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.

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.

The Hungarian economy as reflected in the World Bank’s 2012 GNI per capita figures

Each year on July 1 the World Bank revises its classification of the world’s economies based on estimates of gross national income (GNI) per capita for the previous year. The current income classifications by GNI per capita are as follows: low income = $1,035 or less; lower middle income = $1,036 to $4,085; upper middle income = $4,086 to $12,615; and high income = $12,616 or more.

If we take a look at the figures between 2008 and 2012 we find that until 2012 Hungary belonged (just barely) to the high income group. But last year the GNI per capita dropped below $12,616, the cutoff number. To be precise, Hungary’s GNI per capita income in 2012 was $12,390. With this drop Hungary joined the group of upper middle income countries and left the high income ones.

The World Bank list that summarizes the changes between 2008 and 2012 is revealing in more than one way.  Somewhat surprisingly, Hungary’s 2009 GNI ($12,980) was higher than the year before, but by 2010 it fell back to the 2008 level. The range over the first four years of the survey period, however, was not significant, as you can see from the graph below. By contrast, last year’s drop was substantial: from $12,860 down to $12,390. So, Hungarians are not living better.  It doesn’t matter what Viktor Orbán tells his people about the brilliance of Hungary’s economic policies that the whole world should imitate.

All of the countries in the region with the exception of Hungary improved their per capita GNI. Bulgaria, the poorest country in the region, moved up from $5,700 in 2008 to $6,870 in 2012. With the exception of 2010, Romania improved every year (from $8,050 to $8,420). Poland likewise–from $11,870 to $12,670–which means that Poland moved into the high income countries while Hungary dropped out of this elite group. Although Croatia’s per capita GNI declined somewhat in 2012, the country is safely in the high income zone with a figure over $13,000.

This chart, which was published in today’s Index, is telling. For instance, Slovakia was far ahead of Hungary between 2008 and 2011 and shot up even higher in 2012, reaching $17,170.

GNI per capita changes between 2003 and 2012 in the East-Central European Region / World Bank and Index

Sharp-eyed observers noticed that while there were thirteen countries globally that moved into a higher category, there were only two that dropped into a lower one: Southern Sudan and Hungary.

Opposition politicians immediately responded to the news. Csaba Molnár (DK) recalled that in Brussels at the latest summit Viktor Orbán indignantly said that he found it strange that all those countries that are so unsuccessful at handling their own economies criticize the only country in the European Union that is successful. Molnár called particular attention to Lithuania and Latvia, two countries in the region that managed to get into the high income category. Latvia’s figures are truly impressive: between 2008 and 2012 it went from $12,020 to $14,180. Lithuania also did well: $13,850 in 2012 as compared to $12,000 in 2008.

In the Hungarian miracle economy, it turns out that the deficit (as of June) is much higher than expected. Unless revenues increase dramatically in the rest of the year, Hungary’s deficit will not be under 3.0%. Actually, in the first five months the deficit reached 3.8%. As the case of Cyprus showed, the European Commission can easily put Hungary under the excessive deficit procedure again if it fails to meet its target, which would be an awful blow to the Orbán government.

In order to avoid such a calamity yet another austerity package might have to be introduced. And if the state of the treasury doesn’t improve, the planned increase in teachers’ salaries as of September 1 will have to be scrapped. As it is, the current budget doesn’t include the several billion forints that would be needed to give a modest salary raise to teachers. That may mean that Orbán’s plans for raising salaries just before the election might have to be abandoned. According to one of the trade union leaders, it is more than possible that the majority of teachers voted for Fidesz in 2010 because of its promise to raise the very low salaries of teachers. For three years nothing has happened and the teachers’ patience is running out. There are more than 100,000 teachers in Hungary. That’s an awful lot of voters whom Fidesz may lose.

MSZP suggested that the figures on poverty that were due to be released in June are being held back. Opposition politicians suspect that the figures are horrendous and that’s the reason for the delay. Whatever the cause, one suspects that poverty has risen sharply since the inauguration of the Orbán government. When will the Hungarian public reach a point of no return?

