Viktor Orbán’s Eastern Opening initiative is foundering

Vladimir Putin’s announcement yesterday about the cancellation of the Southern Stream caught the Hungarian government by surprise. It looks as if Putin neglected to tell his loyal strategic ally that Russia was planning to scrap the project upon which the Orbán government built its foreign and energy policy.

It must have been a bitter pill to swallow, and I am fairly certain that it will not be the last. Because Russia is in trouble. Big trouble. The current economic situation reminds Csaba Káncz of privátbankár.hu of the late Soviet period when in 1985 Saudi Arabia dramatically raised the daily quota from three to eight million barrels and the price of oil dropped from thirty dollars to ten. The same commentator reminded his readers that three-quarters of Russian exports come from oil and that half of the Russian budget depends on oil revenues. The Russian situation today raises the specter of 1998, when the country defaulted on its domestic debt and declared a moratorium on payment to foreign creditors.

pipes

They are empty

Indeed, Russian economic prospects are grim. Since the beginning of the year the ruble has lost 60% of its value. Inflation is at 9%. Official figures for economic growth are revised practically monthly, and it looks as if Russia is heading toward recession. Apparently Rosneft, the giant Russian oil company, had to sell 20% of its shares to keep the 2015 budget in balance, at least for a while. The Russian people are already feeling the pinch. Real wages may drop by 4%.

Even Válasz woke up and in a short article listed five signs that “Russia is in trouble.” The drastic devaluation of the ruble, oil prices, inflation, recession, and the flight of capital are the telling signs. Válasz points out that $120 billion in foreign capital has left Russia recently.  Only Magyar Nemzet tried the old journalistic trick of publishing an article about a Bulgarian politician who thinks that “Russia’s decision … is only a tactical move.”

Otherwise, the Hungarian media uniformly interprets the cancellation of the Southern Stream as an indication that Viktor Orbán’s Eastern Opening has failed. Hungary’s foreign policy, if you can call it that, is in tatters. How could it happen that the Hungarian administration put its blind faith in Putin’s Russia when for months it has been quite obvious that the Russian economy is in trouble? In fact, it was in trouble even before the western sanctions were imposed. Not only foreign analysts found the Russian situation worrisome but Zoltán S. Biró, a Hungarian expert on Russian history and politics, talked about the possibility that the Southern Stream might not materialize. A former Hungarian ambassador to Moscow, who is also knowledgeable about Russian affairs, also warned that the project might be scrapped and even ventured to predict that Paks might turn out to be a pipe dream. But these are not the people Viktor Orbán listens to.

Already under Foreign Minister János Martonyi (2010-2014) a large number of old hands in the foreign ministry were fired because they were deemed to be too closely associated with the socialist-liberal governments. But prior to the move of Tibor Navracsics and Péter Szijjártó to the ministry there were still a few people left who could have given an honest appraisal of the Russian situation. I hear, however, that fear has spread throughout the administration and that the foreign ministry is no exception. People are afraid to give their honest assessment of a situation because they know that “bad news” is not welcome in the prime minister’s office. Moreover, it has been apparent from day one that Viktor Orbán is conducting his foreign policy through Péter Szijjártó, a diplomatic greenhorn. And the “experts” they listen to are the folks at Századvég whose ideas about the world are staggeringly deficient. This is, at least in part, how Viktor Orbán ended up in this mess.

Commentators point out what we always knew: it is not the West that is in decline but Russia that cannot keep up with the rest of developed world. As Index put it, “Suddenly we learned that Russia is not so strong after all.” The drop in the price of oil and the sanctions did the job. It turned out that Russia is just “a huge Venezuela.” Orbán bet on the wrong horse and he lost. This is “a loss of prestige for NER (Nemzeti Együttműködés Rendszere/System of National Cooperation), Orbán’s alleged new political system.”

On Klubrádió Ferenc Gyurcsány also talked about the failure of a foreign policy that relies on an ever-weakening Russia. The Eastern Opening has no future and Orbán should end “the age of adventures,” a reference to the tenth-century Hungarian military incursions into Western Europe that eventually came to a sorry end when Otto I, the Holy Roman Emperor, taught them a lesson near Augsburg in 955. Gyurcsány made another historical allusion when he talked about Hungary ending up being “the last servile retainer” (csatlós) of Russia, comparing today’s situation to 1945 when Hungary stuck with Hitler’s Germany to the bitter end.

