Members of the Orbán government don’t like the word “nationalization.” To be precise, they don’t like the Hungarian word államosítás for nationalization. After all, they claim, the word államosítás can be used only for nationalization without compensation. As it happened after 1945 and especially after 1948. Today the state simply buys companies the government deems strategically important. Mind you, as usual the Orbán government doesn’t tell the whole truth about the recent nationalizations. After all, one of the first moves of the Orbán government was the nationalization of public schools previously in the hands of the local communities. No one compensated them for their loss. The next step was the nationalization of hospitals. Again, no money exchanged hands.
This government seems to be enamored with the old socialist system of state ownership and centralization although they should be the first ones to realize its pitfalls, which eventually led to the total collapse of the socialist system. But I guess they think they can do better than those old party hacks. I don’t think that I’m alone in thinking that Orbán and his comrades are dead wrong.
I could go on and on listing companies, from MOL to E.ON and Rába, that have been taken over either in full or in part by the Hungarian state. E.ON cost the Hungarian taxpayers 870 million euros and MOL,1.88 billion euros. And now the Hungarian government has offered to buy the ISD DUNAFERR Company Group in Dunaújváros, which is one of the largest industrial firms in Hungary. The company is a diversified manufacturer of steel products. They produce hot rolled, pickled, cold rolled, galvanized strips and sheets, and hollow steel sections for engineering, automotive, and construction products as well as for the production of steel structures, household appliances, and other parts.
The company, owned early on by the Hungarian state, lost money year after year until the government managed to sell it to the Ukrainian Donbass Group in 2004. Later it was taken over by a Russian company. Eventually, the company became profitable but since the 2008-2009 financial crisis Dunaferr has suffered mightily. In an article that appeared on privatbankar.hu today one can see telling graphs of Dunaferr’s losses and debts.
A few days ago the company announced that because of its financial losses, it will have to let 1,500 workers go. Such a decision came at a very wrong time for the Orbán government. Dunaújváros plays a key role in the economy of Fejér County. We must also keep in mind that Viktor Orbán’s beloved Felcsút is also in Fejér County. Székesfehérvár, the first capital of Hungary, is the county seat and the city to which the Orbáns eventually moved and where the young Viktor went to high school. So, the whole issue has a personal aspect for Orbán as well.
On Monday morning Economics Minister Mihály Varga was dispatched to talk to the managers of Dunaferr in order to find a solution to the company’s problems. I assume Varga tried to convince the management of Dunaferr to postpone its decision to downsize its work force. No buyout offer was discussed.
The decision to make an offer was reached hastily that same day during a cabinet meeting, which was conveniently and appropriately held in Székesfehérvár due to the August 20th celebrations.
Such quick decisions are typical of Viktor Orbán’s leadership style. I am certain that this particular decision, just like all the others, was the prime minister’s alone. Given the company’s dire financial straits it’s hard to imagine that no one in the cabinet raised doubts about the Hungarian state’s ability to take on another losing concern. But at these meetings Orbán is surrounded by yes-men; he doesn’t have to fear serious opposition. Perhaps at the meetings of the high brass of Fidesz there are men like László Kövér or even János Lázár who can have some influence over him, but such people don’t exist among the few ministers and the more numerous undersecretaries handpicked by the prime minister.
In the past it happened that the Hungarian state took over companies allegedly in order to prevent a loss of jobs and yet shortly after the nationalization the new owner, the Hungarian state, had to fire hundreds or even thousands of workers. In the case of Malév, the airline actually folded. It would be good to know whether the government has any business plan that would enable the company to continue employing its 7,500 workers and at the same time turn a profit.
I very much doubt that there is such a plan, so it is likely that sooner or later Dunaferr, this time as a concern owned by the Hungarian state, will have to let thousands of workers go. (Probably after the 2014 elections.) Meanwhile good money is being thrown after bad, as the saying goes. How long can all this go on, especially since only today I read that the deficit is on the rise again?