As for the government’s efforts to turn Hungarians against the European Union, they have not yet borne fruit. The majority of Hungarians still think that Hungary’s place is within the European Union. Some opposition politicians think that perhaps the 2014 election should be a kind of  referendum on Hungary’s membership in the Union. This might be a savvy political strategy. Especially if the opposition hammers home the dire consequences of leaving the EU and being isolated and locked inside the country’s borders after almost ten years of total freedom of movement across the 28-country Union. Show the people the changes that abandoning the Union would bring to their everyday lives–from an increase in the price of goods and an economic slowdown to needing visas to visit their relatives in Slovakia and Romania. I’m sure they would think twice before voting for a party that wants to keep the country totally independent. Independence has a price. Just as Hungary’s independence from Austria had a price. A very high price.

Another austerity package: The eleventh since the Orbán government took office

The online newspaper Stop warned on May 29, after the news broke that the European Commission would recommend to the Economic and Financial Affairs Council (Ecofin) of the EU that the excessive deficit procedure against Hungary be lifted, that “Brussels is still watching.” Well, it seems that they didn’t watch closely enough. Here we are three weeks after the news so loudly trumpeted by the Hungarian government as a huge victory for its sound economic policies. And it appears that the great planners of the economy in the Ministry of National Economics realized, perhaps with some help from Brussels, that after all the numbers don’t add up.

In today’s Hungarian edition of Portfolio one of the headlines reads: “Surprising austerity package was announced by Varga: Tax hikes are coming.” I don’t know why the financial reporters of Portfolio are surprised. I think it was predictable, given the economic climate in the country, that the deficit was unlikely to be kept under 3% this year. And if it isn’t, Hungary could easily end up being under excessive deficit procedure again in no time.

There was another headline that caught my eye. According to HVG, financial analysts cannot agree on whether this latest austerity package was really necessary. The “expert” from TakarékBank claims that this step was unnecessary and only shakes investor confidence in a more predictable economic policy that everybody was hoping for after the departure of György Matolcsy. His colleague at BudaCash, on the other hand, detected a one hundred billion forint shortfall because only half of the anticipated revenues from the new taxes actually reached the treasury.

I was also fairly amused when I discovered that a Hungarian-language blog awarded Mihály Varga the Pinocchio Prize. At first I thought that awarding this “prize” to the minister of economics was a response to his announcement of the new tax hikes, but I soon discovered that the article was posted at 8 o’clock in the morning whereas Varga’s press conference announcing the new taxes took place only two hours later. The blogger was talking about the exaggerated descriptions of a booming economy very much in the style of György Matolcsy. As several newspapers said, the Hungarian population is still supposed to believe the government “fairy tale.”

Did the government have to adjust the budget again? Was it necessary? You can bet your bottom dollar that it was necessary. Let’s not forget that Ecofin will reach its final decision on the excessive deficit procedure two days from now, on June 19. I wouldn’t be at all surprised if we found out that the Hungarian government received word from Brussels that the figures they submitted didn’t quite add up. Now the only question is whether this last-minute scramble for additional funds will satisfy Brussels’ demands for an economic policy that ensures sustainable economic growth. Or whether they will change their minds, claiming that these periodic adjustments are no remedy for Hungary’s economic ills. In fact, they exacerbate them. One could argue that the very heavy taxation imposed on both consumers and companies may lead the country back into recession.

Here are the main points of the package: (1) a hike of the financial transaction tax (FTT) rate on non-cash transactions to 0.3% from 0.2%; (2) an increase in the FTT rate on cash transactions to 0.6% from 0.3%; (3) an increase in the telecom tax to HUF 3 from HUF 2 per minute or per SMS and a higher cap for corporations from HUF 2,500 to HUF 5,000 per month; (4) an increase in the mining royalty fee to 16% from 12%; (5) a 6% health care contribution to be paid on interest and capital gains; (6) and, what Varga forgot to mention in his press conference, banks will have to pay a 7% tax on the amount of their loans to the municipalities that the national government took over. The rationale? The state is a more reliable borrower than the municipalities. So, the “reliable customer” will not pay back what he owes in full! What can one say?

There are some who have plenty to say. LMP announced that Varga’s economic policy is not one whit more reliable than Matolcsy’s. Its spokesman Gábor Vágó emphasized the need for a total economic turnabout. Együtt PM called attention to the fact that a week ago Varga still claimed that the budget’s cardinal numbers were solid and needed no adjustment. There is still something very wrong with the Ministry of Economics.

The blog that handed the Pinocchio Prize to Varga  published an estimated total of the ten “packages” since the Orbán government took over. They arrived at 3 trillion forints. This last package, the eleventh, is also quite large. Experts estimate it at anywhere between 100 and 200 billion forints.