What did the administration have to say? Not much. According to Péter Szijjártó, “Russia has the right to make such a decision and Hungary takes note of it.” This terse statement barely hides Hungarian annoyance and disappointment.  He added that “the situation is entirely new. We have to look for new sources of energy.” His statement to MTI indicated that the Orbán government hasn’t done anything to look for alternative sources of energy. Everything was hanging on the completion of the Southern Stream by 2017. Today Szijjártó gave an interview to Magyar Nemzet in which he was asked about “the secure position of the Paks project.” His answer to the question was that, as far as he knows, Rosatom has never gone back on its commitments. A rather tricky answer because the real question is whether the Russian government is willing and able to lend ten billion euros to Hungary. If not, Rosatom is out of a job.

Magyar Nemzet tried to elicit a pro-Russian answer from Szijjártó by calling his attention to “the black and white” description of Russian-Ukrainian relations by the secretary-general of NATO, Anders Fogh Rasmussen. According to the pro-Russian and anti-American paper, he described Ukraine as a country that can expect “a wonderful European future” while Russia must be condemned. Well, Szijjartó did not fall into that trap. He again recalled Hungary’s bad experiences with the Soviet Union and promised that “Hungary will give all the necessary assistance to Ukraine to launch the necessary reforms.”

So, this is where we stand at the moment. This new development is clearly a blow to Viktor Orbán’s grandiose plans. The question is whether he learned his lesson or whether he will actually ratchet up his eastern policy, as many commentators predict.

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30 comments

  1. Can anyone give me a brief tutorial on the history and politics of these various pipelines?

    It would be much appreciated.

  2. As an American Hungarian I am amazed that Gyurcsany made a reference on a radio show to an action by Hungary in 955 AD as an analogy to the present situation. Really talk about a nation whose past is the present that is beyond belief.

  3. Istvan, I think the reference to 955 AD was just making the point that Fidesz don’t have a monopoly on Hungarian history, and it won’t be too obscure for any non-hyphen Hungarian who was paying attention in class.

  4. OT:

    The clever Hungarian lawyers found a way to get around the prohibition for central banks to finance governments.

    Of course by the time the EU can do anything binding about this (5-8 years), the whole issue will be moot.

    “21.1. In accordance with Article 123 of the Treaty on the Functioning of the European Union, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.”

    NBH – by the way, operating without a supervisory board for month – recently set up formally independent private foundations (of course managed by relatives and friends of Matolcsy, who is the central bank governor) endowed with hundreds of billions of HUF, and lo and behold such foundations started to purchase tens of billions of HUF worth of T-bonds (so far).

    QE á la Hungary. If the FED or the BOJ can do it, so can Hungary.

    http://444.hu/2014/12/02/matolcsy-alapitvanyai-mar-ezerrel-finanszirozzak-az-allamot/

  5. @Gaul – the FED does not fund US government projects. It dumped money into the market – not the government.

  6. @Marcel:

    If I were Orbán, I wouldn’t expect too much from Mrs Merkel’s visit – she also had a long talk with Putin in Brisbane and what came out of it for Putin?

    She has enough experience with (former) KGB offices and other machos – Orbán is no match for her!

  7. @Webber

    The National Bank of Hungary – via these foundations – also purchased government bonds and that is the problem that runs counter the EU Treaty.

    The also highly questionable purchases of real estate, artistic items, music instruments and the like are simple embezzlement, criminal activity. (Since these are usually unique items their real value, due to their uniqueness, cannot really be determined or ascertained, so the transactions, purchases from friends and off-shoe entities, cannot be challenged before a court. It’s a legalized form of looting of the state treasury.)

    That said, the NBH will also finance individual projects now that MKB, Budapest Bank and possibly other banks are being acquired by the state. Essentially these banks will be agents of the NBH on the Hungarian banking market.

  8. @wolfi

    Merkel may be good, but Orban is elected in Hungary by – in the present election system rural – Hungarian voters.

    They both run polls every week and as long as the Hungarian voters in the rural areas don’t seem to move toward the democratic opposition (and even in that case this opposition would be divided), Orban won’t care about foreigners, especially as Merkel (Germany) will continue to finance Orban no matter what. For Orban Merkel is a small side show to prove to a tiny fidesznik constituency caring about foreign relations that he is being taken seriously contrary to all the efforts of the “1968er West Europeans”.

    There are so many “even if”s in the present election system which are needed to be overcome until the democratic opposition can possibly defeat Orban (and then it would have to govern together, with its hand tied) that it really doesn’t matter to Orban what happens 3 years before the next elections.

