Convergence program

How do European Union funds end up in the hands of the Orbán family?

The European Union has been, wittingly or unwittingly, enriching members of the Orbán family. Today, in what is undoubtedly only one story of many, I’ll focus on Viktor Orbán’s eldest daughter, Ráhel.

The last time Ráhel, Rasi to her family and friends, was in the news was more than a year ago when she got married with great fanfare to István Tiborcz, a 27-year-old businessman with a law degree. In 2008 Tiborcz and a friend started a small business dealing with electrical and energy supplies. In 2009 the business had a modest profit of 8 million forints on which they paid 2 million in taxes. Two years later the annual profits of the groom’s business were over 2.5 billion forints.

Ráhel is in the news again. This time on account of her spending a year at the École Hôtelière de Lausanne in Switzerland where she is working toward “an Executive MBA in Hospitality Administration.” Why the interest in Ráhel’s studies? The reason for all the fuss is the high tuition fee she has to pay for the two semesters she is spending in Lausanne. The cost is 60,000 Swiss francs or 15 million Hungarian forints. Because of the recent focus on alleged widespread corruption among Hungarian politicians, this tuition fee prompted questions about the source of the money. Journalists pointed the finger at Rasi’s father, Prime Minister Viktor Orbán. How can he plop down 60,000 Swiss francs?

I, who followed the research done by Atlatszlo.hu at the time of the wedding and reported about the sudden enrichment of István Tiborcz, couldn’t quite understand why Hungarian journalists assumed that it had to be Orbán who footed the bill when Rasi has been married for over a year to a young man who since 2010 has become quite wealthy.

Ráhel became tired of all the questions and accusations and decided to speak up on her Facebook page. She said that she and her husband are paying her tuition, not her father. I’ll bet she regrets that decision now because her Facebook note prompted Atlatszlo.hu to look into Tiborcz’s more recent business affairs. And what they found is not pretty.

The happy couple

The happy couple

Of course there is nothing wrong with being a successful businessman, but István Tiborcz’s success most likely has nothing to do with his business acumen. Before Viktor Orbán became prime minister he owned a very modest business. The meteoric rise in his fortunes can be compared only to that of Lőrinc Mészáros: from 8 million in revenues in 2009 to 3 billion in 2011.

How did he achieve this incredible feat? In 2010 one of Közgép’s divisions purchased the majority of shares in Tiborcz’s business and used it as yet another of its conduits for EU cohesion funds. The customers of E-Os Innovatív Zrt., as the business was renamed, were almost exclusively municipal governments with Fidesz mayors. They contracted with E-Os to do work that was funded by cohesion funds from Brussels.

For reasons that are unclear, in 2012, according to publicly available information, Tiborcz’s business was renamed Elios Innovatív Zrt. and Közgép no longer had a majority stake. Two companies bought out Közgép, one of which, Green Investments, was owned by a former partner of István Tiborcz, Endre Hamar. The change in ownership had a decidedly negative impact on the company’s revenues. In 2012 Elios Innovatív Zrt. grossed only 20 million forints. Three weeks after the 2014 national election, however, Tiborcz bought out his former partner Endre Hamar, and from there on business boomed.

Tiborcz’s firm installs street lighting. Atlatszo.hu lists 2.9 billion forints worth of contracts with different municipalities: Hévíz, Balatonfüred, Kecskemét, Szekszárd, Dunaújváros, Sopron, Hatvan, Kalocsa, Bicske, just to mention a few. Most of these revenues (2.1 billion) were the result of a tender issued by the Nemzeti Fejlesztési Ügynökség (National Development Agency) and financed by the European Union. Local governments could apply for grants to reduce their energy costs; if successful, they received large sums of money to have the appropriate work done.

There are strict EU guidelines that the Hungarian authorities must follow. The most important rule is that the firm that prepares the technical details must not in any way be connected with the successful bidder. However, as Atlatszo.hu discovered, most of the tenders Tiborcz’s firm won were prepared by his former partner, Endre Hamar, who owned another company called Sistrade Kft. It is likely that Hamar and Tiborcz acted in collusion, making Tiborcz’s bid fraudulent. In fact, Atlatszo.hu notes that the arrangement was so bizarre, and presumably illegal, that Hamar was still an owner of Elios Innovatív Zrt. at the end of April 2014 when the firm signed the contract with the city of Héviz.

Atlatszo.hu did a yeoman’s job in trying to make sense of the company’s shifting identity and ownership structure. Unfortunately, many questions remain. One that baffles me is the role of Simicska’s Közgép. I find it more than a little odd that Simicska’s Közgép shows up to support the fledgling business of István Tiborcz, already known to be Ráhel’s boyfriend, only to withdraw from the firm after its spectacular growth. Közgép is not, as far as I know, active in venture capital or private equity. And, as the next year’s revenues showed, Tiborcz’s company was not ready to stand on its own.

