bank levies

Thoughts in advance of the German and Russian visits to Budapest

Yesterday the Neue Zürcher Zeitung published an article about the forthcoming visits of Angela Merkel and Vladimir Putin to Budapest titled “Orbans Tanz auf zwei Hochzeiten,” indicating that Viktor Orbán will be able to have his cake and eat it too. He will remain a member in good standing of the European Union and will be a close friend of Russia at the same time. I, on the other hand, maintain that he will not be able to pull off that extraordinary feat. There are many signs that the Hungarian prime minister is already in retreat.

Let’s start with the Merkel visit. Hungarian and foreign observers have come up with all sorts of explanations for her trip, starting with the simplest one–that she could no longer postpone it. After all, she has not visited the Hungarian capital in the last five years, ever since Viktor Orbán’s Fidesz, which professes to be a Christian Democratic party, won a stunning victory in 2010. Her last trip took place in 2009, on the twentieth anniversary of the Hungarian opening of the Austro-Hungarian border for East German refugees, when the socialist-liberal government of Gordon Bajnai was still in power. If the purpose of the trip was to have a serious discussion about the Russian-Ukrainian crisis and Hungary’s role in it, Merkel’s five-hour stay, with very little face time with Viktor Orbán, would not suffice. She is coming because she promised to and because, according to a 1992 agreement between Hungary and Germany, she has to.

There are analysts who are convinced that Angela Merkel will not even mention the erosion of Hungarian democracy under Viktor Orbán’s regime, the systematic transformation of a fledgling democracy into an autocratic regime akin to the political setup that existed in Hungary between the two world wars. She has more pressing issues on her agenda: Greece, the sanctions against Russia, and the growth of the German anti-immigration movement–PEGIDA (Patriotische Europäer gegen die Islamisierung des Abendlandes / Patriotic Europeans Against the Islamization of the West), especially popular in the former East Germany. It is unlikely that Merkel will waste any time on the woes of Hungarian democracy. Her only aim is to make sure that Viktor Orbán stands by the extension of the sanctions. This hypothesis, in part at least, is outdated: Hungary obediently voted for the extension on January 29.

Others are more optimistic. They maintain that the trouble with Angela Merkel’s visit is that it seems to put a stamp of approval on the illiberal regime of Viktor Orbán. This is certainly how the Orbán government is portraying it. If Merkel says nothing about the state of democracy in Hungary, Orbán’s regime scores a victory. There is pressure on Merkel at home, however, to do something about the Hungarian situation. She has to give the appearance that her visit is something of a warning to Viktor Orbán.

There is some truth in this interpretation. In fact, there are signs that behind the scenes some “disciplinary measures” have already taken place. The successful negotiations with the leaders of  the RTL Group indicate that Orbán got the message: there will be consequences if the Hungarian government blatantly and illegally discriminates against a media outlet just because it doesn’t like RTL’s news broadcast. Orbán caved, and I for one am certain that he didn’t get much in return. I find it interesting that the official announcement of Merkel’s visit occurred very late, on January 28, the day when according to Népszava‘s information the Hungarian government agreed to a substantial reduction in the enormous tax it had levied on RTL Klub. Was this agreement the price, or part of the price, of Merkel’s visit?

Because that’s not all. In his regular Friday morning interview Orbán announced that the exorbitant tax levies on the banking sector will most likely be gradually reduced because the Hungarian economy has greatly improved. “If possible, the interests of the country and the businessmen must be reconciled,” said the man who until now had laid all the financial burdens of his erroneous economic policies on businesses, especially foreign ones.

There might be several reasons for Orbán’s cooperation in addition to German negotiations. One is that the Americans undoubtedly know more about the Hungarian mafia state and Viktor Orbán’s role in it than they let on, but the Hungarian prime minister doesn’t know how much they know. That must be a powerful incentive to stick with the countries that provide Hungary with economic aid and military shelter. Another consideration might be the effect of the sanctions and the sinking price of oil on the Russian economy, which makes close ties with Putin’s Russia a less desirable option than, let’s say, a year ago.

And that leads us to the Putin visit on February 17. It was almost a year ago, in March of 2014, that the United States and the European Union began applying sanctions against Russia. Although Hungary agreed to support the move, in August Viktor Orbán declared that “Europe shot itself in the foot,” meaning that the sanctions actually hurt only the West and did nothing to weaken the Russian economy. Just about this time, however, oil prices began falling. The combination of sanctions and falling energy prices has made the Russian economic situation close to desperate by now.

