The first state-owned Hungarian bank is already in trouble

Great interest preceded a press conference held jointly by Prime Minister Viktor Orbán and György Matolcsy, governor of the Hungarian National Bank (HNB), this morning. What was so important that these two men would have to appear together in public? It had to be something momentous. Well, it was. The newly “nationalized” Magyar Külkereskedemi Bank (MKB) is in serious trouble and the Hungarian National Bank will assume ownership of it and prop it up.

But let’s start at the beginning. The owner of MKB was the Bayerische Landesbank, a Bavarian state-owned bank, which according to a 2012 decision of the European Commission had to give up ownership of its Hungarian affiliate. That decision was in accord with the Orbán government’s wishes because it is Viktor Orbán’s belief that the majority of banks in Hungary must be in Hungarian hands. Negotiations began back in 2012, but the two sides couldn’t agree on a price. At that point the Hungarian government was offering 100 million euros, which BayernLB found unacceptably low because shortly before the Bavarian bank had to sink 300 billion forints into its Hungarian affiliate. Well, by the summer of 2014 MKB was in the red, so the Hungarian government managed to buy the bank for 55 million euros. Moreover, the Bayerische Landesbank was obligated to give another 270 million euros to MKB. This money was considered to be sufficient to cover possible losses over the next few months. At that point government officials were sure that the bank would be profitable by 2016 “at the latest.” They added that the new owner, i.e. the Hungarian state, would not need to provide any additional capital and therefore “the reorganization of MKB will not burden either the state or the taxpayers.” Three months later we learn that MKB’s finances are most likely in shambles.

What happened between September and December? According to one theory, MKB’s troubles are the result of the government decision to force banks to exchange all mortgages in foreign currencies for forint-based ones. That means a hit of about 25% to the banks’ outstanding mortgages. Of course, all banks will incur losses as a result of this government decision, but the private banks will have to take care of their losses themselves. Presumably they have sufficient reserves. In the case of the newly nationalized MKB, on the other hand, it will be the Hungarian government’s problem. And since the Hungarian government’s coffers are pretty much empty, Viktor Orbán turned to Matolcsy and most likely forced him to come up with 300 billion forints to save MKB.

This rather unusual step was naturally presented to the public in the best light possible. Instead of telling the truth about the financial troubles of the newly acquired bank, the Hungarian public was told that “the government and the Hungarian National Bank agree that [MKB] must become one of the strongest banks of the country.” Thus they implied that the 300 billion forints was not being spent to save the bank from collapse but was necessary seed money to make this bank the best in Hungary. Viktor Orbán stressed that since “the consolidation of MKB will be done by the Hungarian National Bank it will not cost anything to the budget or the Hungarian taxpayers.” Of course, this is a brazen lie because money at the Hungarian central bank is in fact public money.

According to napi.hu, an internet site formed by former journalists of Napi Gazdaság after it was purchased by Századvég, one reason for passing the bank bailout on to the HNB is that this way the government can avoid parliamentary oversight. That may be, but it is unlikely. Orbán does not have to worry about the parliament and its alleged oversight. However, Napi.hu is most likely right when it finds the whole story suspect. After all, before the purchase it was the National Bank that vetted the bank and found everything in order. On the other hand, János Lázár in an interview that appeared in today’s Figyelő contends that MKB was a badly run bank that was “stolen blind” by unnamed persons. Matolcsy now claims that even before the purchase the Hungarian government was aware that the bank’s portfolio “will have to be cleaned.” So, which is the true description of the bank’s financial health? Is it possible that by exaggerating MKB’s losses more money can be siphoned off from the MNB’s reserves for something other than the “consolidation” of MKB?

Both men emphasized the “reorganization” aspect of the deal and said practically nothing about the bank’s financial troubles. They painted a rosy picture of the bank, which after “a 12-18 month reorganization period will be the best bank of our country.” Here Matolcsy admitted that although the bank has an excellent clientele, the percentage of non-performing mortgages is very high. But once the problems are solved MKB will be the “first fair bank” of the country. There has been a lot of talk lately about “fair banks,” which would function under more stringent scrutiny that would provide better protection to consumers.