Estimated amounts of austerity measures (2010-2012)

The forint survived the announcement relatively well. It is still hovering around 291 to a euro. Unfortunately the BUX (the Budapest Stock Market) did not fare as well, with heavy telecom and banking (OTP) losses.

When Varga took over the ministry he indicated that perhaps the government will stop some very expensive and not urgently needed projects such as soccer stadiums and refurbishing the square in front of the parliament. But soon enough it became clear that for Viktor Orbán these mega-projects that symbolize the greatness of his regime are far too important. The government would rather introduce new taxes to pay for his pet projects. Especially if on Wednesday Hungary is released from bondage by Ecofin. In fact, there is speculation that the government never seriously thought of abandoning these “prestige projects.” It was only a ploy to show the EU that the Hungarian government is even willing to sacrifice stadiums on the altar of economic stability.

I predict that this is not the end of the austerity measures. I wouldn’t be at all surprised if within a few months, most likely well before the end of the year, there is another announcement about new taxes. This time to avoid being returned to the group under excessive deficit procedure.

Some good news for the Orbán government, but there are still many questions

Viktor Orbán received a couple of nice presents today for his fiftieth birthday. One was from the Hungarian Central Statistical Office (KSH) and the other from Olli Rehn, European Commissioner for Economic and Monetary Affairs and the Euro.

According to the Statistical Office, the unemployment rate ticked lower to 11.0% in the three months ending in April from 11.8% in the first quarter of 2013. On the surface this improvement seems both rapid and substantial. But, as Portfolio.hu points out, “The change in the number of employed shows the same strong fluctuating pattern as in the previous years. The main cause of the fluctuation is the year-end stoppage of public work schemes.”

 Another possible reason for the improving unemployment numbers (although this does not address the issue of seasonality and would take more time to be borne out) is that unemployment benefits run out quickly in Hungary. The Orbán government reduced eligibility for benefits to three months, the lowest perhaps in all of Europe. Whether these people simply drop out of the officially tracked work force after their benefits run out or find a job is hard to say, but we do know that the number of employed workers grew by 61,000 over the same period last year. Some of these people may have found part-time work paying below the minimum wage as employees of the public works program that began full-scale under the Orbán administration. Only a month ago, one of the undersecretaries of the Ministry of National Economy boasted about the very high number of people in the program: 300,000 this year as opposed to 261,000 last year. If his figures are correct, almost 65% of the recent job gains come from the public works program. These people don’t produce any real profit. In fact, they are a drag on the central budget–this year a projected 153.7 billion forints. So I think we should wait before passing final judgment on the employment figures.

The other piece of news came from Brussels in the early afternoon, and it was not much of a surprise to anyone. It has been clear for at least a week that it would be very difficult not to recommend lifting the excessive deficit procedure in Hungary’s case. Due to a series of tax hikes, mostly levies on businesses and banks that affected the population only indirectly, the government managed to decrease the deficit to under 3.0%. Naturally, the government considers this a major victory that vindicates Budapest’s economic policy.

Viktor Orbán had single-mindedly pursued the goal of getting out from under the excessive deficit procedure. Some people argue that he was acting out of fear of a cutoff of EU development funds. But there was never any serious threat of the country’s being deprived of funds because of its deficit, which pales in comparison to the deficits of some other European countries. I suspect that what Viktor Orbán really wanted was to stop the EU monitoring that went hand in hand with being under the excessive deficit procedure. After all, he backed away from IMF funding because they would have closely monitored the Hungarian economy. But, I fear, Viktor Orbán is mistaken. The number crunchers in Brussels will continue to monitor Hungarian economic data closely. Viktor Orbán won’t have a free hand. Hungary, being part of the EU, is expected to follow its advice. If it doesn’t, Hungary may find itself under the excessive deficit procedure once again. Such a possibility is not unheard of. After all, this is most likely what will happen to Malta.

Hungarian deficit between 2001 and 2014 / Ecostat, Népszava, graphics by Szilvia Kőszegi

Unfortunately, Hungary’s unorthodox economic policies aimed at lowering the budget deficit were costly to both the population and the economy. Trying to hide economic austerity from the general population, the government taxed businesses and banks to death and was unable to stave off an economic recession. Yes, the deficit is low at the moment, but how long can the government continue an economic policy that does not produce growth?

