European Commission

The government media on OSCE’s final report on the Hungarian elections

Judit Csernyánszky, a member of MSZP’s press corps, wrote an opinion piece in today’s Népszava with the title “The Hidden Report.” It is about the silence that surrounded the final report of OSCE on the Hungarian election of April 6, 2014.

The final report was released on July 11, 2014, but MTI was silent. On that day only an obscure organization called Alapjogokért Centrum (Center for Basic Rights) reacted to the report. This “organization” seems to be a phantom that the government calls up whenever an alleged attack on it requires an “independent” assessment. For example, it was this organization that severely criticized Kim Scheppele’s work on the Hungarian electoral system.

OSCEreportIt was only on the next day, by which time Magyar Hírlap had already published an article about the Alapjogokért Centrum’s criticism of the OSCE report, that MTI decided that it was time to deal with this unwelcome piece of news. The MTI release is an odd piece of journalistic writing because it starts not with the important news item, the appearance of the report, but with the reactions of the opposition parties to it. It is only at the end of MTI’s press release that one can read that, according to the OSCE report, “the elections were efficiently organized and offered voters a diverse choice following an inclusive candidate registration. The main governing party enjoyed an undue advantage because of restrictive campaign regulations, biased media coverage and campaigning activities that blurred the separation between politics and State.”

Here I would like to concentrate on the right-wing media’s handling of this unwelcome report. First, let’s look at Magyar Hírlap, which began its article on the topic thus: “According to 444.hu, [OSCE] found serious problems connected to the elections that gave undue advantage to the government parties. On the other hand, the Alapjogokért Központ welcomes the report that states that the Hungarian national election was well organized. However, the document contains several mistaken assertions on the details.” Clearly, the journalist responsible for this article did not read the document itself.

Another right-wing blog, Pesti Srácok.hu, copied the same 444.hu/MTI article that served as the source for Magyar Hírlap. I checked provincial sites and found only one paper that carried the same story. Mandiner, whose younger conservative journalists are occasionally critical of the government, decided this time to rely on MTI. Safer, I guess. Gondola‘s headline for the same MTI article read: “According to OSCE the elections were conducted successfully.” Magyar Nemzet decided to remain silent about the publication of the document.

What could people hear on the state radio and television stations? According to Csernyánszky, practically nothing. MTV’s evening news didn’t even mention it. On MR it was mentioned in the next day’s news program at noon, but they spent only half a minute on the topic without saying a word about the opinion of the opposition, which was brief and to the point. OSCE clearly states in the report that Fidesz’s two-thirds majority is illegitimate.

Of course, the opposition organs gave all the details and all the critical remarks of the report, but considering the relatively small audience these media outlets reach one can conclude that Judit Csernyánszky is right. The government and its servile media managed to hide the report from the Hungarian public. I suggest that you read the document. It is thirty pages long and not only includes criticisms but also gives suggestions, 36 all told. I very much doubt that these suggestions will be adopted by the government. After all, the electoral law was devised in such a way that it would produce exactly the kinds of results the April 6 election returned: the continuation of the unlimited power the government had enjoyed in the previous four years.

What do the other parties plan to do? Együtt-PM apparently is planning to compile the suggestions of OSCE and produce a list of amendments to the current electoral law. Well, this is better than nothing, but we can be pretty sure that none of the amendments will even reach the floor of the parliament.

The Demokratikus Koalíció has another plan. The party announced today that its two members in the European Parliament, Csaba Molnár and Péter Niedermüller, had inquired from the European Commission whether in light of the OSCE report the commission is contemplating turning to international courts because the Hungarian electoral law “violates the principles of democratic elections and the existing international conventions.” I am not surprised by this strategy. When I heard that Molnár and Niedermüller were heading the DK list for the EP elections, I suspected that the party’s leadership thinks that the European Parliament should be used more extensively for calling attention to the state of democracy in Hungary. Both men hold important positions in DK. Csaba Molnár was a spokesman of the party and the right-hand man of Ferenc Gyurcsány. I don’t know whether the DK MEPs will be successful, but one thing is sure: they have more of a chance in Brussels than in Budapest.

The European Commission is not happy with Hungary’s economic performance

Yesterday the European Commission published a press release after the commission staff concluded its fifth Post-Program Surveillance mission to Hungary. After a few encouraging remarks that welcomed recent economic improvements, the authors of the memo delivered some bad news. The better economic indicators are mostly due to artificial one-off stimuli (a decrease in utility prices, the central bank’s low-interest loan program, the workfare program, and greater use of EU subsidies) and therefore one must be cautious when assessing the state of the Hungarian economy. The report also pointed out that “although the general government deficit has been kept below the 3% of GDP threshold, government debt is not yet on a firm downward path.” Furthermore, it warned that based on the Commission’s 2014 spring forecast, “the country appears at risk of breaching the requirements of the Stability and Growth Pact.” They suggested “additional fiscal consolidation efforts, in order to avoid that an inadequate pace of debt reduction could trigger the re-opening of an excessive deficit procedure in spring 2015.”

That was  not all. The mission stressed the “benefits of pursuing growth-friendly fiscal consolidation.” The mission also called for a  stable and more balanced corporate tax system, including “phasing out distortive sector-specific taxes.” They recommended an improvement of the banks’ operating environment, including a reduction in their tax burden. And finally, “the mission called for improving the business environment and emphasized the need to stabilize the regulatory framework and foster market competition, in particular by removing entry barriers in the service sector.”

All this sounds like reasonable advice. Hungarian economists who are more and more critical of Viktor Orbán’s unorthodox economic policies have been saying the same thing for a number of years, to no avail. And it is unlikely that the Orbán government will heed the European Commission’s advice, especially their call to reduce the tax burden on the banks. Viktor Orbán immediately charged the European Commission with serving the interests of banks and multinational corporations when it threatens Hungary with the excessive deficit procedure.

Banks have it hard in Hungary. Here is one example–András Hámori, a senior executive of the Russian Sberbank Europe AG, gave an interview to Reuters that was later picked up by the Moscow Times. Hámori sees good business opportunities in the Czech Republic and Slovakia as both are expanding markets where taxes on banks are contained. But not so in Hungary where the “regulatory environment posed many challenges, which warranted caution.” He continued: “So when a shareholder decides where to deploy capital he obviously has to look at the potential return, and Hungary here does not rank on top, more like the opposite side.”