I think it would be high time for Brussels to take a harder look at some of the businesses–and individuals–that profit from its largesse. Let’s not forget that in this case we are talking about the daughter and son-in-law of the prime minister. Surely, the goal of the EU convergence program is not to make the Orbán family rich.

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The tenth anniversary: Hungary and the European Union

It was ten years ago that ten new countries were admitted to the family of the European Union: Lithuania, Poland, Slovakia, Latvia, Estonia, Czech Republic, Malta, Hungary, Slovenia, and Cyprus. The Hungarians were somewhat disappointed because they felt that Hungary was better prepared for membership than some of the others and had hoped that the admission would not be wholesale, that Hungary would be handled differently from the rest.

Since then an incredible amount of money has arrived in Hungary from Brussels, but unlike some other countries in the region Hungary has not made good use of this largesse. To make the size of the contribution easier to grasp, 16 Metro4s could have been built from the EU monies. Or, between 2004 and 2013 the money Hungary received amounted to a gift of half a million forints for every citizen of the country. Or, as someone put it, Hungary received 2 billion forints every day for the last ten years from the Union. In forints, Hungary received 6.2 trillion forints that went straight into the budget while another 2.1 trillion came in some other form of financial assistance. In the last four years 90% of all government investment came from the European Union. Yet there is little to show for it.

The results are especially disappointing if we compare Hungary to other countries in the region. In 2004 Hungary’s economic advancement measured in GDP per capita was 63% of the EU average. Today that figure is 67%, only 4% higher. Slovakia, on the other hand, during the same period managed to gain 20% and now stands at 77% of the EU average. The very low Hungarian wages have also been slow to rise. Ten years ago the average wage was 93,000 forints. It is now 151,000. But in terms of real wages that is only a 12% rise. The number of jobs has grown by 38,000–only 1% more jobs than in 2004.

According to The Economist there are four clear winners among the new member states: Lithuania, Latvia, Poland, and Slovakia. One has only to look at the IMF chart below to see how badly the Hungarian economy has done in the last ten years despite EU subsidies that were the highest, given the size of the population, of any country in the region:

10-year EU tagsagThe Bruegel Institute, a European think tank specializing in economics, published a study yesterday entitled “10 years EU enlargement anniversary: Waltzing past Vienna.” According to the study, measured in terms of purchasing power Warsaw, Bratislava and Prague now have a higher GDP per capita than Vienna. Budapest failed to surpass Vienna, although it is not too far behind.

Enikő Győri, the person responsible for Hungary’s dealings with the European Union (I don’t envy the woman), naturally puts a better spin on the state of affairs. She emphasizes that Hungary’s EU membership is “an unqualified success.” I guess she is right if we look at the inflows, but the story is different when we look at the meager results. She claims that in the last ten years Hungary managed to increase its GDP by at least 10% and its economic growth by 1.2% . These figures apparently come from an unnamed Belgian research institute. She had to admit, however, that on the basis of purchasing power Hungary in 2004 was in second place, just behind the Czech Republic, whereas by 2014 both Slovakia and Poland managed to surpass Hungary. The Washington Post described the last ten years in countries such as Poland as a period of “galloping growth.” That was certainly not the case in Hungary.

The tenth anniversary came and went, but there was no commemoration of Hungary’s ten years in the European Union. Magyar Narancs published a very, very short article. It had only a headline and a “picture.” The headline read: “A telling picture of the celebrations of the tenth anniversary.” And underneath was an empty picture frame. ATV collected a list of comments by politicians from both camps. Those from Viktor Orbán’s side were uniformly negative. We must keep in mind, however, that the prime minister said in his victory speech that the election results showed that Hungarians want to stay in the European Union, albeit with a strong national government. There is no alternative to the European Union.

The Orbán faithful try to follow his lead, although it is clear that they find it difficult to be enthusiastic. Gábor Stier in an opinion piece in Magyar Nemzet does write that “we are on the right path,” but he bemoans the lack of “solidarity” in the Union. I don’t know how many more billions of euros would be enough for Stier to feel true solidarity coming from the richer members of the Union. And naturally, he is uncomfortable with the “crisis of values” the Union allegedly suffers from. But in the end, he even risks saying that the “rules of the club are a disciplinary force that keeps Hungary on the straight and narrow.”

Before we get too optimistic about future relations between the Orbán government and the European Union we might want to take a look at a headline in today’s Magyar Nemzet: “The European Union wants to shove dangerous honey down our throat.” Here we go again!

