Unfortunately the title of this post is not original; it is borrowed from an article in HVG. But it is an apt description of Viktor Orbán’s efforts to make a financial deal with the Russian government. The outlines of the plan can be stitched together from various sources, but not all the information is available yet. However, to me at least, it looks as if the Orbán government’s Russian orientation is nothing new. It was hatched perhaps even before the 2010 elections. It has been carefully worked out.
Today in the early morning edition of Népszava I found an article about a top secret trip of Antal Rogán, the whip of the Fidesz parliamentary delegation, to Moscow. Although the visit took place on February 28, a day before György Matolcsy’s nomination to be the next chairman of the Hungarian National Bank, the Hungarian press didn’t get wind of the trip until today. Rogán met with Sergei Zheleznyak, deputy secretary of the United Russia party’s chief council.
The information came from the official website of United Russia. Let me quote some of the most important passages describing the meeting. “The Hungarian guests noted that Russia today is their strategic partner…. These days the Hungarian government is considering the possibility of converting some of the Hungarian National Bank’s reserves to rubles because of the precarious situation of the dollar.” In addition, Rogán invited the Russian party chiefs to attend Fidesz’s next congress in June. He expressed his hope that at that time the two parties will sign a document of close cooperation.
As I mentioned, this development is nothing new. It is not a spur of the moment decision. Some of you may recall Viktor Orbán’s much debated meeting with Vladimir Putin in November 2009 at the party congress of United Russia. At that time there was a debate about how serious these talks were and what the topic of conversation could have been. The follow-up visit of János Martonyi to Moscow in March 2010, that is before the election, received less attention. Martonyi had dinner with Russian Foreign Minister Sergei Lavrov, but not as the future foreign minister of Hungary but as a representative of Fidesz, the “fraternal party” of United Russia.
Viktor Orbán’s second trip to Moscow, which took place in early February of this year, was also hotly debated in the Hungarian press where he was described as “Putin’s new little kitten.” A few days later the Hungarian media heard that “Orbán exchanged the IMF for Moscow for 4.6 billion dollars.” HVG reported that Moscow would purchase 4.6 billion dollars worth of Hungarian government bonds at a very low, 2.25% interest rate. The article also said that “sometime in the future the Hungarian government might issue government bonds in rubles.” HVG pointedly asked what Hungary would have to give in exchange for all this.
Yesterday Népszava asked the Hungarian National Bank whether they know anything about converting some of the bank’s reserves into rubles, but naturally the government never bothered to inform the bank officials of such a deal. They were obviously waiting for the arrival of an obliging György Matolcsy because surely András Simor would never have agreed to such a “hazardous game.” The ruble is not fully convertible and is therefore an illiquid currency. Moreover, the exchange rate of the ruble fluctuates wildly. Not exactly qualities one wants in a reserve currency.
The bank officials didn’t know about any of these negotiations but Mihály Varga, the incoming minister of the economy, certainly did. Although during his Napi Gazdaság interview today he claimed that he knew nothing about the negotiations, he admitted that there were talks between Budapest and Moscow. He described them as “inter-party talks” and suggested that the journalist “talk to Mr. Rogán.” But he told Ildikó Csuhaj of Népszabadság that it is a good idea to diversify.
By early afternoon Rogán’s press department confirmed last week’s Moscow trip. Not surprisingly, the spokesman said nothing about the central bank’s reserves and the conversion of dollars or euros to rubles. Fidesz’s official website posted information about “talks concerning economic matters” but couched this news in carefully crafted language that may mask the real intent . The Fidesz communiqué reads: “While discussing economic ties the idea of a ruble-based swap agreement surfaced that would make the mutual financing of Hungarian-Russian trade easier.”
Gergő Nagy of HVG wrote a fairly lengthy article that contained comments from leading members of the financial community. He is the one who called the plan a hazardous “Russian roulette.” Hazardous because most of Hungary’s financial obligations are in euros and because the ruble is not exactly a favorite of currency traders. On the plus side, however, the yield on Hungary’s euro reserves is close to zero while the interest rate the National Bank pays is between 4 and 5%. That means about a 100-200 billion forint loss a year to the bank which by law the state must replenish. The yield on Russian government bonds is between 5 and 6%, which might begin to close the gap but only at great risk that might not be worth it.
Officials of several financial institutions emphasized that the reference to the instability of the dollar during the Moscow negotiations was nonsense. The dollar is still the world’s number one reserve currency and most likely will remain so for the foreseeable future. Sixty percent of world trade is in dollars. Another bank expert mentioned that one of the goals of the central bank is to create financial stability, which also means the stability of the reserves, and Russia is not a financially stable country. For example, in 1998 the Russian government had to declare bankruptcy.