In addition to exorbitant tax levies banks also have to cope with the forex-loan problem. Prior to 2008, during the tenure of Zsigmond Járai, the Fidesz appointed governor of the central bank, the interest rate on loans denominated in forints was very high; therefore most people took out loans in foreign currencies, primarily in Swiss francs and in euros. It was a great deal while it lasted, but in the last four or five years the Hungarian forint weakened considerably against both of these currencies, placing a heavy burden on the debtors.

The Hungarian government decided to ease the hardship of those people with foreign-currency loans. With the bill that was recently approved by parliament, the Hungarian government seems to put most of the burden on the banks. According to some estimates this piece of legislation will cost the Hungarian banking sector $4.85 billion. Moreover, it looks as if the banks will have to convert foreign-currency loans to loans in forints.

Over the past week or so the Hungarian forint has fallen from 305 to the euro to 312 today. This weakening stems primarily from the central bank’s cutting interest rates to what some consider “dangerous levels.” In the last two years the interest rate was lowered from 7% to 2.3%, and last week there was talk that the central bank is contemplating at least one further reduction. The forint’s decline only accelerated after the forex bill was submitted to parliament for discussion.

Soource: Politics.hu

Source: Politics.hu

The EU is raising the possibility of reinstating the excessive deficit procedure against Hungary in 2015 because of Hungary’s very high national debt, which has been growing instead of shrinking as the Orbán government promised. This growth is especially glaring if we consider that the government could have reduced the national debt by 10% if it had earmarked for that purpose all of the money it expropriated from the private pension funds of millions of Hungarians. Today there is not one red cent left from this pension money, and it’s unclear what new sources the government can tap to bring down the growing national debt.

Reducing the national debt is especially difficult because the Orbán government is a profligate spender. They are especially keen on nationalizing private businesses. Moreover, beginning this year Hungary will have to pay interest on the 10 billion dollar loan from Russia although the actual building of the reactor will not begin for years. That will add considerably to the national debt.

All in all, I am almost certain that the country’s finances are in a shambles. However, Mihály Varga excludes any possibility of any excessive deficit procedure (szó sincs túlzottdefecit-eljárásról). He admitted that “Hungary probably will have to introduce further financial consolidation in order to lower the national debt.” I will be curious to see who’s next on the hit list.

The population hears only about the economic growth Hungary has achieved in the last few months and the higher GDP than earlier anticipated; they have no clue about how fragile the Hungarian economy really is. One could counter: “Well, just think how many times in the past four years critics of the Orbán government have predicted that the whole economic edifice Viktor Orbán and his right-hand man György Matolcsy built will collapse. And look, nothing of the sort happened.” Indeed, until now they were lucky, but how long will that luck last? There will be a day of reckoning, I believe. Mind you, they might manage to keep the country afloat just long enough to make the day of reckoning a problem for their successors.

A new Hungarian government and a new interim foreign minister

Right after the election, the media began the usual guesswork on the composition of Viktor Orbán’s new government. Most of the speculation turned out to be wrong,  but four days after the election it looked pretty certain that Miklós Szócska, undersecretary in charge of health care, Rózsa Hoffmann, undersecretary in charge of education, and János Martonyi, foreign minister, would leave the government. The media also learned early on that Tibor Navracsics will move from the Ministry of Administration and Justice to the Foreign Ministry. Otherwise, at least on the ministerial level, very few changes were made. With the exception of Mrs. László Németh at the head of the Ministry of National Development and János Martonyi, all other ministers remained part of the team.

First, perhaps I should say a few words about the odd structure of Viktor Orbán’s government. While in opposition, Orbán harshly criticized expenditures he found superfluous. If it depended on him, all ministers would have used ten-year-old cars with 500,000 km on them. He promised a frugal government. In order to demonstrate that frugality, he got it into his head that his new government will be the smallest of all Hungarian governments since 1848. So, he created only eight ministries, as Lajos Batthyány did on March 23, 1848. But the world has changed a bit since, and it was apparent from the very beginning that a lot of tinkering would be necessary to create a functioning government with only eight ministries. Mega-ministries were created, the largest and most unmanageable being the Ministry of Human Resources that was supposed to deal with education, health care, sports, and culture.

The new arrangement did not result in the desired frugality. On the contrary, the reorganization entailed additional expenses. Moreover, although there might have been only eight ministers, the number of undersecretaries who actually functioned as ministers multiplied. In the past, there were twelve or fourteen ministries and each had two undersecretaries: one who was a kind of deputy minister who could represent the minister in parliament and answer questions from the floor and the other, the administrative undersecretary who was allegedly in charge of running the ministry itself. Thus if there were fourteen ministries the number of undersecretaries would be 28. Now with eight ministries we have 48!

At one point Viktor Orbán quipped that one will hardly notice that a new government has been formed because so few changes will be made. Actually, this is pretty much the case. There is only one personnel change on the ministerial level: in place of Mrs. László Németh, Orbán picked Miklós Seszták. More about him in a forthcoming post.

Moving Tibor Navracsics to the Foreign Ministry is a strange decision, especially since it was already decided that in six months he is leaving for Brussels to be one of the 28 commissioners. The current Hungarian commissioner, László Andor, was appointed by the socialist-liberal government in 2009. With the formation of the new European Commission, Orbán at last has the opportunity to appoint his own man. When Navracsics goes to Brussels, Péter Szijjártó will replace him as foreign minister. Péter Szijjártó has already moved from the Prime Minister’s Office to the Foreign Ministry, where he is considered to be Navracsics’s temporary deputy. And by the way, the ministry was renamed the Ministry of Foreign Trade and Foreign Affairs.

There were plenty of rumors to the effect that Viktor Orbán wasn’t entirely satisfied with Navracsics, who apparently did not agree with some of his decisions. Journalists learned that he rarely spoke at cabinet meetings, but his face registered his bemusement or disagreement. Politicians who fall out of favor are often sent out to pasture in Brussels.