The Orbán government was also fixated on reducing the national debt, which was not higher than in most European countries. They confiscated 95% of all private pension funds, in part to lower the debt. Since then that enormous sum of money has evaporated. Some of it was absorbed into general funds and more than half of it went to the bottomless pit of the national debt burden. Because Viktor Orbán was unwilling to accept the terms of a low interest rate IMF loan, the country was forced to borrow at market rates. The sad result is that the Hungarian national debt is higher today than it was in 2010.

Yes, Hungary is off the hook for the time being, but Brussels made several recommendations and suggested specific steps the country should take to achieve sustainable economic growth.

The European Commission was critical of the Hungarian government for concentrating on the revenue side of the ledger.  They suggested restoring the former competence of the Fiscal Council and advocated a return to normal lending by decreasing the bank levies. They criticized the newly introduced flat tax which favors the rich and over-taxes the poor. They maintained that Hungary should concentrate on employment. Hungary has one of the lowest rates of labor market participation in the Union. They called the attention to the social situation that continues to worsen with 31% of the population at risk of poverty.

They suggested that the country “create a supportive business environment, in particular restore an attractive environment for foreign direct investors, by making the regulatory framework more stable and by fostering market competition. Ensure the prompt implementation of measures envisaged to reduce the administrative burden, improve competition in public procurement and take adequate measures to tackle corruption.”  They criticized the measures introduced in the field of education. As opposed to earlier years when fewer people were dropping out of school, this trend was reversed in 2011. They are concerned about the “ongoing education reform” in higher education. And finally they criticized the regulation of energy prices. In their opinion these regulations should be gradually phased out while “protecting the economically vulnerable.” Public transport should also be more cost efficient.

These are precisely the steps that the Orbán government doesn’t want to take. But if they do not follow this sound advice, it is unlikely that considerable economic growth can be achieved in the long run.

The childish games of a would-be dictator: The case of Viktor Orbán

I think it is time to talk about the dear leader’s megalomania that’s recently reached an all time high. The dear leader is, of course, Viktor Orbán. Or at least this is what he is called by those who’ve had enough of his and his government’s autocratic and corrupt practices.

To his many sins we may add a total lack of  restraint. He acts like any two-bit dictator with limitless power. Because, let’s not kid ourselves, Viktor Orbán has enormous power within Hungary. The only limits he has to endure come from the European Union. Until now, however, he has managed to evade any serious consequences of flaunting the spoken and unspoken rules of the Union, and it looks as if he will be able to avoid the excessive deficit procedure as well. Or at least this is what one could hear from Mihály Varga, who managed to exchange a few words with Olli Rehn, European Commissioner for Economic and Monetary Affairs, today.

Lack of restraint. A man who with the assistance of his minions placed by now in all positions from the executive to the judiciary and a willing horde of third-rate journalists ready to serve him will arrive at a point where his sense of reality completely fails him. He becomes so single-minded in pursuit of his selfish interests that he loses sight of the possible consequences of his actions. And since he rules with an iron hand in his own party, there is no one in his entourage who dares warn him.

It seems that no one in Fidesz has the guts to tell the dear leader that his football mania got to the point that people are beginning to think that Hungary’s Orbán is not very different from Nicolae Ceaușescu, the Romanian dictator. After all, Ceaușescu also built an enormous football stadium in the village in which he was born and lived until the age of eleven. Viktor Orbán is following in the Romanian dictator’s footsteps.  Ceaușescu built a 30,000-seat football stadium in Scorniceşti, population 12,000, while Orbán is building a 3,500-seat stadium in Felcsút, population 1,800, where he spent his early years.  The scales are roughly comparable.

But Orbán is outdoing Ceaușescu because, after all, the Romanian dictator didn’t have a house right next to the stadium. Orbán does. He will now have a very elegant, very expensive small stadium of his own. He has to walk only a few feet to be in the arena. The stadium will be named after the Hungarian “Golden Team” of the early 1950s on which the famed Ferenc Puskás played. In addition to the stadium, Orbán managed to get money to establish a football academy in Felcsút, naturally named after Ferenc Puskás.

I read somewhere that when Orbán established the Puskás Academy in 2007 he didn’t really think that a village football team could ever be a first-rate team that could play in Division I of the National League. Most likely at that time Orbán was still recovering from his deep depression after the lost 2006 election. But now the sky’s the limit. Last Saturday Puskás Academy, which everybody simply calls Felcsút, was the undefeated champion of Division II and therefore next season the team will be able to play with the “big boys.”