Hungarian Spectrum 
OT – but talking of promises made just before elections…
My mother-in-law is claiming that the long-promised teachers’ pay rise has finally happened. As a retired teacher, presumably she knows what she’s talking about, but I thought Orbán was still prevaricating?
Does anyone know if this is true? And if so, how much have they had and what are the strings/catches?
Gross debt of the central government on June 30, 2013 [vs 2010] in 10^9 of HUF
22,238.4 [vs 20,470.5] – according to akk.hu
Nationalized private retirement funds: 302.4 [vs 2,945.3 as of 05-31-2011]
On the other hand, mnb.hu reports 25,381.4 as gross liability of the central government for June 30.
@Paul
Parliament, i.e. Fidesz will decide on the pay raise next week – I guess even Orban does not know how much they will give to the teachers to make them even more docile.
Right tappanch, the private pension funds belong to the list. They were nationalized, the compensation was the promise of a government pension. Based on the example of Detroit and many similar situations, we know what that promise is worth.
Interestingly, it can go on forever. Hungary has been doing this for ever, i.e. trying to modernize from debt and foreign debt especially, which is what we are doing, even if foreigners these days also buy HUF denominated debt too. Sure, at some point we will have to default on foreign currency debt, but whatever.
As they say, if something is unsustainable, then it cannot be sustained and constantly growing debt coupled with forever decreasing GDP is not a very sustainable combination.
But the fundamental development trajectory has been unchanged since the mid-1800’s. Hungary’s relative development vis-vis the territories of today’s Austria, the Czech Republic, Romania, Croatia remained essentially unchanged. (Poland is a special case, given its turbulent history, but it is also pretty successful I think, but perhaps it makes more sense to compare member states of the Austrian empire.)
It seems to me, however, that today’s Slovakia benefited from being in the same country with the Czech Republic and at the same time from the fact that its capital Bratislava is essentially the outskirts of Vienna, the capital of one of the richest countries in the world. Slovakia thus developed well, perhaps exceeding the expectations of the mid-1800’s. Other than that, the relative development levels of the region has been essentially unchanged.
I am certain that Dunaferr will be acquired by the state, in fact I am sure that the Russian will get a nice price (if they wanted to sell, that is, but finding a willing buyer these days is almost impossible, so I think they would be stupid not to sell). They are smart and know how to play an enthusiastic buyer.
Dunaferr is an extremely important political issue in Fejér county (by the way I would not be surprised if it turned out that Orbán’s father, read Viktor Orbán, has been selling stuff to Dunaferr) and a bankruptcy would determine elections for years to come. Dunaferr is not just a company, it is a huge identity (existential) issue for the people of the region. There is no price tag on keeping a whole county in your orbit, a county which is not completely Fidesz supportive by default.
These are exactly the battle ground counties you need to invest in and Orbán knows that throwing a couple of tens of billions of HUF will be worth it. It would not be worth spending so much in Veszprém or Zala counties, where people will vote for Fidesz no matter what, but in Fejér county it might just make the difference.
Btw the ISD Corporation is an Ukrainian firm and not a Russian firm, although there may be some Russian money behind it. http://www.isd.com.ua/en/
http://www.4-traders.com/news/Government-of-the-Republic-of-Hungary-Teachers-to-receive-34-percent-pay-rise–17080513/
Although it still needs to be approved. The major paycheck rise is with the starters salaries of new teachers, and less with current “old” teachers.
To stay on the topic of school. The government appointed a lot of new Head Masters, and further via KLIK (in Dutch treason) 200 new pensioned policeman and I assume woman as well will be guarding schools.
http://www.politics.hu/20130822/police-to-start-working-at-200-schools/
Entering the steel industry today is madness. Only Orban can be such a dolt, and an ignoramus.