In today’s Népszabadság there is a long interview with Navracsics. It is hard to tell how honest Navracsics is in this interview, but he claims that he is happy with his new post because he has always been interested in foreign affairs. I find it hard to imagine that anyone can be happy with a six-month stint holding the position for someone else, especially for Péter Szijjártó. After all, Navracsics in civilian life was a university professor of some standing, and I can’t imagine that he considers this young man suitable for the job. And now he is forced to make him his deputy and later hand over the job he most likely wouldn’t mind having himself.

Tibor Navracsics, interim foreign minister / Photo Miklós Teknős, Népszabadság

Tibor Navracsics, interim foreign minister / Photo Miklós Teknős, Népszabadság

His task as foreign minister is “to carry out the foreign policy of the Hungarian government … which is headed by Viktor Orbán.” Specifically, he stressed that “the opening to the East does not mean the closing to the West, just as Prime Minister Orbán says.” In brief, the “peacock dance” will continue in the next six months, not that I expected anything else. There might, however, be a slight change in the delivery of the messages, especially since Navracsics is well versed in political philosophy. He knows, for example, that all that talk of Viktor Orbán about the “decline of the West” is “a century-old idea that turns up from time to time.” Here he sounds like a man who doesn’t take Orbán’s ideas terribly seriously. He also stressed that with cooperation one can achieve more than with confrontation, but added that “cooperation is not equal to friendship.” Some of his incredibly aggressive encounters with Commissioner Viviane Reding are striking counterexamples of this principle of cooperation.

Navracsics is quite capable of contradicting himself. For example, in one sentence he claims that in the last ten years Hungary was not able to make its “European policy really successful.” He added that “one must take size into consideration … therefore we cannot have such ambitions as Germany or even Poland.” But when the journalist reminded him that Viktor Orbán is acting like the prime minister of a great power, he quickly retreated, saying that “he can certainly do that because after all our weight in the European Council is the same as all others.”

He showed himself to be open toward the opposition when he emphasized that “we are the members of the same political class as the opposition parties.” When it was pointed out to him that he himself in the election campaign claimed that Fidesz alone represents national interests in Europe, naturally he couldn’t deny it, but he said that he does not want to open “that chapter again.” Now, after the election, “the two sides should take a deep breath and begin a new kind of cooperation.” (The few comments to this interview called Navracsics a liar.)

Tibor Navracsics is heading to Brussels. There he is supposed to represent the interests of the European Union, but clearly he will be there to represent the interests of Viktor Orbán. He will have to hone his obfuscation skills even more finely to appear acceptable to his colleagues in the Commission.

How can the American black locust become a “Hungaricum”? Just ask Fidesz

Way back in  2008 the decision was made that the European Commission should take over the fight against alien invasive species in the territories of the Union. Although zoologists and biologists of the member countries had urged their governments to act, little progress had been made. Finally, it was decided that the problem must be handled centrally.

Years have gone by, but then we know that the EU’s bureaucracy is not known for its speedy resolution of issues. The bill was presented to the European Parliament only in September 2013, and it was in January of this year that the European Parliament discussed the matter. It turned out that at the urging of Hungarian scientists the European Union was planning to put the Robinia pseudoacacia, known in Hungary as white acacia, on the alien invasive species list. The plan is not to eradicate the acacia tree–that would be an impossibility–but rather to check its spread.

akac

This particular variety of acacia tree is native to the United States. Interestingly, it  is called the black locust in this country. Black locust trees can be found in the Appalachian Mountain regions of Pennsylvania and Ohio in addition to some areas farther west in Oklahoma and Arkansas. It is considered to be an invasive species here as well, and its control is regulated. American scientists admit that “control of black locust is difficult and no technique has been identified as entirely effective.”  The most cost-effective method is prevention.  Hungarian scientists are of the same opinion, and since 2009 the white acacia has been on the Hungarian list of alien invasive species. The Hungarian decision was made at that time without any pressure from the outside. Yet in the last few months the Orbán government has fought tooth and nail against the inclusion of the acacia on the EU’s list of undesirable species.

The hysteria about the fate of the acacia was initiated by Béla Glattfelder, a Fidesz member of the EP, who rose in the European Parliament during the debate of the bill to protest the “attack” on the acacia tree, which is considered to be an important agricultural asset for Hungary. After all, half of all acacia trees in the European Union can be found in Hungary and the tree is an important source of income for tens of thousands of people, especially beekeepers and owners of private forests. He emphasized that honey made out of the flowers of the acacia is a true “Hungaricum.” In addition, acacia wood is a valuable building material.

As soon as he got wind of what was under foot, he alerted owners of acacia forests and beekeepers, who formed an alliance to “combat the domestic and foreign endeavors to limit the spread of the acacia.” The coalition under Glattfelder’s guidance started lobbying to have both the acacia tree and acacia honey be declared  “Hungaricums.”

Glattfelder is an old Fidesz hand. He was a member of the Hungarian parliament between 1990 and 2004. In 2000 he also became undersecretary in the ministry of economics, dealing mostly with agricultural matters. Since 2004 he has been a member of the Fidesz delegation to the European Union. His name does not, however, appear among those who might represent Fidesz after the 2014 EP election. So this may be Glattfelder’s last hurrah in Brussels.

After Glattfelder sounded the alarm, the Hungarian ministry of agriculture moved into action. The ministry made it clear that the Hungarian government will fight the impending legislation. It is as outlandish to eliminate the acacia tree as it would be to forbid the growth of corn. As if anyone planned the eradication of the acacia tree.

The hysteria spread far and wide, with assistance coming from Glattfelder and Sándor Fazekas, minister of agriculture. Headlines like these have appeared in the last three or four months: “What will happen to the acacia? Will the Union destroy it?” Or “Hungarian honey and acacia forests are in danger!”

By the end of February the Hungarian Academy of Science’s Ecological Institute felt that it was time to enlighten the Hungarian public on the true state of affairs. The scientists pointed out that the information that had appeared in the Hungarian media was “based on the most outrageous misconceptions and false allegations.” The institute tried to set the record straight but, as we will see later, not with great success.