László Tamás Papp wrote a scathing opinion piece entitled “Rogán, ruble, the ruszkis are coming back.” He recalls the fiercely anti-communist stance of Fidesz throughout the party’s existence, Orbán’s attacks on Ferenc Gyurcsány because allegedly he wanted to make Hungary “the happiest barracks of Gazprom,” and his famous speech in 1989 at the reburial of Imre Nagy in which he demanded the immediate withdrawal of the Soviet troops. And here he is now fawning over former members of the KGB. Now he is offering not only the Hungarian National Bank to the Russians but also the Paks nuclear power plant. The party that made sure that Ronald Reagan has a statue in Budapest is now brown-nosing a former KGB agent and a post-Soviet autocrat. Someone who insists on a yearly memorial to the victims of communism on February 25, the day when Béla Kovács, secretary of the Smallholders Party, was taken to the Gulag in 1947, now praises Putin’s Russia. The whole opinion piece is a passionate outcry against the cynicism of the regime and against the people who tolerate all this without a murmur. He ends his article: “You didn’t like Western capitalism? Now you can find out what the Eastern variety is like. If you let it happen, you deserve whatever the eastern winds blow into your face.”
Hungarian oligarchs like Russian oligarchs. But Russian oligarchs do not need Orbán and his ilk.
Orbán admires Putin. He has the kind of power Orbán dreams about (but as much as possible Orbán does everything to recreate it in Hungary): Putin does not give a damn about the West and is the unquestioned paramount leader of his country. These are the attributes Orbán covets.
Orbán also knows that the financial markets have a short memory, (contrary to the previous paradigm) are not really efficient and the world is awash in money, so he can play whatever trick he wants and the world will still buy the Hungarian (Serbian, Malawi etc.) debt. I mean given Matolcsy, the Western media deems Mihány Varga the new minister of economics a guarantee of reasonability. Please, Varga has no, that is exactly zero power (never has done anything independent, only blindly followed orders from Orbán, which is the no. 1 requirement in politics at Fidesz), his role is to play the good cop in an elaborate media game. And the Western media sucks this petty game and all of a sudden Mihály Varga is a guarantee. Right. Pathetic, the West can be duped a million times The West is a fantastic place of opportnity, a real playground for cinical power players like Orbán or Putin (or Iran, do they give a damn about the sanctions, come on, whey did these influenced anything).
Until the world finances Orbán’s government, things will remain as is. Since the world economy in its current structure and state cannot function without the continuous printing presses (whether of the FED, the ECB or the BOJ), essentially Orbán will be financed forever.
“whatever the eastern wind blows..”
Let’s paraphrase Krustchev:
“We will piss in the face of the West and they will think it the early morning dew.”
Let us extrapolate from the deafening silence of both Armenia and Russia towards Orban’s return of the axe-murderer…Orban
had to have had permission from Russia, which in turn, quelled any uproar from Armenia (as Armenia’s closest ally). Something to keep in mind.
And finally, that fine little chestnut applies to mother Russia:
“As a friend, you won’t be needing any enemies…”
Now, go ahead, bust the central bank, convert debt to rubles, and prepare to teach your young ones Russian.. (My, but I
remember this scene when in the early 1950s we had to stand
in class and thank ‘father Stalin’.)
Keep twirling your fine mustachios, heroic Magyars!
Let’s make it clear, because many people try to figure out some meaning from the often contradictory words of Orbán, Matolcsy and Varga, which effort is absolutely futile.
Matolcsy’s goal, that is Orbán’s goal is to spend about EUR 10bn from the currently cca. EUR 34bn fx reserve of the National Bank (it was estimated that given the foreign currncy debt repayment schedule a minimum of EUR 25bn is necessary to have at hand).
Essentially, the government intends to spend another HUF 3,000bn, like it did in 2010 when in nationalised the private pensions funds and which it promptly spent to cover the budget deficit.
Among others, 13-14. month pension (a pension bonus and pension increase), substantial salary increases for the teachers and health care employees could absolutely be financed even from a fration of this amount.
Orbán’s goal is to get out from the EU’s excess deficit review procedure and just right after that increase the budget deficit substantially with a view to the upcoming 2014 general elections (the rules of which from comprehensive gerrymandearing to restrictive media rules, to actual Fidesz ownership of entire segments of media are all set in favour of Fidesz). Votes will be purchased wholesale.
Since Spain, France, Italy etc. will all be significantly over the 3% target, Hungary could be let to go above 3% and by the time a new procedure is initiated (or some kind of penalty is set) the elections of 2014 are over.
As to the market, it will accept this.
Slowly, the market got used to Matolcsy and all the other craziness too. And for those who want to imagine a positive spin, they always got Mihály Varga (who is a complete nobody and a most loyal supporter of Orbán). Yes, the HUF is a bit weaker, but it is an important strategy of Orbán to weaken the HUF (and increase inflation through the increasing import prices), so rest assured the HUF will reach 320-330 in a couple of months. Fidesz understands that the market, especially in its current state of excess liqiuidity, although does not like sudden moves, but slowly will accept everything (like the frog which jumps out of boiling water, but which will get boiled if the water is slowly heated underneath) so expect that Orbán, Varga and Matolcsy that they will talk this and that, and reverse and backtrack and repeat, until the market slowly gets used to a weaker forint.