The Hungarian National Bank announced today’s decision in the following terms: “Following the decisions by the Financial Stability Board, the MNB [Magyar Nemzeti Bank/Hungarian National Bank] has today taken control over MKB Bank and will reorganize the credit institution, including its subsidiaries.” It is worth noting that the press release emphasizes that “the move has taken place within the legal framework provided by European Union Directives and its responsibilities under Hungarian law.” Or again, a little later: “In accordance with European Union Directives and harmonized Hungarian regulations, the MNB will retain control over MKB Group temporarily (probably for a period of maximum one year).” I always become a tad suspicious when I hear from Hungarian officials that the move they just made is in accordance with EU laws. It usually turns out that it is not.

And what is the long-term future of this new nationalized bank? After the state sinks billions of taxpayer money into it, they plan to privatize it. Most likely on the cheap to friends of Fidesz.

The Hungarian central bank goes on a buying binge

It was on August 3 that I first read about the so-called Borbély castle in Tiszaroff. It was refurbished after the change of regime and was owned by a German businessman who made a four-star luxury hotel out of it. In the wake of the recent downturn in the economy, however, the business failed, and the owners put the property up for sale. The article I read in Vasárnapi Hírek reported on rumors circulating in the village that the Hungarian National Bank had purchased the castle for use as a vacation resort for the central bank’s employees. And indeed, a week later it became official. The bank purchased the property for €1.3 million (415 millon HUF).

Kester Eddy, a reporter for the Financial Times, had a great time writing a story about the purchase. It reminded him of the days when, under communism, state companies and institutions owned holiday properties so their employees could spend two weeks splashing around in Lake Balaton. The bank struck back and explained that “the Magyar Nemzeti Bank, like other EU central banks, seeks to provide its more than one thousand employees with fringe benefits.” Moreover, the castle-hotel is located in the country’s least developed region and by opening the hotel again “more than 30 new jobs have been created.” Between May and the end of August it will function as a recreational center and between September and April as a training center.

The Borbély Castle-Hotel in Tiszaroff on 3.5 hectares

Earlier the Hungarian National Bank had seven different vacation homes, but by 2009 the bank sold them off one by one. In these still difficult economic times it is hard to justify buying a luxury hotel even if the price was apparently attractive. The owners asked 680 million forints for it, but the bank managed to purchase it for a mere 415 million. Moreover, Matolcsy pointed out that the bank had earned a profit of 26.3 billion forints and therefore the purchase did not cost taxpayers a penny. An interesting explanation from a central banker.

The brouhaha over the purchase of the castle-hotel had barely died down when HVG learned that the Hungarian National Bank also bought perhaps the most expensive office building in Budapest, the eight-story Eiffel Palace. Originally it was rumored that some of the offices of the central bank would be moving into the building. Portfolio thought that purchasing a class A office building was an acceptable business concept. Others were less sanguine. For example, the popular blogger orulunkvincent.hu. According to him, the price was €57.5 million (18 billion forints) and the building has 14,000 square meters of rentable space. In calculating the potential return on this investment he assumed the top rental rate for space in a green building, €13.5 per square meter. In downtown Pest 86% of the available office spaces are occupied. If the Eiffel Palace has the same occupancy rate its gross annual rental income would be €1,950,480. Assuming an 80% profit and 10% tax, the net rental income would be €1,404,346 per year. That means a return of 2.44%. Five-year government bonds have an interest rate of 4.70%. So, says the blogger, this deal does not sound so fantastic to him.

According to critics of the deal, the Hungarian National Bank grossly overpaid the owners of the Eiffel Palace. They paid almost 18 billion forints when according to real estate assessors it is not worth more than 11-12 billion. E-PM will go to court in connection with the purchase of the office building because it suspects malfeasance or a breach of fiduciary responsibility on the part of the central bank.

But these two purchases were nothing compared to yesterday’s revelation. HVG learned that the central bank had transferred 200 billion Hungarian forints to its five foundations named after Pallas Athena, the goddess of wisdom, courage, inspiration, civilization, law and justice, just warfare, mathematics, strength, strategy, the arts, crafts, and skill. A perfect description of Hungary today!  This amount is one and a half times more than the Hungarian government spends a year on higher education.