The acacia forests are not endangered. On the contrary, acacia trees grow on 463,000 hectares, about a third of all Hungarian forests. Since 1990 the area with acacia trees has grown by 150,000 hectares and it is still growing. The real problem is that acacia trees are all over, along country roads, sometimes very close to areas under ecological protection. They spread rapidly. There are places where they managed to eradicate native flowers, even animals. The scientists specifically mention Echinops ruthenicus (szamárkenyér), about whose blue flowers Sándor Petőfi wrote lovingly in 1844. Because of the acacia they are now practically nonexistent. According to the scientists, 200,000 hectares are currently threatened by “the acacia invasion.” What they would like to prevent is the tree’s spread into this 200,000 hectare area.

Of course, the scientists didn’t manage to counteract the hysteria created by Fidesz and the Hungarian government. On March 12 Sándor Fazekas held a forum in Kunhegyes close to the area where there is perhaps the largest concentration of acacia trees in Hungary. Here he indignantly stated that the Union has no right whatsoever to tell Hungarians what kinds of trees they can grow in their own country. In his opinion, the acacia tree is a “Hungaricum” whose spread should be encouraged.

A day after, on March 13,  Hungary using a legal loophole vetoed the draft bill in the Council of Europe. It was a compromise bill that had already been accepted in the European Parliament. That bill didn’t mention the acacia or any other offending species. But Hungary refused to sign it because they didn’t receive a 100% guarantee that acacia would not be on the list.

For a while it looked as if Hungary had managed to avert “the danger” to the would-be Hungaricum. The Hungarian government was elated, but then came the letdown. A week after the veto the Council of Europe passed the draft bill. Mind you, the fate of the acacia is still not clear. No explicit guarantee came from Janez Potocnik, the commissioner responsible for environmental issues, but the Hungarian government hopes that its lobbying was not in vain. The final bill will be voted on only in the fall of 2015.

Meanwhile we are being told that the American black locust will be a Hungaricum.

New infringement procedures: “pálinka” and big box stores

The European Commission most likely waited until the election was over before handing down some bad news to the Hungarian government. The first to reach Budapest was a court ruling on the issue of tax-free “pálinka,” a powerful alcoholic drink made out of various kinds of fruit. The Orbán government’s decision to allow country folk to produce tax-free home brew from fruit grown on their own land came early. It was one of the twenty-two proposals presented by Viktor Orbán to solve the “economic crisis,” and it went into effect on July 1, 2010 despite warnings that it was in contravention of EU law. The announcement that home-distilled pálinka would no longer be taxed was described as the pinnacle of ninety years of struggle for liberation against the backdrop of the tyranny of the state. The “tyranny” referred to was the sensible regulation that owners of orchards who wanted to distill pálinka had to take their fruit to a state distillery and pay tax on the product.

This hasty decision to please Fidesz’s rural voters had all sorts of negative effects. First of all, since these amateur distillers can produce up to 50 liters of pálinka a year without paying taxes, the Hungarian state nowadays receives considerably less revenue from excise taxes on liquor. Second, the professional pálinka producers worried about the hard-won fame of good pálinka, which is considered by the European Union a “hungaricum” and is highly regulated. It must be made from fruits or herbs indigenous to the Carpathian Basin and grown in Hungary. It must be produced and bottled in Hungary, and its alcohol content must be between 37.5% and 86% ABV (alcohol by volume).

To make a long story short, a few days ago the European Court of Justice handed down its ruling: Hungarian home brewers must pay taxes on their products even if they produce no more than 50 liters a year. The reaction? The typical Fidesz one. Instead of telling Brussels’ real objections, they lie and claim that “the bureaucrats in Brussels want to abolish the national heritage of pálinka distillation which is a hungaricum.” Sándor Fazekas, minister of agriculture, called the court’s decision a provocation.

As long as the Hungarian government distorts the rulings of the European Court of Justice we shouldn’t be surprised if the ordinary Hungarian farmer in the countryside accuses the European Union of interfering with the values and traditions of their nation and if he develops a hatred of all those anti-Hungarian foreign bureaucrats. But I guess this is the purpose of the government rhetoric.

The second infringement procedure is about the “plaza stop.”  This particular infringement procedure hasn’t yet ended up at the European Court of Justice and it may never land there because of the extreme slowness of EU bureaucracy. For some background on this particular piece of legislation I suggest reading an old post of mine from November 2011. It started as an LMP draft bill and was then taken up and completely rewritten (and distorted) by the government party. The bill stated that between January 1, 2012 and December 31, 2014 no establishments greater than  300 m2 (3,230 ft2) can be built. Real estate developers protested, not without reason. Moreover, the law inflicted economic pain on the country. Hungary was in the midst of an economic crisis in which unemployment was high and the construction industry had almost collapsed. At that time there were at least five such retail outlets in the planning stages. All work on the construction had to be stopped.

Today the European Commission launched an infringement procedure against Hungary over the country’s ban on the construction of “hypermarkets” as it may be against the competition rule applicable in the territory of the European Union. The reaction? The usual Fidesz demagoguery. “The European Commission once again put the interests of large multinational companies before that of the small Hungarian businesses.”

Hyper market

But who is going to defend the Hungarian consumer from the higher prices which are inevitable in smaller retail stores? And what about the variety of goods that only large establishments can offer?  Small, individually owned stores can never compete with chains on price or availability. I know all the arguments pro and con on this sensitive issue, but the fact is that forcibly stopping economic developments that seem inevitable is not good for anyone, including the consumer.

Retail is always changing. Think, for instance, of the mail order catalogs of businesses like Montgomery Ward and Sears that not only revolutionized nineteenth-century retail but also improved the lives of the rural poor and the segregated blacks in the South. That was in the 1870-1880s. Today online companies like Amazon have disrupted retail yet again.

Yes, big box stores tend to squeeze out small retailers just as mail order catalogs were hard on ma and pa stores in the nineteenth century. But this is how modern economies function. The state’s role is not to forbid the normal flow of goods and services but to regulate their activities.