The general demand for steel is declining world-wide, because the largest users, construction, automobil and civic projects are still dormant after the recession. At the same time, Luxemburg, Japan, China and India are flooding the market with cheap, high quality products. Under such market conditions Hungary can only loose its (our) shirt. It would be cheaper to keep the entire staff of Dunaferr in bread for ten years, than taking over the company.
A fair article (in Hungarian): http://index.hu/gazdasag/allas/2013/08/22/dunaferr/
It seems that the Ukrainian/Russian owners would like to keep the company — but as we know, there exists such amount of money… (van az a pénz…) and Orbán has been known to pay well for assets (MOL, E.On, Rába).
IMHO regarding the teachers’ pay raise. I wonder if they will do it now, that the money fountain has been cut off from the EU. I am not sure if people do understand that Orban’s magic tricks of “development” are actually fuelled by money that supposed to go to other projects and being diverted. THe EU just caught up with this trick, hence closing the the tap. Now the real Hungarian Budget forints have to go towards their intended target, and with the loosing ventures, and “investments” the only way the government will be able to afford any pay raise is implementing further “austerity” (that as we know does not exist in Hungary).
Should the Opposition Aspire to Win this Election?
Orban is dragging Hungary into such a mess that it is not at all clear that opposition parties should aspire to win the next election. The next 3-4 years will be when Hungary is hit in earnest with the consequences of Orban’s colossal incompetence and corruption: Should he not be at the helm, visibly feeling the consequences, rather in the opposition, laying the blame, yet again, on his opponents? Voters don’t have a good sense of long causal chains. They tend to blame the current government for current woes. The Opposition might be more effective if it simply made a much stronger showing in the next election, depriving Orban of his supermajority but letting him face the consequences of his bungling and banditry. He could no longer improvise new laws to bail himself out at his whim; the hard times for Hungary are now in any case ineluctable; he will be discredited — perhaps even forced to reverse some of his noxious policies — and by the time of the next election there will be no doubt left in Hungary’s short-sighted voters\ eyes as to who has been responsible for their miseries.
I’m thinking on the same lines!
Eight years of mismanaging the Hungarian economy should make it clear to every Hungarian who is responsible – and then maybe people will be willing to accept the needed draconic measures.
And maybe in 2018 the general economic/political climate will be better in Europe and elsewhere – hope always dies last …
@Stevan H, wolfi
I completely disagree with you. The opposition should strive to win.
It will be very difficult to govern with Fidesz apparatchiks everywhere, so the opposition needs leaders who are not wishy-washy. There is also a need for a Constitutional Assembly to restore democracy.
Well, let’s face it. The opposition may not have to lose intentionally … It will happen anyway.
Otherwise I’m with Tappancs. You have to fight tooth and nail no matter what. You can’t say “Let’s not go to the dentist! Wait until all our teeth fall out then we have a big barbecue party.” Really?
Actually I don’t think you meant it …
At some point the opposition must win and face the consequences of Orban’s mismanagement. I think the sooner the better. It will be certainly not an easy task to try to put back Hungary on its feet, but we must have some politicians out there who work for the better goods and not for instant glorification like Orban. Unfortunately, whoever will take it over after Orban likely will only be rewarded by history.
I was thinking along the same lines, but the important thing to remember is that the European economy is supposed to start recovering soon. In fact, it’s technically out of recession, which is why Hungary is starting to grow a little. Of course, Orbán is taking credit for this, as he would if the economy really started to do well in the next four years. Then it would be a matter of blaming the EU and multi-nationals for the fact that Hungary isn’t doing as well as the neighboring countries. He will always find a scapegoat, and people will likely believe him, especially when he has even more time to bring the media further into Fidesz’s orbit, and bring in more “donations” from cronies and tobacconists to run the Fidesz machine.
Yes, it will be difficult to run the government, but the left can blame all their problems on him and his constitution, so it’s best for the left to win the election, if Orbán lets them.