Initially it was known only that this money will be spent on education. Today the central bank released details of its project. “We are creating a faculty of economics and finance at Kecskemét College, a faculty of finance in Marosvásárhely/Târgu Mureș (Romania), a doctoral school in the Buda Castle, and an intermediate financial training center in Pest.” The reason? “The already obsolete doctrines and mistakes of the neo-liberal school of economics continue to dominate Hungarian education in economics and finance.” Since Matolcsy thinks that mainstream economists in the country–and that means practically all respected experts–are wrong and since he cannot get rid of them, he will build parallel economics departments that will teach his unorthodox economic theories. Just as the Orbán government needs an alternative Holocaust Museum and an alternative academy of artists it also needs a new set of economists who will be the high priests of unorthodoxy.

Matolcsy admitted that it will be an expensive undertaking because, after all, they need “new institutions, professors of new vision, and new teaching materials.” Creating new institutions will probably be the least of Matolcsy’s problems. Where will he find those professors of new vision? Where is he going to find new teaching materials? Perhaps he is planning to write them himself because I can’t believe that any self-respecting economist would be willing to write textbooks acceptable to Matolcsy.

I tried to find out more about the institutions mentioned and, as far as I can see, only two seem to exist. The Kecskeméti Főiskola at the moment does not teach economics. It has one section that produces elementary school teachers, another where they teach information science, and another that specializes in what Hungarians call “kertészmérnöki kar”–less elegantly put, gardening and landscaping. This college was established in 2000, i.e. during the first Orbán administration. The second institution, in Marosvásárhely/Târgu Mureș, is not mentioned by name, but I guess it is the Sapentia Hungarian University which was established in 2001 and heavily subsidized by the Hungarian government. I remember that shortly after the 2010 election Viktor Orbán made a trip to Târgu Mureș and gave a billion forints to the institution. As for the others, I assume they will be established sometime in the future.

I used to think that I could not be surprised by anything that is done by this administration, yet I am surprised time and again. It is really frightening how much power is in the hands of people whose sense of reality is greatly impaired.

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.

György Matolcsy and Goldman Sachs: November 17, 2011

Exactly a month ago I wrote a post about Helga Wiedermann’s forthcoming book under the title “‘Secrets revealed’: Memoirs about the financial attacks on Hungary.” Wiedermann, about whom nobody knew much, turned out to be György Matolcsy’s chief-of-staff when he was minister of national economy. At the time I had to rely on a fairly lengthy excerpt from the book that appeared in Magyar Nemzet because the book was set to be released only about three weeks later. The excerpt concentrated on the heroic work of Matolcsy against bankers, speculators, and western politicians who wanted to see Hungary in ruins and Viktor Orbán toppled. Since then the book has reached bookstores, and now the talk is about something else: the incompetence and irresponsibility of György Matolcsy.

So, what happened? Chess and Poker: Chronicle of the Victorious Battles of the Hungarian Economic War of Independence was released with great fanfare on March 11. Present at the book signing were Viktor Orbán and György Matolcsy as well as members of the Monetary Council. We learned that the idea of writing a book about Hungary’s economic battles came from Viktor Orbán himself. He thought that the Hungarian people should know more about the heroic efforts “we undertook together in defense of the country.” György Barcza, who used to be a respected financial analyst at ING Bank, today is the editor-in-chief of Napi Gazdaság, recently acquired by Századvég, an economic and political think tank close to the government. At the book signing Barcza hailed Chess and Poker as a reference book on how a government should negotiate with the IMF. He emphasized the importance of “economic independence” and cited Turkey and Russia as good examples.

But after the high-profile book launch people went home and actually read the book. And this is where the troubles started. It didn’t take long to discover that one of the leaders of Hungary’s war of economic independence committed a serious indiscretion if not a criminal act. On November 17, 2011, four hours before the Hungarian government’s official announcement that it had after all decided to turn to the IMF for a loan, Matolcsy had lunch with three representatives of Goldman Sachs. He told them that in the morning the Hungarian government had approached the IMF for a loan. According to the detailed description of Wiedermann, one of the three visitors immediately excused himself to go to the rest room, not to relieve himself but presumably to inform, directly or indirectly, Goldman’s forex trading desk of this piece of news. The lunch, Wiedermann recounts, was unusually short. The guys from Goldman had gotten their inside information and presumably had more follow-up work to do.