The European Union addresses rule of law issues: Hungary is center stage

Interestingly, it was The Irish Times that first got wind of the news that Vivien Reding, European Commission Vice-President responsible for Justice, Fundamental Rights and Citizenship, will announce a new mechanism to make it easier for the EU to deal with countries whose governments repeatedly abuse its judicial and legal framework and thereby threaten the rule of law in member states of the European Union. It is no secret that one of these countries is Hungary; the other is Romania. In Hungary, the Orbán government threatened the independence of the courts in addition to limiting freedom of expression. In Romania, Victor Ponta wanted to abolish the Constitutional Court altogether.

We knew, at least since José Manuel Barroso’s “state of the union” speech last fall, that the Commission was working on some kind of mechanism that would close the gap between repeated infringement procedures and the invocation of Article 7 of the Treaty of the European Union. Article 7 states that in case of serious and persistent breach “the Council, acting by a qualified  majority, may decide to suspend certain of the rights deriving from the application of the Treaties to the Member State in question, including the voting rights of the representative of the government of that Member State in the Council.” This is the most powerful weapon the EU has in its arsenal, but it has never been invoked because it is considered to be far too harsh. Leaders of the “rogue states” know that they will never face the threat inherent in Article 7. Accordingly, EU officials have pointed out that they either have to break the taboo concerning Article 7 or have to come up with alternative measures. Vivien Reding in the presence of President Barroso and Cecilia Malmström, Commissioner of Home Affairs, announced such an “alternative measure,” a mechanism that would close the gap between the lengthy and most of the time ineffectual infringement proceedings and the draconian but never used Article 7.

At first glance, the measures outlined by Vivien Reding seemed toothless to me. I was especially disappointed when I read about the “dialogue” the Commission will conduct with the government of any rogue member state. I recalled the endless dialogues between Brussels and Viktor Orbán that led nowhere while the Hungarian prime minister danced his peacock dance. But then I discovered a sentence that might give us hope. Reding said that “the Commission, as guardian of the EU treaties, also had to become the guardian of the rule of law in the Union.” They envisage an extension of the Commission’s competence.

The Commission will not deal with individual cases or miscarriages of justice, only with “systemic threats” to EU values. That is, a distinction will be drawn between individual infringements that don’t threaten the fundamental democratic structure of the state and grave, all-embracing changes that affect the entire body politic. As we know, in the last four years the Hungarian government fundamentally changed the whole “system.” In fact, Orbán only a few weeks ago admitted that the system that exists now is fundamentally different from what Hungary had prior to 2010. Indeed. Then Hungary was a democracy. Today it is not.

The photo Napi Gazdaság used for its article on the  Brussels's move against rogue states

The photo napi.hu used for its article on Brussels’ move against rogue states

How does the European Commission propose to deal with systemic threats to democracy? As a first step, it will collect evidence of “a systemic threat to the rule of law.” If such an assessment is made, “it will initiate a dialogue” by sending a “rule of law opinion” to the government in question. At that point the member state will have an opportunity to respond. In the second stage, “unless the matter has already been resolved, the Commission issues a ‘rule of law recommendation’ to the country concerned.” At this point the country will be given a fixed length of time in which to remedy the situation. These recommendations, unlike the “rule of law opinions,” will be made public. If the issue is not satisfactorily resolved, “the Commission can resort to one of the mechanisms set out in Article 7 of the EU treaty.” Whether this new three-tiered system ends up being as ineffectual as the former procedure remains to be seen.

The Hungarian media is in no hurry to report on this particular bit of news. Only two Internet sites published something on Vivien Reding’s announcement: Index and napi.hu. Both point out that the announcement is the consequence of the European Union’s endless and mostly fruitless struggles with Viktor Orbán’s systemic attack on the rule of law. Index specifically mentions Rui Tavares’s suggestion that the EU establish a new supervisory Copenhagen mechanism assessing member states’ compliance with the rule of law, fundamental rights and democracy. As you can see, the Copenhagen suggestion was not included in the proposal. Instead, the Commission itself assumed the role. Whether this is a better solution or not, I cannot determine.

In any case, the European Union made the first move. Of course, it will be many months before the new mechanism is in place, but I think that this time the Commission means business. Reding even announced “the need for an EU Minister for Justice taking the helm at a central level, giving EU justice policy a face and, of course, held accountable to the European parliament.”

Unfortunately, the European Union as it functions today is not a viable entity. Just as the Articles of Confederation turned out to be unworkable and had to be replaced by the Constitution of the United States of America. The European Union should realize that without a stronger framework, it will remain a toothless giant bogged down in intra-state struggles and endless bureaucratic wranglings.

Russia, Hungary, and the European Union: Paks documents released

It’s time to make sense of all the contradictory pieces of information that have reached the public in the last couple of days concerning the European Union’s attitude toward the Russian-Hungarian agreement on the Paks II nuclear power plant. The central question was whether the Orbán government notified Brussels, as it was obliged to, about the details of the agreement.

Energiaklub, a non-profit organization that deals with questions of energy and the environment, wrote a letter to the European Commission’s Directorate-General for Energy on February 17 asking for “access to the documentation related to the notification, under the Euratom Treaty, of the PAKS nuclear power in Hungary.” The answer was: “This investment project has not yet been notified to the Commission under Article 41 of the Euratom Treaty, and therefore at the moment no documents can be found in the Commission’s possession.” Critics of Viktor Orbán were only too happy to find that his administration seemed once again to have been caught lying. Soon enough, however, the relevant documentation was made public on the website of the prime minister’s office.

But before I talk about these newly released documents, which give us only a little more knowledge of the whole Paks affair than we had before, I would like to jot down a few dates by way of a road map.

I began collecting material on Paks and nuclear energy on October 18, 2013 when Viktor Orbán, then in India, boasted that Hungary would have extremely low energy prices in the not too distant future. He brought this up as an economic enticement for Indian investors. He also emphasized his commitment to nuclear energy.