Since 2007 the Academy has built a private high school and several practice fields and has a staff of 23, including a “communications director.” It is in the middle of constructing a stadium that will cost 3.5 billion forints. Money is pouring into the coffers of the Academy.

Earlier Orbán made sure that his wealthy friends would have an incentive to donate sizable chunks of money for spectacle sports: football, handball, hockey, etc. Those contributing to a fund set up for that purpose could write off the amount donated from their income tax. Once billions were collected this way the various clubs could apply for grants. Felcsút was not shy and asked for 3.5 billion. It received 2.8 billion, one-fifth of the total allocated. Just to give some sense of the size of this particular grant, the football club that received the second largest amount was Debrecen with 500 million forints.

The stadium is already described in the media as a dream or a wonder stadium. It is being built following the design of the famed Imre Makovecz, an ardent supporter of Fidesz, who died a few years ago. The plans released by the Academy show an intricate structure using the most expensive materials.

The construction of the dream stadium is already underway, and by next spring  important games will be played in the village where Viktor Orbán grew up. A Puskás-Suzuki Cup was established, and these games will be played in Felcsút. Several international matches will be held in the village. And since the Academy is swimming in money, it even bought an old railroad line and has already restored the old railroad station.

The work has begun / MTI photo by Szilárd Koszticsák

Mihály Varga, minister in charge of the economy, under European Union pressure announced a new  austerity program a few days ago. He indicated that it might be necessary to halt some of the major government investments, like the building of new stadiums and the reconstruction of Kossuth Square in front of the parliament building. However, it is unlikely that stadium construction will be halted in Felcsút. And if the Academy’s project can go ahead, most likely so will Debrecen’s. The project manager of a very large stadium in Debrecen, where work has already begun, announced that the city will go ahead with the construction regardless of what Mihály Varga says.

Just today Ernő Bihari, a blogger, wrote that “it is outrageous that the prime minister of a country that belongs to the European Union builds a football stadium on taxpayer money next door to his house, establishes a football academy maintained by taxpayer money, and purchases a narrow-gauge railroad also on taxpayer money. His family and his friends have received practically all the state lands in the neighborhood of his village. This is just a short list. And Viktor Orbán has the gall to do all this in the middle of Europe. This guy believes that his power is limitless.” The blogger points out that Orbán surpasses even Silvio Berlusconi, who after all made his money and became the owner of  AC Milan prior to his political career.

“The weapon is in the EU’s hands. Chancellor Merkel must decide on which side she wants to stand and give the signal to her own people that they can say what everybody knows already although no one wants to bear the odium of the decision.” So, says Bihari, it is time to state openly that “not only is Orbán’s mindset incompatible with the spirit of the Union but he is intolerable altogether.”

A Hungarian member of parliament, domestic violence, and the blind komondor

Viktor Orbán isn’t having an easy time of it lately. The tobacco scandal doesn’t want to go away. In fact, this morning the government retreated after Viktor Orbán announced that it is unacceptable that  former tobacconists will be dispossessed. His faithful chief-of-staff, János Lázár, was a great deal more humble today than he was a few days ago when he sarcastically dismissed any allegation of an unfair distribution of  the available concessions.

Then there is the European Union, which is withholding subsidies for certain Hungarian projects. For months no money has been coming while the contractors must be paid, and this at a time when there is a shortage of funds at the government’s disposal.

This morning came the bad news that according to the economists at the European Commission this year’s deficit will be higher than the Hungarian government’s estimate. It is projected to reach 3%. The shortfall next year will be even larger–3.3%. Thus, unless something is done, within a year Hungary will be back under the excessive deficit procedure. New austerity measures must be introduced.

And if all this weren’t enough, there is the case of József Balogh, a Fidesz-KDNP member of parliament, who after a drunken wedding party beat his partner so badly that she ended up in the hospital. The first report, again by the new 444.hu, talked only about a broken nose but it later turned out that the woman had a fractured skull as well. Our honorable member of parliament, it seems, beat his first wife regularly for twenty-five years. After these episodes his former wife dutifully reported that her injuries were the result of some accident or other. At one point she said that she had fall off their farm’s seeder.

Balogh, whose formal education ended with a trade school certificate in repairing agricultural machinery, is a fairly prosperous farmer with a large house, several outbuildings, and about 103 acres of land. He also receives 864,987 forints a month for his services to the nation. He has three horses and a “Mercédesz,” as he called his car in the compulsory yearly financial report .