Here are the July 29 plans, not the final numbers, of the pay raise for the teachers:
http://www.kormany.hu/hu/emberi-eroforrasok-miniszteriuma/oktatasert-felelos-allamtitkarsag/hirek/ertekallo-es-kiszamithato-a-pedagogusok-magasabb-bere
OT: As it turns out the stadium in Felcsut (or Orban’s dream) is not prop to hold NBI or UEFA soccer games. According to the Hungarian Soccer League’s (MLSZ) mandate, the minimum number of seats shall be no less then 5,000. Well, the Dream of Felcsut only has 3,500 sears. I am not getting into details, but there is no way around this apparently.
So, let the guessing begin about how will they beat this. Will they build some other seats? Will they rewrite the by-laws?
http://taccs.hu/2013/08/22/lehet-majd-egyaltalan-a-felcsuti-stadionban-nb-i-es-meccset-jatszani-2/#more-2080
Apparently, the Great Leader wouldn’t be satisfied if just any new iron curtain would be erected around – to isolate Hungary for good – it must be strictly a “National Iron Curtain, Made in Hungary of 100% Hungarian Steel”
Mind you, it will also ensure the employment of countless communal workers – scraping rust and repainting the red-white stripes regularly, organised by the new “Ministry of the Iron and Steel”, while it will maintain the need for steady production from the factory.
Yes, dear folks, the plan of a true genius comes to fulfilment right before our eyes!
Halleluiah!
Speaking about losing the election, Stevan could be closer to the truth than we think. It seems the MSZP is just doing that.
Here is their new campaign video. Subtitles by me (make sure CC is on).
It seems they are going back to the bolshevik roots. “The working class should organize” with a Carmina Burana style dramatic music in the background. Comrade Lenin would be proud.
Now this will fly well 23 years after the fall of the communism. Let’s kill the Tsar! Let’s sing the The Internale! Oops. I meant The Internationale! Whatever …
It’s for each 45 minute period. So it is actually 7000 seats. Problem solved. All in favor say aye or pay up!
@Mutt: I am not sure if the campaign video got permission from APM Music for the Borgias Trailer Music (They Fought as Legends) and from Brand X Music for the All or Nothing. ….Just saying.
The Borgias? 🙂 Another proof of the MSZP’s brilliance … adultery, simony, theft, bribery. Have I left out anything?
The latest on Dunaferr. After all, the government doesn’t want to buy Dunaferr, They want to take over their debt only. I guess the price is to keep the 1,5000 workers.
Hey, these last entries seem like gallows humour to me – so you do agree:
The liberal/left/opposition has no chance to win – but it should try anyway!
PS:
We’re in Germany right now and those Hungarian problems seem so far, far away – at least for us, though the other family members can’t escape as easily …
Are we really having a serious discussion about whether or not the opposition should try to win the election? Where have you all been for the last three years?
As for the stadium at Felcsut – have a look at it online. It has clearly been built as a showpiece, not a proper stadium. It’s design is incredibly fancy and OTT – and in footballing terms, fantastically wasteful. Orbán could easily have built a more traditional 5,000, even 10,000, seater stadium if he’d wanted to, this is just a fancy centrepiece for his academy. This is about showing off and ‘leaving a legacy’, not hosting European football – he has other stadia to do that (e.g. Debrecen).
Thanks Ron. 34% now, 60% rise by 2017 – sounds wonderful. I wonder what the catch will be? Will they be crass enough to just withdraw it after the election, or will they be more subtle and somehow ‘wind it down’ over the next three years? And where on earth will they get the money?
@Paul: Well, the catch is that they increase the number of hours teachers have to spend in the school and take away the extra money teachers’ received for after-class (extra) duties…in this light it may not be much of a pay-rise at all, at least not that substantial.
I can hardly believe that breath-takingly amateur and anachronistic video! Not only the ridiculous Leninist throwbacks, but Mesterhazy’s absurd, incessant gallinaceous neck-strut and cheek-smirk tics, finger-waggingly declaring MSzP (in a spirit of oppositional unity!) to be the strongest and winningest of the opposition parties! What clowns. Yet they (with the other opp. parts.) are H’s only remaining hope. They don’t look anywhere near ready for prime time. Bajnai may not be charismatic, but sound-on or sound-off, he looks like someone one can trust. M does not, as surely as O does not. It may just be nervous tics, but they’re disabling ones.