Source: nuclear-news.net

Source: nuclear-news.net

Then for almost two months we heard nothing about nuclear energy. Finally János Lázár broached the subject and talked about advanced negotiations with Russia for Rosatom to construct two new reactors in Paks. What we didn’t know was that on December 10, 2013 János Lázár wrote a letter to Günther Oettinger, commissioner for energy. The released document is a cover letter to “the Draft International Agreement with the Russian Federation.” The letter also indicates that the Commission had been notified earlier, at its November 26, 2013 meeting, that “Hungary intends to enter into an international agreement with the government of the Russian Federation on the cooperation in peaceful use of nuclear energy.” Attached was the draft agreement “in accordance with Article 103 of the European Treaty.” The letter also reveals that talks between Brussels and Budapest about Hungary’s intention to sign such a treaty had taken place even before that date because Lázár assured the commissioner that they took “into consideration the comments obtained from the Commission.” The conversation between the commissioner and the Hungarian government is described as “open and constructive.” The confusion described above was most likely due to Energiaklub’s reference to Article 41 as opposed to relevant Article 103 of the Euratom Treaty.

A month later, on January 13, Viktor Orbán traveled to Moscow where Mrs. László Németh, minister of national development, on behalf of the Hungarian government, signed a document about which we still know very little. A couple of days later curious Hungarian journalists inquired from Günther Oettinger’s office what the European Commission thinks of the Russian-Hungarian agreement. They were told on January 15 that the Commission had not passed judgment on whether the lack of competitive bidding was an obstacle to the European Union’s blessing for the deal. However, they were told by the spokesman for Oettinger’s office that such a probe will take place some time in the future.

A good two weeks after his trip to Moscow, Orbán decided to write a letter to José Manuel Barroso, president of the European Commission, in which  he informed Barroso about “the recent developments with regards to nuclear energy cooperation between Hungary and the Russian Federation.” From the letter it becomes clear that there had been a response from Brussels to János Lázár’s December 10 cover letter attached to the copy of the draft treaty. According to Orbán, “the Commission raised no objection to the draft agreement” and therefore “my government signed the intergovernmental agreement on January 14, 2014.”

Orbán in this letter tried to downplay the fact that the job of building the nuclear power plant was given without any competitive bidding process. He added that “Rosatom, the Russian nuclear state authority, will be in charge of the implementation of the design and construction work. However, whenever any such work or services cannot be provided in-house, the Russian party will undertake an open and non-discriminatory tendering process.”

And finally, Orbán tried to reassure Barroso that the Russian-Hungarian deal actually serves European interests. “We believe that the long-term cooperation of Hungary with the Russian Federation in the field of nuclear power will contribute to strengthening the energy security of the EU as a whole.” It was at about this time that John Lukács, the conservative Hungarian-American historian who had fairly close ties with Viktor Orbán earlier, wrote him an open letter in which he warned about the deadly embrace of Putin’s Russia. I translated Lukács’s letter and Orbán’s rather impertinent reply.

By February 7 the Hungarian parliament, after five hours of debate, voted for a treaty about which the members knew practically nothing, even as opposition to the Russian-Hungarian deal was growing in the country. Most Hungarians didn’t want an extension to Paks, and they especially didn’t want to have the Russians building it. Foreign observers also envisaged a “Comecon reborn,” which looked quite possible after “realigning Ukraine as a satellite state under Vladimir Putin.” Nick Butler of the Financial Times emphasized Hungary’s “acceptance of Russian technology in its nuclear sector” and added that this huge investment will be financed by a Russian loan. He noted a reassertion of Russian power across the region and wrote that “the advance is not military but economic with energy issues to the fore.”

Barroso’s answer came on February 7. He referred to the progress made toward a common European energy policy. He attributed this success to the Commission’s “respect for Member States’ basic choices concerning their energy mix.” He added, however: “Member States’ commitment to comply fully with the rules of the Treaties and secondary legislation, in particular those governing the internal energy market, and to act in a spirit of coordination and full transparency, remains vital.” After the Commission examined the draft agreement it “raised no objections of principle to the agreement from the perspective of article 103.” But it seems that Orbán is still not entirely in the clear because “there are … other aspects of EU law to be observed, such as the rules on public procurement and state aid.”

Many people are convinced that the hidden state subsidies and the lack of public procurement are insuperable obstacles. Although who knows. Viktor Orbán always finds ways to come out on top.

Another corruption case and the news of the day

Yesterday I promised to write about another scandalous affair, this time involving a close friend and business partner of Viktor Orbán, István Garancsi. This morning after I read a number of articles on the subject I almost gave up on the idea. The case is so complicated–surely for good reason–that it takes some doing to figure out exactly what happened. Here is what I managed to put together. I’m waiting for more input from readers.

Shortly after Viktor Orbán won the election, companies dealing with distance heating wanted to raise their prices, a move that would not have been popular and something the new government wanted to avoid. So the government instructed the state-owned MVMP Partner Energiakereskedelmi Zrt. to supply gas to these providers from its reserves at a lower rate. In return, the government made sure that MVMP would receive cheaper western gas by way of compensation. In fact, the government bought a great deal more gas than was necessary to replenish the reserves. The extra, which was in fact the bulk of the purchases, was sold by MVMP to a company called MET. It then sold the inexpensive gas at a handsome profit.

MET has its headquarters in Switzerland, but some of its subsidiaries are in Cyprus, the British Virgin Islands, and the Cayman Islands. Behind its complex business structure are two Hungarians:  György Nagy and István Garancsai.  György Nagy was the founder of Wallis Rt., an investment company, whose CEO between 2000 and 2006 was Gordon Bajnai. Subsequent to Wallis Nagy was involved in several successful business ventures. István Garancsai is the owner of Viktor Orbán’s favorite soccer team, Videoton. He also owns a small credit union, Duna Takarék, which miraculously was not nationalized when all others were. It turned out that it was Duna Takarék that gave a loan of 600 million forints to Viktor Orbán’s soccer foundation in Felcsút.

These offshore companies got inexpensive gas thanks to the largesse of the Hungarian government. They then sold it at the going market price in Hungary. According to estimates, their profit was 50 billion forints in 2012 alone.

Those of you who are interested in the extremely complicated details should read the two articles published by atlatszo.hu on January 28 and February 3.