Orbán was initially very proud of what he considered to be the crowning achievements of his Russia policy: the Southern Stream, which would have brought gas to Hungary circumventing Ukraine, and the Russian loan for the extension of the Paks Nuclear Power Plant. Since then, Russia abandoned the Southern Stream project because of lack of funds, and many people think that the much heralded Paks deal is also in trouble. Thus, the rationale for close relations with Russia has more or less evaporated, which leaves Viktor Orbán in the unenviable position of suffering the ill effects of his overly cozy relation with Putin while reaping practically no benefits.

Depiction of the Trojan Horse at the Schlilemann Museum in Akershagen, Germany

Depiction of the Trojan Horse at the Schliemann Museum in Akershagen, Germany

Under these circumstances I doubt that the initiative for the Putin visit came from Budapest. It is no longer to Orbán’s benefit to make a lavish display of friendship with Russia. And indeed, the government is trying to downplay the importance of Putin’s visit, noting that it is only a working trip and not a state visit with the usual fanfare. For Putin, by contrast, it is an important trip at a time when nobody wants to have anything to do with him. Just think of the humiliation he suffered in Brisbane, Australia. He wants to demonstrate that he has at least one good friend  in the European Union.

Putin’s second reason for the trip, I suspect along with others, is to find out how much he can rely on Viktor Orbán. Will he deliver as promised? Or it was just talk? Perhaps Orbán oversold his usefulness to Putin and is turning out to be a useless ally from the Russian point of view. Last August Jan-Werner Müller wrote an article in Foreign Affairs titled “Moscow’s Trojan Horse: In Europe’s Ideological War, Hungary Picks Putinism.” Well, the Trojan Horse may be just an empty shell and the damage it can cause within the European Union little to none.

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“Secrets revealed”: Memoirs about the financial attacks on Hungary

Many opposition politicians, especially before the deal between Orbán and Putin became public, suggested that the coming election should be declared a kind of referendum on the European Union. After all, the majority of the Hungarian electorate still supports Hungary’s membership in the Union while Orbán’s favorite target is the European Union. Well, the Orbán government is prepared. Helga Wiedermann, the right hand of György Matolcsy in the ministry of national development and again in the Hungarian National Bank, came out with her memoirs entitled Chess and Poker.

How timely! The book is not yet available in bookstores, but Magyar Nemzet has an advance reader’s copy from which the newspaper quotes extensively. The upshot of the story is that the European Commission, especially Olli Rehn, commissioner for economic and monetary affairs, is a deadly enemy of Hungary. The European Union, conspiring with leading members of the international world of finance, tried through monetary means to unseat Viktor Orbán as prime minister of Hungary. But in the end Matolcsy’s genius guided by Viktor Orbán’s superior vision triumphed against all odds.

Who is Helga Wiedermann? Mighty little can be found out about her on the Internet, which should surprise nobody. The whole Hungarian government is full of people who have no professional background for the jobs they fill. Political loyalty is what counts. I assume that Wiedermann must have had good Fidesz connections because she began her career in Matolcsy’s ministry as “political adviser.” To accommodate faithful Fidesz supporters this administration creates new positions right and left. Matolcsy either must have been terribly impressed with her political advice or received word that Wiedermann needs a more important and permanent job: she was elevated to be Matolcsy’s chief-of staff. When Matolcsy moved over to the National Bank, his trusted chief-of-staff went with him. They created a new position for her called “director general” (főigazgató). According to a blogger who seems to know a lot about the inner workings of the National Bank, Helga Wiedermann is the only person besides Matolcsy who can hire and fire at will. The same blogger calls Widermann a “professional zero,” nothing more than the person in charge of human resources.

Given this background, one must ask how Helga Wiedermann can report on minute details of Ecofin meetings attended by all the finance ministers of the European Union. How did she learn what transpired there? Clearly, only from her boss, György Matolcsy.

According to her story, Olli Rehn from the very first Ecofin meeting Matolcsy attended was a sworn enemy of Hungary at a time when the country was struggling to conquer the economic crisis. For example, at that very first meeting Olli Rehn tried “to portray Hungary in the worst possible light and claimed that the Hungarian situation was as bad as the Greek when Hungary was in fact in much better shape.” Now, that is really funny! I remember distinctly that it was not a long time ago that Viktor Orbán himself claimed that when he became prime minister Hungary was in worse shape than Greece. Well, what is the truth then? I have the feeling that by now even they cannot tell.