The EUR/HUF chart from that day shows the immediate buying pressure after Matolcsy’s indiscretion. When the official announcement was made at 3:52, forex traders not privy to its early “release” piled on. There were thus two waves of buying, with the early buyers having a decided advantage.

Source: http://www.index.hu

Matolcsy, who a couple of days earlier had been praising the book as an accurate chronicle of events, found himself in an uncomfortable position. He changed his tune and now claimed that “Helga Wiedermann wrote nothing but fiction in her economic novel. Naturally the head of the National Economic Ministry did not inform the investors about Hungary’s plans concerning the IMF. Instead he told them that this was one of the possible options.” This is pretty much of an admission as far as I’m concerned.

There are many questions one can pose in connection with this sorry affair. In my post a month ago I set forth the possibility that György Matolcsy himself may have written the book, at least in part. After all, Helga Wiedermann was not present at many of the meetings she talks about in detail. But whatever Matolcsy’s role in writing the book, I think one can be certain that he read the manuscript before it went to press. The scene at the restaurant with the Goldman Sachs people is quite detailed:

After ordering, Matolcsy mentioned in passing that at 8 a.m. he had informed the IMF delegation that Hungary is beginning negotiations with the International Monetary Fund and the European Union. Moreover, we already sent the letter to Washington and Brussels. The butter knives froze in the hands of the guests. One of the guests immediately said that he was in need of a restroom and got up. It is not known how many telephone calls he made, but after he returned they finished lunch in record time. Instead of the normal one and a half hours, they finished all the courses in 40-50 minutes.

After this meeting Matolcsy became convinced that all the paranoid rumors were true: the big international investors had launched a life threatening attack against Hungary. What can one say after reading this? Is Matolcsy that ignorant of the financial world in which he is supposed to operate? From the description this seems to be the case, because the message is that Matolcsy thought he had tricked the men from Goldman Sachs into revealing the true intentions of the entire international financial world toward Hungary. This really boggles the mind.

The guys from Goldman did what any smart employee would have done: having received information about an official move of the Hungarian government that hadn’t yet been made public, they rushed to tell their friends in London and/or New York that it was time to buy the forint. There is nothing sinister about this. As Boris Schlossberg, managing director of FX Strategy for BK Asset Management, said, “If your biggest Japanese client, who also happens to golf with the governor of the Bank of Japan, tells you on the golf course that BOJ is planning to raise rates at its next meeting, you could go right ahead and buy as much yen as you like.” This is not illegal; there is no such thing as insider trading in the forex market. Moreover, in this case Goldman Sachs’s purchase of forints was not an “attack” on Hungary. In fact, it helped to strengthen the Hungarian currency, which was to the advantage of the Hungarian government.

I think we can safely say that Hungary had an economics minister and today has a governor of its central bank who not only is unqualified but talks too much. Until the news was officially released, it was a state secret which you don’t talk about to anyone, especially not to representatives of Goldman Sachs.

News travels fast nowadays and yesterday at a press briefing by Gerry Rice, director of communications for the International Monetary Fund in Washington, a reporter asked him about this affair.

QUESTIONER: On Hungary, this is kind of a book that came out this week saying that the previous economy minister spoke to Goldman Sachs before making public that it was going to the IMF for a program, and that this resulted in currency trading that some people, rightly or wrongly, are attributing to this sort of speaking in advance to an investment bank. So it just made me want to ask you whether the IMF — obviously there’s Hungarian legal issues that exist or don’t– have any rules on the ministers and governments that it speaks with how they should convey that information? Either if they could trade on it, for example, or if they can convey it to others and then in turn could trade on it?

MR. RICE: I don’t have any information at all on the case you’re referring to, so I don’t have any comment on that. But we do have, of course, confidentiality understandings on information that we would consider confidential in the discussions that we undertake with any authority.

Although the opposition wants to see Matolcsy resign, nothing of the sort will happen. Especially since it would be the task of the governor of the central bank, György Matolcsy, to investigate the case of György Matolcsy, the minister of national economy. The oddity of the whole situation is well illustrated by the fact that the denial of the particulars of the affair came from the Hungarian National Bank, which had nothing to do with it.

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

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

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

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

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

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

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

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

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

Source: tenytar.blog.hu

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

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

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.