Just a taste of the complexity of the businesses involved / Source: atlatszo.hu

Just a taste of the complexity of the businesses involved / Source: atlatszo.hu

And now let’s move on to some important news of the day. Early in the morning it became known that although the Hungarian government claimed that the European Commission supported its agreement with Russia concerning Paks, the claim is not true. Of course, that doesn’t surprise me because members of the Orbán government are not known for their truthfulness. On Monday, for example, Viktor Orbán delivered a twenty-five-minute speech in parliament in which there was not one truthful statement about the real state of affairs. At any event, when the government initially made its claim that the EU was on board with the Paks deal,  HVG was skeptical and inquired from the commissioner for energy about the case. The reporter was told that the commissioner hadn’t received detailed information and that they were waiting until they had it in hand. Today came the news that the European Commission will investigate the case very soon.

And in a blow to the Hungarian government’s tax policy, the European Court of Justice ruled that

Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State relating to tax on the turnover of store retail trade which obliges taxable legal persons constituting, within a group, ‘linked undertakings’ within the meaning of that legislation, to aggregate their turnover for the purpose of the application of a steeply progressive rate, and then to divide the resulting amount of tax among them in proportion to their actual turnover, if – and it is for the referring court to determine whether this is the case – the taxable persons covered by the highest band of the special tax are ‘linked’, in the majority of cases, to companies which have their registered office in another Member State.

To translate this convoluted sentence into plain English, the extra tax that foreign-based retail chains had to pay since 2011 is discriminatory. The judges instructed the Hungarian courts to make a ruling in accordance with EU laws in those cases where foreign companies suffered financial discrimination. Apparently the contested tax revenues amounted to about 90 billion forints. According to legal experts, it is likely that the Hungarian government will end up paying a great deal more compensation to these companies.

As for a resolution on the fate of the “Gabriel” monument, the suspense remains. Tomorrow János Lázár will have a meeting with various Jewish organizations. A leak published by Népszabadság claimed that the erection of the monument has been “postponed,” a statement that was promptly denied by Antal Rogán. Meanwhile one Jewish organization after the other is returning the money received from the government for the events of the Holocaust Memorial Year. In brief, it is a mess. But Viktor Orbán doesn’t like to admit defeat, and therefore there is a good possibility that he will go ahead with the project. Let’s hope that he realizes the gravity of such a decision given the general climate both within and outside Hungary.

Viktor Orbán looked into Vladimir Putin’s eyes and was reassured

Yesterday, given the very crowded news day, I had  neither time nor space to discuss an article by Ildikó Csuhaj of Népszabadság about some of the details of the negotiations between Russia and Hungary over the Paks nuclear plant. What you have to know about Csuhaj is that she seems to have fantastic connections to important Fidesz and government officials and usually comes up with impressive “scoops.”

As we discussed in the comments, information coming from these circles cannot always be trusted and, in fact, one suspects that some of the leaks that reach Csuhaj might be purposely planted in the leading left-of-center paper. In any case, Csuhaj received lots of information about the Paks deal from her unnamed sources. Some of the information sounds entirely plausible. For example, that the plan to have the Russians build the extension to the power plant was first discussed in January 2013 during Viktor Orbán’s visit to Moscow.

I don’t know whether any of you remember, but the opposition belittled the significance of the meeting last January and pointed to the extremely short duration of the visit. The left media drew the conclusion that Viktor Orbán offered himself to Vladimir Putin but the president of Russia wasn’t interested. In brief, the meeting was no more than a courtesy visit. Today we know that during that visit Orbán got an offer of Russian collaboration on the Paks project. Apparently he pondered the issue for a few months and by the summer made the decision to go ahead. In mid-summer serious negotiations began, which continued all the way to the last days of December.

According to Ildikó Csuhaj’s source, what inspired the Orbán government to add two extra reactors to the existing plant was its desire to achieve sustainable economic growth. Building such a large project, especially if the story is true that 40% of the work will be done by Hungarian companies, will be a stimulus to employment and will give impetus to faster growth.

So far the story sounds plausible, but what comes after that must be taken with a grain of salt. According to the Fidesz story, Viktor Orbán began making inquiries at large German industrial concerns. Apparently, negotiations were conducted with RWE AG, the second largest utility company in Germany, and Deutsche Telekom. On the basis of these conversations, according to the Fidesz source, Orbán came to the conclusion that what German industry will need in the future is cheap energy. But those nasty German environmentalists are against building reactors on German soil. Given the Russian offer, Orbán apparently hatched the idea of building a large nuclear power plant that will be more than enough for Hungary’s energy needs. The rest of the capacity could be sold to Germany’s energy-hungry industrial complex.

The project couldn’t be financed from private sources as the Finnish nuclear power plant will be. Moreover, Orbán apparently made it clear that the plant must remain in state hands. Thus, a bilateral financial agreement signed by Russia and Hungary was needed which is a first within the European Union.

Csuhaj’s Fidesz source claimed that Viktor Orbán received the European Union’s blessing for the bilateral agreement. Allegedly, János Lázár talked to Günther Oettinger, EU commissioner for energy. The EU Commission even sanctioned closing the deal without a tender.

Apparently, the Edmond de Rothschild Group, a private Swiss banking concern which among other things offers investment advisory services, was especially helpful to the Hungarians in handling all these sticky negotiations with EU officials. The Rothschild Group advised the Hungarian government to get in touch with the law firm Hengeler Mueller, which has offices in Berlin, Düsseldorf, Munich, Brussels, and London. It is a large firm with 90 partners and 160 associates. They give “high-end legal advice to companies in complex business transactions.” It was allegedly this law firm that managed “to convince” the European Commission about the legality of the transaction.

Well, it seems that the European Commission has not yet blessed the deal. Eszter Zalán, the Brussels correspondent for Népszabadság, asked Sabine Berger, the spokeswoman of Günther Oettinger, who informed her that Oettinger’s office will examine the agreement and decide whether it conforms to European laws. This legal scrutiny may take weeks to complete. It also became clear that details of the agreement reached Brussels only in December. The announcement yesterday, however, didn’t come as a surprise to the European Commission.

Domestically, there is an outcry over the agreement, signed secretly with no consultation with the opposition, experts, or the general public. Fidesz politicians responded to this criticism by claiming that it was during Bajnai ‘s tenure that parliament authorized the government to conduct negotiations about doubling the capacity of the Paks nuclear power plant. They called members of the opposition, including Bajnai, liars for denying their authorization of the negotiations.