There was incredible pressure put on Matolcsy from day one, even from members of the European People’s Party, to extend the IMF-EU loan and introduce an austerity program. After Matolcsy categorically stated that he was unwilling to follow their advice, “he was put under incredible economic and later political pressure.” And yet he resisted.

Wiedermann then moves on to really juicy stuff. How the European Union, conspiring with the leaders of large European and American banks, tried to remove Viktor Orbán and replace him with another Fidesz leader who would not insist on levying extra taxes on banks and instead would be ready to introduce the much desired austerity program. According to the author, the decision to unseat Orbán was hatched sometime in the spring of 2011. By July 2011 there was an attack against the forint, which until then had moved together with the Polish złoty and the Czech koruna. According to Wiedermann, there was no reason for this sudden weakening of the Hungarian currency. On the contrary, the Kálmán Széll Plan had just been introduced and was well received by the markets. Moreover, in the spring of 2011 the Hungarian treasury floated a successful bond issue.

So, what happened? Why this attack on the forint? Wiedermann has the answer. In the spring of 2011 in a New York restaurant six representatives of American investment banks decided to attack the forint. Why did they conspire to do that? After all, these banks didn’t have subsidiaries in Hungary and therefore they were not directly affected by the extra levies on banks in Hungary. They acted because they realized the danger of the Hungarian example. The poor innocent Hungarian official in the ministry didn’t realize what was going on until September because until then the weakening of the forint was slow and gradual.

Source: tenytar.blog.hu

Source: tenytar.blog.hu

The rest of the book is a tale of the brilliance of György Matolcsy, who managed to lift the sanctions against Hungary despite Ollie Rehn’s concerted efforts. Matolcsy had many friends among the finance ministers. Even the finance minister of Finland and Denmark sided with Hungary, although they were close allies of Rehn. A real surprise came when Great Britain and Sweden voted for lifting the sanctions. In brief, total victory for the efforts of Viktor Orbán and György Matolcsy.

The appearance of the book is well timed. This attack on the European Union and American bankers is supposed to sway Hungarian voters to support the heroic Orbán government, which stands for independence and sovereignty. The members of the “Hungarian team” are the defenders of the nation while foreigners wanted them to suffer the indignity of a draconian austerity program. These guys pull out all the stops.

Politics and finances: Orbán’s Hungary today

Judging from the comments, most readers of Hungarian Spectrum consider Sándor Csányi’s spectacular exit from the ranks of shareholders of OTP an event that overshadows all other news, including whatever the current opposition is doing. Perhaps in the long run the panic that took hold of Budapest yesterday following the precipitous fall in the stock price of Hungary’s largest bank might prove to be more significant than any purely political event. However, what happened at OTP cannot be separated from politics.

By now we know that even before Csányi, the CEO of OTP, decided to sell his OTP stock worth about 26 million euros, some other high-level officials of the bank had already gotten rid of theirs. I assume they sold because of the probability that the government will “take care of the Forex loans one way or the other.” The exact way is still not entirely clear, but it is likely that the banks will again be the ones that will have to bear the financial burden of the “government assistance.” This rumor began to circulate about a week ago.

And then came Viktor Orbán’s interview with Margit Fehér of The Wall Street Journal. In this interview Orbán made it clear that the bank levies are here to stay. He has reneged on his initial promise that the very high extra taxes on banks would be needed for only a couple of years. Now the official position is that the bank levies will remain until the national debt is under 50% of GDP–perhaps in ten years “if the euro zone could do better.”

Another political decision that most likely had an impact on the misfortunes of OTP was the government’s abrupt announcement of the “nationalization” of 104 credit unions privately owned but functioning under the umbrella of TakarékBank Zrt. TakarékBank and its credit unions are really the banks of the countryside. They are present in 1,000 smaller towns and villages, which means that they cover about a third of all Hungarian communities. One can learn more about TakarékBank here. One thing is important to know. TakarékBank was run by and with the consent of the individual owners and board members. Clearly, the state wants to take over the whole organization and most likely run it as a state bank. What is happening here is no less than highway robbery. As some people said, the last time something like this happened in Hungary was during the Rákosi period. Sándor Demján, chairman of TakarékBank’s board, swears that they will keep fighting all the way to Strasbourg to prove that what the Hungarian government is doing amounts to nationalization without any monetary compensation.