    The bottom line is that this isn’t about Orban vs. Merkel, Orban simply cannot be defeated by democratic means by the Hungarian left wing and he just knows that, that’s what is important.

  9. @bookie:

    I totally agree with you, Orbán is here to stay …

    But Mrs Merkel knows him for what he is, a not very important head of a not very important country. As long as German companies aren’t molested too much and Hungary stays in line in the EU (small hiccups are to be expected) nothing will happen. It’s cheaper to pump some money into Hungary (getting access to a cheap labour force in return) than to fight another war!

    We Germans have become very pragmatic after two lost World Wars – and we’re having a good life, at least most of us (me included …)!

  10. wolfi – December 3, 2014 at 7:01 am:

    You wrote a disappointing comment. Do not give up!

    This was a statement worthy of the chamberlain appeasement.

    Peace and Fascism are not compatible.

    The moral of Germany allows no compromise with the strong men of Hungary.

  11. @buddy

    Although I hope it will do so, the EU will probably not reject the project, as it approved the English version too. Fideszniks put a lot of hope on political considerations, they hope that the EU cannot allow itself to appear as biased allowing one sovereign to do something but forbidding another sovereign to do something similar (of course the projects differ significantly).

    Fideszniks hope so despite the fact that Paks 2 would be a textbook case of state subsidy as it would have to be financed from the state budget (the loan itself would be paid by the taxpayers regardless of any financial viability of the operation) because Paks 2 cannot ever break even (not even including dismantling costs and the costs associated with the construction/operation of the repository of the spent fuel) and once built Paks 2 has to be operated, one just cannot not operate such a gigantic thing.

    It’s so big an investment that the EU – so goes the the argument – will likely treat it as a domestic political matter (aka the political question doctrine). If Hungarians want to bankrupt themselves and allow their politicians to steal unspeakable amounts for decades to come then it’s their domestic business. The EU will not solve internal political issues, this is for Hungarians to solve.

    Of course the Orban government cannot be defeated in a democratic manner by those who oppose Paks 2 (Jobbik would of course build itm as well as Bős-Nagymaros Danube dam system), but Brussels bureaucrats cannot ever conclude what Senator McCain concluded because it would mean that the EU is a weak and castrated political entity which cannot even control its own members. So there’s actually still a lot of hope among Fideszniks about Paks 2.

  12. @Cili

    The surprising thing for me in the article I linked to above was the fact that the government representative saying that they would willingly back out of the project if Brussels votes it down. When do they ever say that here? You would expect them to say, as they usually do, “those Eurocrats can stuff it, we’re going to build it no matter what they say, it’s an internal matter, they can’t colonize us, etc.”

    So why would they say this? Could it have anything to do with the subject of Eva’s post today?

  13. “Orban cannot be defeated…”

    Of course not. Think of the Bronx and getting rid of the Mafia–impossible.

    However, if Hungary/Orban should ever be shorn of the public (and not-so-public) support of
    Russia…well, that would be a game-changer. Once Victor runs out of the cookies to spread
    among his paysans, change will not be far off.

  14. Eva I have to say to make an analogy between the Hungarian tribal leaders Lél, Bulcsú and Sur, who were not Árpáds and who were executed after the battle of Lechfled in 955 AD according to German accounts and PM Orban’s Russian drift is really an intellectual stretch on the part of Gyurcsány. Moreover, Lél, Bulcsú and Sur although defeated and executed, were probably serious warriors, not football enthusiasts who liked Russians. However, this entire world of Hungarian conquest is overly mythologized and based in good part on the Gestate Hungarorum (which has been translated into English by the way) a document that carries heavy political and racial baggage.

    But Gyurcsány’s reference does show how deep the historical mythology of Hungary is, I read of similar references to ancient times (back to the Byzantine Empire) made by Serb officers who were captured by KFOR troops (the NATO-led international peacekeeping force which was responsible for establishing a secure environment in Kosovo). But unfortunately in the case of the Serbs this cultural obsession with history led to murder of those seen as encroachers on historic Serb heart lands. I think the comparison to 1945 made by Gyurcsány did have some relevance however.

  15. @István. You have to keep in mind what Hungarian history calls these military excursions. Kalandozások! The word kalandozás has a playful ring to it. It is light-hearted and actually covers the real goal of these excursions: robbery. These adventures had a sorry end. Just as Viktor Orbán’s treating Europe as a playground of his grandiose plans as power broker between Russia and Europe seems to be destined for failure. After Lechfield Hungary had to settle down. Orbán should do the same. If not, he will be forced to. This is my reading of it.