Well, this is not a correct description of what happened in 2009 when the topic of the enlargement of the power plant came up in parliament. Csaba Molnár, then minister in charge of transportation, communication, and energy, was the man who turned in the resolution to which Fidesz is now referring. In it there is not one word about permission to start negotiations with anyone concerning building two more reactors. It simply talks about authorization to begin a study of its feasibility, its environmental impact, future requirements of the population, etc. However, all Fidesz politicians keep referring to this resolution as authorization for making a deal with the Russians.

Finally, let me tell you a funny story that I read in today’s Magyar Nemzet. The article quotes Viktor Orbán as saying, “It was three years ago at one of the meetings of the Valdai Club that Vladimir Putin turned a bit to the right and winked; his eyes told me that everything will be all right. He talked about energy cooperation, about Paks, and about many other matters. He made it clear that Hungary can only win from all his plans. I looked into his eyes and saw that he means it, and Hungary will be a winner of all this.”

Putin turned a bit to the right and squinted

Putin turned a bit to the right and winked

I assume many of you remember another quotation, this time from George W. Bush, about Putin’s eyes. It was uttered in 2001: “I looked the man in the eye. I found him to be very straightforward and trustworthy. We had a very good dialogue. I was able to get a sense of his soul; a man deeply committed to his country and the best interests of his country.” So, I wouldn’t rely on Putin’s eyes if I were Viktor Orbán. And while we are at Putin’s eyes, John McCain said in 2007 : “I looked into Mr. Putin’s eyes and I saw three things — a K and a G and a B.” Viktor Orbán should keep that in mind when he gazes into eyes of Vladimir Putin, whom he apparently admires greatly.

Russia and the European Union on a collision course over the South Stream pipeline

It was a week ago that the European commission told Russia that the “South Stream” pipeline, already under construction, and the contracts between Gazprom and six members of the European Union, including Hungary, violate European Union law. Klaus-Dieter Borchardt, director for energy markets at the European Commission, told the European Parliament on December 4 that the “intergovernmental agreements are not in compliance with EU laws.” The EU countries that signed agreements with Gazprom were told that “they have to ask for re-negotiations with Russia, to bring the intergovernmental agreements in line with EU laws.” The countries in question are Bulgaria, Hungary, Greece, Slovenia, Croatia, and Austria, as well as Serbia, which is a member of the Energy Community, an EU-backed international agreement covering former communist countries in Eastern Europe.

Deli Aramlat

The European Commission identified three major problems with the South Stream. First, Gazprom is in violation of the so-called ownership “unbundling” rules, according to which a company cannot be both a producer and a supplier of gas. It cannot own production facilities and transmission networks. Clearly, Gazprom does. Second, according to EU law, non-discriminatory access of third parties to the pipeline must be ensured. In other words, Gazprom cannot have the exclusive right to supply gas through the pipeline. Finally, the Commission found problems with the tariff structure.

If these treaties must be renegotiated, there will be a delay of not months but, according to Borchardt, at least two years. Bulgaria has already protested. Bulgarian foreign minister Kristian Vigenin, who used to be a member of the European Parliament, made it clear that his country is not happy with Brussels’ decision. “It is not a nice move to slow the construction, because the parties to the track area are already in readiness to kick off.” He emphasized that “this is a very important project” for Bulgaria and expressed his hope that the European Union will not “stop the South Stream project.” Bulgaria already began construction of the South Stream at the end of October.

Brussels, however, seems to mean business. Borchardt said “in all openness and frankness that the South Stream pipeline will not operate on the territory of the EU if it is not in compliance with our energy law.” The Russians seem to be as resolute as the European officials are. A representative of Gazprom who was present at Borchardt’s announcement stressed that “nothing can prevent the construction of South Stream.” Russia’s position is similar to that of Viktor Orbán: EU law cannot prevail in EU-Russian relations, which are governed only by international law.

The Hungarian media covered the news coming out of Brussels, but the Hungarian government offered no response to the rather harsh verdict of the European Commission on the bilateral treaties that had been negotiated with Russia. Although here and there one could read about visits of Gazprom officials, nothing was known about the actual state of the negotiations and their particulars. Only yesterday Világgazdaság, a normally well informed paper dealing with economics and finance, reported that perhaps in the next week or so Orbán and Vladimir Putin will talk about the EU objections. Apparently Mrs. László Németh, the minister in charge of national development, was charged with preparing the prime minister’s visit to Moscow. I’m not sure, however, whether this meeting will actually take place. Because, as we just found out today, an agreement has already been signed.

As usual, details of Hungary’s negotiations with foreign powers came from the other side. The Hungarian public learned today that Aleksei Miller, president of Gazprom, paid a visit to Budapest yesterday and signed an agreement concerning the construction of the South Stream pipeline. Journalists immediately bombarded the head of Orbán’s press department for details. They were told that the prime minister and the head of Gazprom didn’t sign any agreement. He added that negotiations between Mrs. László Németh and Gazprom will proceed according to plans.

So we had two versions of the story. Someone was not telling the truth. At least this was the conclusion journalists of opposition papers came to. Stop, an online site, asked its readers whom they believed, the Hungarian government or the head of Gazprom. A relatively new online paper whose political views seem to me to be close to the Demokratikus Koalíció talked about the “selective memory” of the officials of the Orbán government.

It turned out that the spokesman for Viktor Orbán didn’t lie outright. It is true that Orbán himself didn’t sign anything. But something was signed all right: an agreement between Gazprom and MVM (Magyar Villamos Művek/Hungarian Electricity Ltd.), a state-owned company. As I understand it, MVM and Gazprom established a joint company called Déli Áramlat Zrt (South Stream Corporation), each with a 50% ownership. It is a large, expensive project that might pose serious financial risks to MVM, especially if the EU stands fast.

Experts figure that the Hungarian part of the project will cost around 300 billion forints, for which MVM will be responsible. Today’s Népszabadság points out, however, that MVM will be able to borrow such a large amount of money only if the project has the European Union’s blessing and financiers feel safe lending so much money to the Hungarian company.

I have the feeling that this is just the beginning of an extended imbroglio. Viktor Orbán is ready for his next battle with the EU, Hungary’s enemy.