be responsible. Now, the supreme prosecutor really is supreme.

The second Orbán government never expressed any desire to subordinate the prosecutor's office to the government because this wouldn't serve its purpose. They don't want to take responsibility for anything the prosecutor's office does. They want to hide behind the independence of the office, but at the same time they want someone as supreme prosecutor who is their man and who can take orders.

Only four years have gone by since the present supreme prosecutor took office. But because the president nominated a man who was close to the compulsory retirement age of 70, a new man must be elected. As many commentators noted in 2006, László Sólyom, a supporter of Fidesz, wanted to make sure that in case Fidesz wins the elections in 2010 it will fall to Viktor Orbán's government to elect a new supreme prosecutor; he will not be stranded with one who still has two more years to go.

Viktor Orbán is so enamored with the "independence" of the prosecutor's office that in the proposal they submitted which would change the law governing the status of the supreme prosecutor they suggested that from here on the new man will not be able to be questioned in parliament. And to make sure that Mr. Polt (because they knew from day one that they want to have Polt back) will stay for a long time, they changed the length of his tenure from six years to nine. But that wasn't enough. Currently, a simple majority is sufficient to elect a new supreme prosecutor. However, from here on this appointment will require a two-thirds majority. One round of voting will decide the issue. If the new candidate doesn't receive a two-thirds majority, the current office holder will remain in his post until another candidate receives a two-thirds majority. That is almost impossible. In brief, Péter Polt will be the supreme prosecutor until the age of 70, or even longer, because another change introduced the right of the prime minister to modify the retirement age. Polt at the moment is fifty-five years old. So he will be around for a very long time. I should mention here that this requirement is more stringent than that for electing the president of the republic. Even though on the first ballot a two-thirds majority is necessary, the candidate for president has two more chances to be elected. By the third time around a simple majority suffices.

And no one can do anything to prevent such atrocities. I really don't know what anyone can do. I don't see too many opportunities. I might also add that there were rumors concerning the appointment of the new man to the effect that he must agree to be ready to place Ferenc Gyurcsány in custody. Maybe this is just talk but, given Polt's past, I wouldn't be shocked.

The immediate results of the “nationalization” of private pension funds

Of course, it is more than a “nationalization” of private property. It is an illegal expropriation of private property. Some commentators compared the government’s methods to those of the mafia. Others called Orbán’s Hungary a banana republic. Some people talked about a nightmarish move or a hair-raising event. And then there is the blackmail the government is employing to make sure that all participants in the pension funds agree to the transfer. How can they not when otherwise they will be deprived of 75% of the future pensions they are legally entitled to?

So let see the market reaction to this latest move. First and foremost, Hungary failed to sell the planned amount of debt at an auction today as the forint weakened and bond yields climbed higher than they were in June when two Fidesz officials and MPs raised the possibility of default. Here are two graphs showing the situation. The first is forint-euro exchange rate for the last twelve months. The second is a graph showing the results of three-month T-bill auctions.

 

According to analysts bond yields may rise “quite significantly” as the exit of private pension funds wil lead to a drop in demand for local debt. Let me explain what is behind this prediction. The private pension funds by law had to put a large portion of their customers’ money into government bonds. Once the funds are gone the sale of bonds at home will drop considerably. As it is, the state debt management agency (Államadósság Kezelő Központ) sold 30 billion forints ($144 million) of 12-month treasury bills, 10 billion forints less than planned, as the average yield rose to 6.05 percent from 5.94 percent at the previous auction on November 11. Bids also fell to 64.5 billion forints versus 89.3 billion forints at the last sale.

Some analysts expected an even grimmer placement and a lower bid to cover ratio than that, but it is almost certain that the situation will change for the worse as “private pension funds will gradually cease to represent a demand factor.” As it is, the yield on government long-term bonds (due in February 2015) rose to 7.642 percent, the highest since January. Thus borrowing money is getting more and more expensive. It is worth recalling that Fidesz in opposition promised exactly the opposite of what has actually happened. Fidesz politicians kept saying that yields will be at least two percentage points lower after they form a government because the Gyurcsány and Bajnai governments lost credibility. On the other hand, they have an excellent reputation in the world of finance.

The forint just this month weakened 2.1 percent which according to Bloomberg is the worst-performing currency for the period. According to Michał Dybula, an economist at BNP Paribas in Warsaw, “the pension system changes will increase long-term risks, while short-term gains such as lower public debt and deficit will prove illusory, if the economy stays weak.” Moreover, the proposed changes in pensions increase the risk of a credit rating downgrade, since Hungary’s structural fiscal position is unlikely to improve. According to Dybula, “it could actually deterioriate over the medium- and long run.”