Unfortunately, domestic violence is widespread, and Hungary is no exception. Lately there have been a lot of terrible tragedies ending in multiple deaths. A man killed his children, his wife, his mother-in-law, and finally himself. But it doesn’t happen too often that we find out that a member of parliament is a regular wife-beater. And Balogh is no newcomer to parliament. He has been an MP since 1998. Moreover, he got there by being directly elected four times from Bács-Kiskun County. In addition, he became the mayor of his village, population 834. I might add here that while the members of most town councils in villages of this size hide behind the independent label, Fülöpháza can boast a Fidesz-KDNP mayor in addition to four Fidesz-KDNP counselors. What I find amazing is that this man was elected several times even though one would suspect that his behavior couldn’t have been a secret in such a small place as Fülöpháza.

Balogh began his political career as a member of the Smallholders’ party. About that time, in the middle of the 1990s, I asked a fellow I met on the Internet why he became a member of the Smallholders’ party. His answer was: he wanted to go as far right as possible, and in those days it was the Smallholders’ that fit the bill. Balogh ran as a Smallholder in 1998 and 2002, but by 2003 he became a member of Fidesz. He was reelected in 2006 and 2010.

Balogh’s initial account of his domestic partner’s injuries was simply enough. The two of them went to the wedding of the woman’s son where he drank too much. In fact, he drank so much that, he said, he doesn’t remember a thing that happened after they got home. It was only the next morning that he discovered that his partner was in the hospital and that she claimed that he had hit her. Within a few hours, however, we found out that this was not the first time that Terézia S., Balogh’s companion, broke her nose or had other suspicious injuries. Earlier she covered up the cause. But this time her injuries were so severe that the doctor by law had to report the case.

Beware of blind dog / szerintem …s photos

Meanwhile Balogh himself came up with increasingly fanciful stories. The two of them got home from the wedding at around 4-5 o’clock in the morning. Upon their arrival his blind komondor got so excited at the smell of the stew (pörkölt) the woman was carrying in a pot that he knocked her off her feet. The blind komondor became a star in no time because Balogh was not shy about telling this incredible story to every reporter who got in touch with him. He gave interview after interview during which he offered more details and claimed that there was a witness to this alleged encounter with the blind komondor, Balogh’s adopted son Szabolcs or Szabika, as he called him. (Since then we learned that Szabika got a tobacco concession in Fülöpháza.)

Hir24.hu wrote about the case under the following headline: “Strangling, thrashing–More victims of the blind komondor.” A blog writer called his post “The blind komondor and the broken-nosed Hungarian reality.” HVG announced “Here is the picture of the ‘guilty’ blind komondor.” Klára Ungár, former SZDSZ politician and currently the leader of a small liberal group called SZEMA, organized a demonstration of women and dogs to defend the good name of their four-legged friends. They also demanded, as have many feminist groups, tougher laws against domestic violence.

All the fanciful stories Balogh came up with didn’t do him any good. The first wife suffered for twenty-five years from this man’s brutality, but his current girlfriend was less patient. She left the hospital but didn’t return to the Balogh residence. She went home to her children. His party got rid of him as well. As it stands now, he left the Fidesz caucus and moved over to the independents. According to Antal Rogán, Balogh was strongly urged to leave the Fidesz delegation, but Balogh denied this and claimed that his leaving the Fidesz caucus was his own decision. He also made it clear that he intends to remain a member of the party.

Whether it will be his decision I very much doubt. According to the latest information, Antal Rogán and László Kövér demanded that he give up his seat altogether but Balogh refused to oblige. In a way I understand his position. After all, he didn’t receive his mandate as a result of the largess of the party. He won it on his own. Moreover, I’m not at all sure whether Fidesz actually wants to have a by-election right now unless, of course, they are pretty certain of an easy victory. The story hasn’t ended yet. Most likely Balogh’s parliamentary immunity will be lifted and, if he is found guilty, the problem will be solved.

Another round of talks between Viktor Orbán and José Manuel Barroso

Viktor Orbán had a full schedule today: a lecture in Brussels and three important meetings with José Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the Council of Europe; and Martin Schulz, president of the European Parliament. A pretty exhausting schedule, especially since tomorrow the Hungarian prime minister is flying to Moscow to have a discussion with Vladimir Putin. The meeting will be brief, only half an hour, but the topics to be covered are weighty: setting natural gas prices for the next ten years and possible Russian involvement in the extension of the Paks Nuclear Plant.