A likely scenario but difficult for western minds to comprehend.
Orban has ‘liberated’ Hungary from Decency, Responsibility,
Integrity, and Honesty. Ahh, the fine winds blowing from the
But, hark! is there not a whiff of cow dung in the air?
‘Never you mind,’ says Kerenyi, ‘It will clear your sinuses as it did
in the old days.’
OT, but interesting:
Advertisers Withdraw From Hungarian Newspaper Over Anti-Roma Statements
Some people are prepared to stand up to Bayer after all – and call him what he is:
Petofi, you are right (it was not even mentioned and perhaps it should be made clear why it is the independent central bank, if there is such, which sould decide about the reserves and the reserves should certainly not be spent on current expenses), but that is the trick of Orbán and every dictator.
The situation is too complex and people (in the West just like everywhere else) have limited attention to get immersed into such complexities. Thus Orbán wins, and the West always relents.
But at least I wanted to put this on record, so that it is clear (how they think and what they want, whether they can get away with it eventuially, I don’t know, but ceteris paribus certainly).
1. Did I understand well?
The sister party of Putin’s United Russia is Orban’s Fidesz officially?
For the record:
# of domestic students starting in September at Hungarian universities, including first year Masters students:
[applying to study; accepted; tuition-free]
2001: 149,000; 98,000; 51,000
2002: 165,000; 109,000; 56,000
2003: 160,000; 106,000; 51,000
2004: 167,000; 110,000; 53,000
2005: 150,000; 103,000; 51,000
2006: 133,000; 94,000; 53,000
2007: 109,000; 82,000; 49,000
2008: 97,000; 81,000; 53,000
2009: 127,000; 95,000; 66,000
2010: 140,000; 98,000; 69,000
2011: 141,000; 98,000; 67,000
2012: 111,000; 80,000; 51,000
02/13 min —> 03/06 max
USD/HUF 214.1 —-> 230.9 7.85%
EUR/HUF 288.9 —-> 300.1 3.88%
As long as the models show good returns… investors will buy Hungarian bonds…. currency flux is baked into the risk equation.
The value of the forint has been all over the place since April 2010, with (mostly) no apparent connection with anything that Orbán or his clowns do.
Unless it really does collapse one day (and why would it if it hasn’t done so far?), it’s not really worth borthering about.
Having said that, 400 Ft to the £ over Easter and the summer would be nice!
If the USD/HUF change is > 20.7% between January 2013 and 2018, you lost money on the 5-year bond issued in January 2013 with a 4.125% coupon.
Yes, getting 8% for your government paper will certainly overcome 2/3%
What would be nice from you financial cognoscenti is to discover who is investing with that American wiseacre who’s got 10+billion dollars in Hungarian government paper….
Do not forget the HUF lost 7.85% against the dollar while the US stock exchanges are hovering around a 7 year high! If they go down significantly [they will], watch for 350 USD/HUF or more.
you say: “Since Spain, France, Italy etc. will all be significantly over the 3% target, Hungary could be let to go above 3% and by the time a new procedure is initiated (or some kind of penalty is set) the elections of 2014 are over.”
It’s not quite that simple with the EU excessive deficit procedure, that “3% deficit for everyone, otherwise sanctions”. Greece eg. had a 16% deficit about 3 years ago, they weren’t told to lower that to 3% in one year, it would have been impossible!, therefore their agreed target was higher. Spain was a deficit surplus country until about the end of 2011, so you can’t really compare their excessive deficit with Hungary’s, where the deficit had not been below 3% for 7 years and the EC judged it could easily be corrected. It’s not a “straight jacket” as the Commission like to point out.
Also, the EU parliament has just accepted something called the “two-pack legislation”. I haven’t had a proper look at it, but that gives power to the EC to sign off member-state budgets before they are implemented. It becomes effective next year – and the EC might decide to keep Hungary (and some other EDP member states) in the procedure for this year.
On the other hand, the more member states can leave the excessive def. procedure, the bigger the success story for the EU itself, because it signals to the markets that things are getting more and more under control.
So things are a bit complicated, I think.
“Orbán admires Putin.”
I don’t know about that, but every time I see a video-recording of Putin I’m shocked how much Orban resembles him: mannerisms, gestures, body language, facial expressions, the way he doesn’t really look into you eyes, the look of “I’m the loving father for all Russians” and the look of the fierce warrior etc, etc.
The first time I noticed this was during the Orban-Medgyessy TV debate, spring 2002. I couldn’t believe it…
Perhaps Orban was not in Graz, but at a secret Russian clone station.. 🙂
Hey! Read the last few sentences of Animal Farm! History repeats itself: the first time as a tragedy, the second as a farce.
Watch the Harry Potter films – the resemblance of Dobi to Putin is uncanny!
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