I agree that the opposition should fight to win; my point was just that a close loss with a strong showing could turn out to be a blessing in disguise — and maybe by 2018 M will have had an image manager drill him out of his struts and smirks, or the party will have had the sense to replace him with someone more electable…
What Orbán says is the he would be willing to pay a nominal HUF 1 for the shares, but the transaction would also include the assumption by the state of the debt of Dunaferr, which currently stands at about HUF 150bn (USD 670m), not a trivial amount.
(It would be a good question to figure out whether Dunaferr is indebted to Orbán’s mines?, but it is a side issue).
Anyway, to assume that debt by the state (taxpayers) means simply to pay such amount to various creditors (including the sellers, since they are probably the biggest creditors!) later at the time of the maturity of the debt (and not pay at the times of the conclusion and to the seller).
Dunaferr, however, cannot be made profitable or cah-flow positive to ever repay that amount of debt.
Any calculation that Dunaferr’s dividends (profits or even pre-tax profits) which the state as shareholder would receive will be enough the pay for the debt (assumed by the state in the proposed transaction) is a lie.
That HUF 150bn debt assumption is a real purchase price and it will have to be repaid by taxpayers.
In fact, Duanferr is close to bankruptcy.
It most likely has breached the covenants of its bank loans several times.
Only because it was given waivers by the banks has it not been declared bankrupt (entered bankruptcy or liquidation procedures).
The Russians/Ukrainians have been providing the company with a life line, but it is almost certainly insolvent absent such support (i.e. provision of further loans). This also means that the Russians, besides being owners, are probably now the biggest creditors to Dunaferr.
Orbán would essentially say to the Russian that that you get back your debt (i.e. the Russian’s portion of the HUF 150bn), but otherwise your company does not worth anything.
Unfortunately, however, since the company is essentially bankrupt, creditors would need to consent to a 70% haircut on their debt in any formal insolvency procedure. In other words, in any bankruptcy procedure creditors would lose that amount — which would be still better position than to formally liquidate the company when perhaps they would get as little as 10-20% (i.e. if there was a bankruptcy assets of the Dunaferr, however much they are worth on paper on the company’s ledgers, would be sold for about HUF 15-30bn and this is probably a generous valuation).
This means that whatever Orbán is paying above 30% of the face value of the debt is a so called premium (payment above real value).
In order for the Russians to get 100% of their debt and not 30% after haircut (or even less in a liquidation), they might have to pay back a bit to Fidesz.
And here we made a full circle: Orbán thinks that the Russians would be happy to get away with their loans intact even if they have to pay some HUF 4-5bn in agency fees to some Singaporean company of Simicska/Orban, because it is still better than for them throw good money after bad or leave Dunafeer get liquidated in which the Russians would also lose almost everything. Interesting story.
“What Orbán says is the he would be willing to pay a nominal HUF 1 for the shares, but the transaction would also include the assumption by the state of the debt of Dunaferr, which currently stands at about HUF 150bn (USD 670m), not a trivial amount.”
Whoooaaah!
If I’ve read this right, the government willing to pay around 10m HUF per capita to save the 1500 jobs at Dunaferr?
I don’t know, how much the unemployment support today in Hungary, but if they just give – say – a hundred thousand HUF per month to each, it would take about eight years till that sum runs out, without interest, and they don’t even have to manage a bad business, come on!
Not to mention the sad fact, that even if Orbán&CO pays off all the debts, the company still produce losses, since nothing else changes.
Otherwise, – in my point of view – what we seeing is still a takeover, however subtle the approach might be, and then we are back to square one: to whom Orbán buying a company on the taxpayers money, and what’s the point, beside the payoff?