Hungary and the European Union

Anyone who thinks that Fidesz politicians–and here I think mostly of Viktor Orbán and his bosom buddy László Kövér–have been using unacceptable language about the European Union only lately is wrong. Among my notes I found a few choice words from the not so recent past. László Kövér, for example, described European politics as “gang warfare” and members of the European Union as “ignominious dregs.” Lajos Kósa compared José Manuel Barroso to “an absolutely undistinguished coach of a football team in the second tier of the national championship. Just read Karinthy. It is about Barroso.” [Frigyes Karinthy (1887-1938) was a writer of satirical pieces that are great favorites in Hungary.] As for the seriousness of the Commission, “its work can be compared to that of  a provincial fishing club.” All these quotes are from March 2012 when the Hungarian government pretended that it actually wanted to have a deal with the IMF and claimed that it was only the European Commission that stood in the way of an agreement.

A year later, in February 2013, it was time for a different tactic. Herman Van Rompuy was visiting Hungary and Viktor Orbán went out of his way to be ingratiating. He begged the European Union to be understanding toward poor Hungary, a country that had been cut off from the world for forty years and had suffered under communism. In February he still had to worry about the excessive deficit procedure and had to convince the officials in Brussels that his unorthodox handling of the economy would bear fruit. He assured Van Rompuy that economic growth would be much more robust than predicted and proudly pointed to a very low deficit. (Since then it has become obvious that economic growth is still practically nonexistent. Moreover, in the first five months of the year the deficit was 3.8%.) Orbán said that the success of the European Union is vital for Hungary, and therefore he promised support for the proposed banking union. (He hasn’t had to deliver on his promise yet.)

After February Viktor Orbán’s attitude changed. Orbán decided to return to his old game of  biting the hand that feeds him. Because, let’s face it, without the EU subsidies the economic situation of the country would be even more disastrous than it is now.

I just read a short article that appeared on the Internet site fn.24. It gives exact figures on the subsidies Hungary has received from the convergence program that is designed to help the less developed countries catch up with the richer countries in the West. The numbers are truly staggering.

In five years Hungary paid into the common EU treasury about 5 billlion euros, about 0.9-1.0 billion every year. But in 2007 it received 2.4, in 2008 2.0, in 2009 3.6, in 2010 3.6, and in 2011 2.4 billion euros. The difference in Hungary’s favor amounted to 9.3 billion euros. That means that every Hungarian citizen, including babes-in-arms, received 280,000 forints from the European Union between 2007 and 2011.

Tons of money by pfala / Flickr

Tons of money by pfala / Flickr.com

Fn24’s reporters tried to find out how much the honorable members of Hungary’s parliament know about the size of these subsidies. They didn’t manage to get any answer that even came close. In fact, most of the parliamentarians had no clue at all. They didn’t even dare to guess.

Now let’s see what is happening in foreign investment. You may recall that József Szájer had the temerity to lie straight into the face of his fellow MEPs when he claimed that Hungary has never received as much foreign investment as it did this past year. The truth is just the opposite. Ever since 2007 fewer and fewer foreign companies have been investing in Hungary. In 2007 foreign investment was still quite high: 4.4 billion euros. A year later it shrank to 3.1 billion and in 2009, in the wake of the financial crisis, it dropped dramatically to 1.3 billion. By 2011, two years into the Orbán administration, it is still only 1.1 billion euros. In the last three years EU subsidies were about triple the amount of direct foreign investments.

Meanwhile one can hear the most incredible claims belittling the amount of money Hungary is receiving from the European Union. The latest example comes from Bence Rétvári, a Christian Democrat and undersecretary in the Ministry of Administration and Justice, in an interview with Olga Kálmán of ATV. Actually, it is worth watching this exchange if for no other reason than to get a glimpse of this unctuous fellow who is in many ways a prototype of the young Christian Democrats who received high positions in the administration. In vain did Kálmán insist that Hungary received a great deal more money than it contributed to the common purse. Rétvári wouldn’t buy it. According to him, as a result of Hungary’s membership in the EU it loses sizable revenues that it was able to collect before. I assume he means export and import duties, but I have no idea what that would have amounted to in five years.

Hungarian politicians’ harsh words on the European Union and all the disadvantages Hungary’s membership entail reminded the author of the article I relied on for the figures of EU subsidies of The Life of Brian (1979). Specifically the perhaps most famous scene when the members of the Judaean People’s Front try to incite the people to revolt against the Romans. I recommend it for a hearty laugh.

Indeed, the advantages so outweigh the alleged disadvantages, and not just in economic terms, that EU membership really shouldn’t be a topic of discussion. But then, Hungary’s membership in the European Union might prevent Viktor Orbán from introducing outright dictatorship. And I guess that’s a colossal disadvantage.