Two days, two speeches: Viktor Orbán on a very wrong track

There are always a few people who phone into György Bolgár’s popular talk show on Klubrádió inquiring why he spends so much time on Viktor Orbán. The answer is simple. Orbán controls the country’s political, economic, and social agendas. Lately he has been busily promoting his ideas on topics ranging from religion to re-industrialization. Just in the last two days he made two speeches and gave his usual Friday morning interview to Magyar Rádió (which lately I’ve noticed French and German journalists correctly call state radio instead of public radio). And today the Spanish  El Mundo published an interview with Orbán on Christianity’s blessings for everyone, including nonbelievers.

Here I will tackle only the two speeches he delivered on April 18 and 19. The first was occasioned by an addition to the Stadler Rail Group’s plant near Szolnok. Stadler Rail is a Swiss company. The second also marked a plant expansion, this time by the Danish Lego Group at its Nyíregyháza facilities. There are practically no foreign companies that want to establish new factories in Hungary, so Orbán must be satisfied with even modest expansions of existing ones. Both Lego and Stadler have been operating in Hungary for a number of years. They came during the Gyurcsány and Bajnai governments.

Years ago, during his first premiership, Orbán made a since oft-quoted statement: “There is life outside the European Union.” In the last ten years or so he didn’t want to call attention to that much criticized sentence. At least not until two days ago when he said in his Szolnok speech: “I find it very important that the company that invests in Hungary is Swiss. Hungarians have always admired the Swiss and I am especially pleased that the Ambassador of Switzerland is also here. As school children we learned that Switzerland is a freedom loving country that has never given up its independence, horribile dictu didn’t even join the European Union. Switzerland is a good example that there is life outside the Union, so no one should be scared.” Well, that’s quite something although I doubt that Orbán actually wants to withdraw from the EU. He knows only too well that a financial collapse would follow secession.

There can be no better place to talk about the re-industrialization of the country than in a plant that manufactures railway vehicles and streetcars. The site gave Orbán an opportunity to repeat one of his favorite themes: that only industrial “production” constitutes real work. He will transform Hungary from a service-oriented society to one that is “work-based.” Any other kind of human activity is worthless. In fact, more than worthless. It leads straight to failure. Let’s see just what he has in mind. “Someone who works, produces will stay successful, the one who speculates on the financial market will fail; the one who is in the service industry cannot stand on his own feet.” I haven’t heard such stupidity for a very long time. Try to explain that to the Rothschilds or to Conrad Hilton. On the other hand, there is no guarantee whatsoever that someone producing industrial goods will succeed. Just think of all those companies that have died or that are struggling to keep their heads above water.

But wait, there’s more! According to Viktor Orbán, “we don’t live off others. We don’t live from the dole of the IMF or the European Union. The country is standing on its own feet because of  its economic accomplishments.” I can’t find words!

The next day it was time to visit Nyíregyháza where the Danish Lego Group is expanding its facilities. Here we found out from the Hungarian prime minister why Lego products are so popular. He has, he said, spent some time pondering over this puzzle and came up with the following hypothesis: “These toys are the expressions of the modern age, the world in which we live. In them we can find the greatest challenge of globalization. That challenge is how we can build separate worlds from almost practically identical components. … In 2010 we began exactly that kind of enterprise, which is not at all a game but which demands at least as much inventiveness and fantasy as building our own world from Lego comp0nents…. We Hungarians had to undertake the task of rebuilding a Hungary that is different from all other countries from components at our disposal in the twenty-first century…. We followed the spirit of Lego. We didn’t follow the well known path but started on our own, trying to remove the debris of the past.” And he went on and praised the inventiveness and creativity of Hungarians.

Let’s build a country
DecoJim’s photostream / Flickr

Well, we know that the inventiveness and fantasy exhibited by György Matolcsy produced mighty few positive results. On the contrary, his unorthodox economic moves managed to send the Hungarian economy into recession. One mustn’t forget, although Orbán et al keep trying to rewrite history, that the Hungarian economy was on the rebound when he took office in 2010.

To build a separate Hungarian world today is impossible, and I suspect it was always impossible. Globalization is not a new phenomenon. I would also advise Orbán not to mix up Switzerland with Hungary.