If Orbán succeeds in the nationalization of TakarékBank, it might pose a serious threat to OTP. All in all, it’s no wonder that OTP officials didn’t think that their investment was safe. The alarm bell might sound in foreign banks as well (don’t forget that Orbán’s plans include a banking sector that is at least 50% Hungarian owned), and if that happens the whole banking sector might collapse. But I guess that would fit in with Orbán’s goal of tearing down all the carry-overs from the past and replacing them with his own original creations.

Let’s return now to the interview Orbán gave to The Wall Street Journal. Some of his statements are just a regurgitation of what he said in his rambling speech to the foreign ministry officials about a week ago but this time in even stronger language. For example: “The future of Europe is Central Europe” and by “now we are once again part of [this] powerhouse.” He also repeated some of his often used lines about the nonexistent strides Hungary has made since he took over: the national debt is falling, foreign trade is rocketing, Hungary no longer needs “other people’s money,” unemployment is falling, and finally that when he took office only 1.8 million people paid taxes but now that number is “close to 4 million.” No one has any idea where Orbán got his figures about the number of taxpayers, but they bear no resemblance to reality.

The interview is a rare self-portrait that could be the topic of another post, but here I would like to bring up two points.

This is the first time, at least to my knowledge, that Orbán openly declared that he really doesn’t want to join the eurozone. This despite the fact that Hungary is obligated to adopt the euro as the country’s currency since it was part of the conditions for membership in the European Union. But today Orbán thinks that Hungary “should exploit the advantages of not being in the eurozone.” I was already suspicious when he insisted that the Constitution should include a sentence stipulating that Hungary’s currency is the forint, but in the interview he was quite explicit on the subject: to change the constitution’s declaration that Hungary’s currency is the forint “will require a two-third vote of Parliament. So, to join the euro will require a strong, unified majority. This guarantees that it will not be a divisive issue. Whether Hungary joins will depend a lot on how well the new, integrated eurozone functions.”

And finally a point that might interest amateur psychologists. Orbán said: “When you have to save your country, to renew your country–that is when a job like this is appealing to someone like me. This is a real challenge, not just like reorganizing a bureaucracy. People like me, we like to do something significant, something extraordinary. History has provided me that chance. Actually, it provided it three times. I’ve always gotten historical challenges as a leader. When things are going well, I seem to lose the elections, because the people don’t need me anymore.” There is a Hungarian saying “A próféta szólna belőled!” meaning I hope your prophecy comes true. But all joking aside, it seems that Orbán is not confident about winning the next elections. He is afraid that all his extraordinary accomplishments will only make an opposition victory more likely. I guess the winning campaign slogan, contrary to everything we know about electorates, would be: “If you’re better off than you were four years ago, throw the bum out!”

Viktor Orbán’s ongoing fight with the European Union. It’s time to end it!

Yesterday I reported on two speeches that Viktor Orbán gave last Thursday and Friday. I didn’t mention his usual Friday morning interview on the state radio station. But this interview was certainly important, perhaps more important than his ruminations about a “work-based” society or likening his government’s economic policies to building a Lego structure full of fantasy and inventiveness.

It was more important because the better part of the interview was about the European Commission’s objections to the Fourth Amendment to the Hungarian constitution.

As far as the Hungarian prime minister is concerned, there is nothing wrong with the Hungarian constitution or any of the new laws passed by his two-thirds majority. The alleged legal objections are no more than “pretexts.” The real reason is a disapproval of his government’s economic policies. And he doesn’t beat around the bush. “Hungary stepped on the toes of [the western countries]. This is clear. Every time in the interest of the Hungarian people we introduce, for example, bank levies or we tax multinational companies, attacks on Hungary come immediately. Now that we have decreased the price of utilities, these attacks intensify.”

So, the western countries of the European Union are putting political and legal pressure on Hungary in defense of the economic interests of their own capitalists. The pressure must be kept up because “the multinationals, especially some of the largest ones in the world, cannot reconcile themselves to the fact that they have to give up their extra, luxury, and guaranteed profits. They don’t want to accept the fact that we, meaning the current Hungarian government, will not resign ourselves to a situation in which people in Hungary should spend more for basic services than these firms charge in their own countries. This is unacceptable.”