In anticipation of the Orbán visit to Brussels, commentators differed in their assessment of what Viktor Orbán could expect in his negotiations. Some predicted difficult negotiations while others contended that after the two-year-long “freedom fight” it was time for Hungary to mend fences and normalize relations. Interestingly enough, Magyar Nemzet‘s commentator predicted a tough time, especially in light of the IMF-EU report released on January 28. The IMF officials predicted that in both 2013 and 2014 Hungary’s deficit will exceed 3%. If the European Commission takes the report seriously, their opinion might adversely influence Ecofin’s decision about lifting Hungary’s Excessive Deficit Procedure (EDP). And Viktor Orbán’s political future might depend on this decision. If the EDP is lifted, the Hungarian government could spend more freely in 2013 and early 2014 in anticipation of the election sometime in April of that year. Otherwise, further austerity measures must be introduced.

Viktor Orbán’s meeting with  Herman Van Rompuy was also more than a courtesy visit. As it stands, the European Union is planning to reduce the subsidies to Hungary by 30% over the next seven years. Considering that the little investment there is in the country comes from the EU convergence program, a 30% reduction could be devastating to the Hungarian economy.

Orbán began his Brussels schedule with a lecture at the Bruegel Institute, a European think tank specializing in economics. HVG somewhat sarcastically entitled its article about Orbán’s appearance at Bruegel “Orbán teaches economics to his audience in Brussels.” The very idea of Viktor Orbán giving a lecture on “work-based economies” to a group of economists working for this think tank borders on the ludicrous. I also wondered what his listeners thought when he boasted about his government’s achievements and called his economic policies a “true success story.”

The meeting between Barroso and Orbán took place in the afternoon and lasted a little longer than expected. At the subsequent joint press conference Barroso told the reporters that they talked about the upcoming EU summit in early February, about the 2014-2020 EU budget, and naturally the present state of the Hungarian economy. For the time being the Commission has no definite opinion about the past performance of the Hungarian economy, but by February 22 their recommendations to Ecofin will be ready. There was one sentence here that I think needs more clarification: “We also discussed the quality of the economic adjustments.” To me this means that Barroso and the Commission are aware that the way the Hungarian government achieved the low deficit may not be optimal.

Viktor Orbán and José Manuel Barroso at the press conference,
January 30, 2013

Viktor Orbán was more exuberant. “It was an excellent meeting,” he announced. They discussed matters that had created friction between the the Commission and Hungary in the past. He claimed that on the issue of the Hungarian National Bank they came to an agreement quickly. He admitted, though, that there are outstanding issues. Orbán indicated that he has no intention of backing down: the European Court of Justice will decide those issues he refuses to address himself. I might add here that cases the Commission sends to the Court usually go in the Commission’s favor.

Barroso sent a message to the Hungarians about the “rights and duties of the European Commission to insist that all national governments respect the laws of the Union.” The Commission tries to be impartial and objective. The Commission, like an umpire, must enforce the rules and regulations. This comment was most likely prompted by last year’s anti-European Union demonstrations instigated by the Orbán government.

Viktor Orbán might claim that the meeting was successful, but serious differences of opinion remain between the European Union and the Hungarian government over economic policies. The IMF-EU delegation predicted that further budget adjustments will be necessary to hold the deficit under 3%. Viktor Orbán disagrees, but I would be surprised if in the next few months, sometime before April, György Matolcsy didn’t announce another new tax in order to boost revenues.

All in all, at least on the surface, the meeting was friendly, or at least the two men pretended that it was. However, both Barroso and Orbán were careful in formulating their thoughts. In fact, Orbán opted to speak in Hungarian instead of his customary English, ostensibly because most of the reporters present were from Hungary. I suspect that the real reason was to avoid any imprecise formulation of his carefully worked out statement.

Whether Viktor Orbán was hoping for a public promise of support with regard to the Excessive Deficit Procedure I don’t know, but he didn’t get it. Olli Rehn, the commissioner in charge of finance, will have to mull over the details of the IMF report as well as the 2012 economic data submitted by the Hungarian Statistical Office. In my opinion, the 2013 budget belongs in a Brothers Grimm collection. The question is what the experts in Brussels will think of it.