Let’s add to Hungary’s growing problems the extra taxes on foreign, especially German businesses. Someone mentioned in the comments that because German companies are being hit hard and because Germany is a very influential player in the Union these extraordinary levies might backfire. It was almost two weeks ago that a strongly worded response came from Germany. Guido Kerkhoff, a member of the board of directors of Deutsche Telekom, condemned the Hungarian government’s anti-foreign policies. Deutsche Telekom understands the difficulties and appreciates that the government must resort to extraordinary measures, but Kerkhoff was taken aback by the way Hungary handled the whole affair. First, there were no negotiations, no early warning. The very heavy extra tax was simply announced one day. And what was entirely new: it was retroactive. Kerkhoff “has never encountered anything like that.” Well, Kerkhoff is not alone. It is illegal to enact laws retroactively.

Kerkhoff reminded people that the German company has been investing heavily in Hungary in the last fourteen years. The total investment of Deutsche Telekom is 1.2 billion euros. In the past the company’s relations with the Hungarian governments were excellent but “now I can’t quite believe what’s going on.” According to Kerkhoff the extra taxation will deprive the company of 42% of its 2010 profit. If these taxes remain in force for four years, Magyar Telekom (the Hungarian subsidiary) will pay 400 million euros, which is 16% of Magyar Telekom’s market cap value.

Deutsche Telekom expanded into Macedonia and Montenegro through Magyar Telekom, but in the future they will not be able to continue to expand in Hungary. It seems that Budapest “is breaking too many porcelain pieces” and he is not sure that the Hungarian politicians are quite aware of the consequences. He reminded his audience that the 1.2 billion euros that Deutsche Telekom has invested in the country is more than Daimler Benz is promising. Moreover, Deutsche Telekom was planning to invest more, but after the government’s levies they will most likely have to rethink their strategy. As for whether Deutsche Telekom is planning any legal action, Kerkhoff said that they are waiting for the the European Commission to ask for some explanation.

Although the British Guardian a couple of days ago asked the European Commission to pay some attention to what’s going on in the middle of Europe, it seems that the Commission at least keeps its eyes open and “worries.” Amadeu Altafaj Tardio, spokesman of Olli Rehn, the financial commissioner, announced that the commissioner would find it “worrisome if the Hungarian government were to spend the accumulated savings in the funds on current expenses as the 2011 budget seems to suggest.” It is also upsetting that the “free choice” between private and public social security funds “is not as free as it first looked.”

It is all very nice that the European Union finds all this worrisome, but we will see whether they do more than wring their hands, whether they will tell Viktor Orbán to cease and desist. Because it seems that he understands only the same kinds of threats he levels against his “subjects.”

The end of the rule of law in Hungary

We can no longer speak of democracy in Hungary. I'm not exaggerating. In fact, reading through some of my earlier posts about what I expected if Viktor Orbán wins the elections, I realize that I was too optimistic. Not in my wildest imagination could I have predicted what has been happening in the last few months. The rapid passage of bills submitted by individual members and thus not requiring any preparation or public discussion was followed by filling all the so-called independent posts with Fidesz  men. The government's accounting activities are supervised by a party hack, the president is the puppet of the prime minister and stupid to boot, the budgetary council is on the verge of extinction. Individuals' savings have been illegally seized, the constitution has been changed six times, laws have been tailored to suit members of the inner circle, the constitutional court has been castrated, and smear campaigns are launched against people who criticize Orbán and his government. One could go on and on.

But what happened today really boggles the mind. I think I mentioned earlier while discussing the budget that the government not only expropriated fourteen months' worth of social security taxes paid into private funds; it also considered it essential that practically all of the current investors in these pension funds move over with all their savings to the state-run social security system. We are talking about an incredible amount of money. The "success" of the budget depends in no small measure on the willingness of people to move back to the state system. The government needs their money, not just for paying current pensioners but for all sorts of unnecessary things that Orbán considers important for political reasons.

But it looked as if the Hungarians who have money in these private funds were not so easily swayed. Many of them came to the conclusion that it might not be advantageous. Századvég conducted a poll on people's willingness to switch, and it turned out that György Matolcsy, who was counting on 90% returning to the state, was as usual too optimistic. Only 51% were contemplating such a move, 37% said that they definitely want to remain with their current private fund, while 17% didn't know or didn't want to answer. Something had to be done.

Well, the government did something. Today Matolcsy announced that anyone who decides to remain with his private pension fund will not be eligible for a full pension even though the employer pays social security taxes on his behalf. He will get only whatever he and his employer pay into the private fund. That is called blackmail and is clearly illegal. Or at least it is illegal at the moment. Tomorrow they will make it legal. It is only a question of a couple of hours. Someone will submit the necessary bill and the Fidesz-KDNP machine in parliament will vote yes.

The Constitutional Court has no jurisdiction over the matter. In the first place, it was just deprived of its right to rule on issues concerning the budget. Second, considerations of the sanctity of property were not included in the bill governing the jurisdiction of the constitutional court. Thus, the constitutional court is powerless. But let's assume that the brave judges ignore all this and rule that this move was unconstitutional. So what?

By now I think we can safely talk about a concerted attack on democracy and the rule of law in Hungary. And this is not the end. László Sólyom was right when he talked about the slippery slope. Hungary is inevitably sliding into a state where "democracy" will be mentioned only in the constitution. Or perhaps not even there.