In case some of you don’t know what Viktor Orbán is talking about when he mentions “luxury profit,” extra profit, and guaranteed profit, don’t worry. He doesn’t either. “Luxury profit” doesn’t crop up too often in Hungarian texts, but it seems that Fidesz politicians created this new “concept.” I found references to it from 2005 when Lajos Kósa and others used the word. I guess it means high profit. “Extra profit” is a hangover from the earlier socialist times when Marxist economists talked about a kind of ceiling on profit; any profit above that was a sign of capitalistic excess and exploitation. Unfortunately, one can still hear the term far too often.

Another comment I would like to make here is that utility prices are not really higher in Hungary than in other countries. In fact, they are a tad below the European Union average. The profit margin of foreign utility companies is pretty low. After all, prices are set by the government. Yes, the average Hungarian family spends a larger portion of its income on utilities, but not because the prices are extraordinarily high but because Hungarian wages are very low. So much for the tirade against foreign owners of utility companies.

The journalist who conducts these Friday interviews is well trained. He formulates his questions in such a way that Viktor Orbán has total freedom to talk about whatever he wants.  So, there was plenty of opportunity for the prime minister to express his total astonishment that there are no reasoned arguments on the part of the European Commission. Moreover,  “there are no concrete criticisms.”

A little later, however, Orbán forgot his contention that there was nothing concrete in either José Manuel Barroso’s letter or in Viviane Reding’s  speech in the European Parliament. Orbán admitted that  he knows “about three concrete questions mentioned by Mr. Barroso…. Two of them have no significance, so we are quite ready to accept his–in my opinion, wrong opinions.  But in the third question, we don’t want to engage in any discussion [with the Union].” The first two questions address the very severe limitations on political advertisement at election time and the transference of certain court cases at will from one court to another. If you recall, the Orbán government was willing to change these two laws slightly. There would be no limitation on advertisement for the European Parliamentary election and cases that involve European Union law would not be transferable.

Viktor Orbán at a press conference after his 2912 debate in the European Parliament  Reuters, photo  Vincent  Kessler

Viktor Orbán at a press conference after his 2012 debate in the European Parliament
Reuters, photo Vincent Kessler

Let’s see what Viviane Reding said about these two newly worded paragraphs. On the issue of restrictions of political advertisement she said: “Whilst limitations may be acceptable in some cases, they would only be lawful if they are duly justified and proportionate. It should be noted that the audience share of private media where the restriction would apply represents almost 80% in Hungary.” As for the amendment enabling the president of the National Office for the Judiciary to transfer cases from one court to another, she said: “If applied to a case concerning EU law, it could raise issues of incompatibility with the EU obligation to provide for remedies sufficient to ensure effective legal protection and to the right to a fair trial as foreseen by the Charter of Fundamental Rights.

The third concrete issue mentioned in the Barroso letter was Article 17 of the Fourth Amendment that deals with fines for infringement of European Union laws. Reding argued: “The implementation of this provision would mean that Hungary would introduce an ad-hoc tax on Hungarian citizens should Hungary be fined for breach of EU law. Is it really sensible to make citizens pay for a tax whenever the state would fail to be in compliance with EU law? In practice citizens would be penalised twice: once for not having had their rights under EU law upheld and a second time for having to pay for this. This could undermine the authority of the Court of Justice and could constitute a violation of the duty of sincere cooperation in Article 4 (3) of the Treaty on the European Union on the part of Hungary.”

Orbán refuses to budge on this third point. If Hungary has to pay a fine because its government violated European law, the government has a right to tax the people because otherwise the deficit might not be kept under the magic 3%. And Hungary can’t afford this. “This is a rule that is perfectly compatible with European efforts to keep the deficit low. This is an important limit on overspending. We will not retreat on this point. If necessary we are ready to go to the European Court of Justice on this issue.”

This is where Viktor Orbán stands at the moment. Let’s see where the European Commission stands: “As for the rule of law. Hungary will also need to take due account of the opinion that the Council of Europe/Venice Commission will deliver in June, in full accordance with both European Union and Council of Europe principles, rules and values. The Commission expects a responsible answer from Hungary to this opinion. “

I assume that by now the politicians of the European Union fully understand whom they are dealing with. Orbán is cunning, combatative, and ruthless. He might alter a word here or there in the constitution, but fundamentally nothing will change. He is standing firm. I don’t think he would even care very much if Hungary were stripped of its voting rights in the Union. What he cares about is EU money. Practically every penny that Hungary receives from the European Union in one way or another ends up in the pockets of his cronies and/or is spent on useless frivolities. EU subsidies help keep this man in power. And that’s a crime against the Hungarian people.