  16. I think based on everything I have been reading it seems as though Fidesz is starting to get cold feet with Russia since they now backing out of something that was completely counted on, and Orban really wanted to look like a savior to Europe, and be able to make Putin proud that he helped solidify the EU’s dependence on Russian gas. The PAKS deal though is a scary step financially, and since they were depending on that money, for more than just the PAKS project, that I am pretty sure of, they now know from South Stream that Putin is not showing Russia’s reliability and I think they know they cannot trust Russia. I think they may just welcome a no vote from Europe, it could prove to save their asses in the end. It would also explain why now Fidesz is seemingly kissing up to the EU the last couple of weeks.

  17. @Liz – I think some in Fidesz have now seen Russia is in financial trouble because of sanctions and the fall in the price of oil, and have suddenly realized that the fulfillment of their dream of the fall of the West has been put on hold. Incidentally, the story that the West (particularly America) is about to collapse has disseminated by commentators in program after program on the stations Echo t.v. and Hir t.v. for the past five years. These two stations are, just now, the least watched in Hungary. However, they are also the beneficiary of massive state support. This suggests to me that the (only) people who watch them are high up in government.
    So, I’d take this bout of “kissing up to the EU” and the US for what it is: The Fidesz government whored itself to Russia when it thought the West would collapse. Now they are whoring themselves to the “other side” (as they see it), all in “Hungarian national interest” (e.g., their own).

  18. @Liz Aucoin

    I agree that we should be careful saying something like “Fidesz is seemingly kissing up to the EU”.

    Fidesz and the people around him haven’t changed bit in the last days or weeks or months. There are minor voices now saying that looting must be done less conspicuously (they don’t even say stealing should stop or that it is reprehensible, just that it is being done too publicly) because that could hurt future positions. There is absolutely zero criticism of the core tenets. E.g. Magyar Nemzet, just as Hir TV etc. have been consistently pro-Russia and anti-EU, anti-US for over a decade. At most, some tactical changes could take place in this regard.

    Gyula Tellér is an undisputed inspiration for Orban who is now a firm believer in the going down of the West. Orban might of course adapt to the fact that apparently the Untergang is being postponed indefinitely and that Russia backed out of South Stream, but Orban and his followers will not change ideology, because they are true believers.

    Any kissing up to the EU thus must be seen as such, kissing up for the time being, but without any conviction. Of course that must be just enough for the EU.

  19. @wolfi
    You Germans have become not only very pragmatic, much more than tat!

    I don’t know, if you people are familiar with the tragic fate of the German student,Tugce Albayrak, only one of the articles in English.:

    http://abcnews.go.com/International/wireStory/video-published-attack-slain-student-27272451

    I am sincerely moved and wish to express my esteem and appreciation toward the German people, and will call the attention of my fellow Hungarians that there are other ways to react, there are indeed people with honor and compassion in that declining decadent West…

    Well, it certainly was a long way, but the Germans obviously made it through!
    Congratulations!

  20. Eva: “The word kalandozás has a playful ring to it. It is light-hearted and actually covers the real goal of these excursions: robbery.”

    I agree with Istvan, it would be better if modern politics, national and international, would not be approached with medieval devices. Hungary in 2014 is a state, the seven tribes were… tribes. The words and language in general used to describe reality can be quite decisive when identifying strategy. It might not be surprising that people do not believe in “liberal democracy” or anything else more contemporary than the honfoglalas and the raids, when their vocabulary is best suited to describe “national” survival strategies of the 10th century.

  21. Kirsten: “Hungary in 2014 is a state, the seven tribes were… tribes.”

    Fidesz looks like a tribe and behaves like a tribe. They only tolerate, support and marry their own.

  22. OT, but this is the oldest blog entry I can comment on. I’m probably only writing this to myself, anyway, since who would read it?

    Here’s a link to an article that supports what I was trying to express in the “Fascistoid” blog entry comments section:

    http://www.nytimes.com/2014/12/08/business/international/nurturing-start-up-culture-in-the-lower-cost-balkans.html?module=Search&mabReward=relbias%3Ar%2C%7B%221%22%3A%22RI%3A5%22%7D

    Note that Hungary is treated much like the other countries in the region, at least on this topic.

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