The Orbán government’s favorite pastime: Crossing swords with everyone

Although I know that some of you have already discovered Kim Scheppele’s answer to Gergely Gulyás’s attacks on her scholarly credentials, those who haven’t should visit Paul Krugman’s blog on The New Times and read her rebuttal entitled: “Hungary, The Public Relations Offensive.” Her analysis of the public letter addressed to her highlights the way members of the Orbán government operate. And in case you didn’t see Gulyás’s letter to Scheppele, make sure that you read it now.

A couple of days ago I also wrote about the scandalous personal attack on George Kopits, this time by the new deputy governor of the Hungarian National Bank. This young and apparently unqualified upstart, who owes his position to his allegiance to Fidesz, Viktor Orbán and György Matolcsy, attacks a man with an impressive academic and professional background. I suggest taking a look at his curriculum vitae.

They like to fight

But the list doesn’t end here. The latest is an attack on Viviane Reding, Vice-President and Commissioner responsible for Justice, Fundamental Rights, and Citizenship, who happens to be a Christian Democrat. Just like Fidesz politicians in the European Parliament, she is affiliated with the European People’s Party (EPP). So her attackers can’t even claim that her criticism of the current Hungarian government derives from her left-liberal political leanings. One can read about Viviane Reding’s career here.

Regardless of how many degrees, prizes and distinctions she has received, the Hungarian minister of justice and administration, Tibor Navracsics, still thinks that she is unqualified for her job. Navracsics shouldn’t throw stones: his own legal background is minimal. After he graduated from law school he immediately switched to political science, which he taught at his alma mater until Viktor Orbán discovered him and made him the whip of the Fidesz caucus between 2006 and 2010.

It is obvious from the statements Navracsics’s ministry released lately that the minister of justice and administration either decided on his own or was instructed from above to launch an anti-European Union campaign. First, he came up with the bizarre explanation that the “renewed attacks” on Hungary have something to do with the German elections that will take place in five months and the EP elections more than a year from now. According to Navracsics, “the European left uses all means at its disposal to discredit the European right” through its attacks on Hungary. It seems that Navracsics, who is supposed to know something about political science and politics, considers Hungary a linchpin in the political war between right and left in Europe. Political commentators laughed at the very suggestion.

But why the renewed attack on Viviane Reding? She made the mistake of giving a lengthy interview to the Hungarian paper Népszava. In it she emphasized that she has no grudge against Hungary or the Hungarian government as Navracsics often claims. It is her duty to enforce the laws of the European Union. She expressed her disappointment that the Hungarian government didn’t heed José Manuel Barroso’s request for a postponement of the vote on the latest amendments to the constitution. She used some pretty strong words in connection with the Hungarian government’s lack of responsiveness when it comes to adjusting Hungarian law to conform to the laws of the Union. Here is one of the many statements she made during the interview that may indicate that the European Commission means business. “As President Barroso mentioned, if necessary we will not hesitate to use all means at our disposal–I repeat, all means at our disposal–if Hungary disregards the legal norms of the Union and those of the Council of Europe.” Reding repeated what she had said earlier: “a constitution is not a plaything that can be changed every few months. This is especially true when the independence of the judiciary is at stake.”

Finally, there seems to be a difference of opinion about the information flow between Reding and Navracsics. Navracsics complains that he finds out about Reding’s positions on certain issues only from the media. Naturally, Reding denies the charge, claiming that she and her staff are in constant touch with Navracsics’s ministry. As for the veracity of Navracsics, it is worth recalling his run-in with Nellie Kroes, European Commissioner for Digital Agenda in Brussels, about a year ago. Kroes and Navracsics had a long private talk after which there was a press conference during which Navracsics’s position suddenly changed. Kroes was furious and announced to Navracsics and all those present: “That is not what you told me half an hour ago.”

There are a couple of nasty international situations where Navracsics thinks that Reding is not sufficiently supportive of the Hungarian position. One is the so-called Tobin case. Tobin is an Irish national who caused the death of two Hungarian children. He was released on bail but left Hungary and went back to Ireland. For years Hungary has been trying to get Tobin extradicted to Hungary where he is supposed to serve his sentence. However, according to Irish law, Ireland extradites somebody only if the person actually escaped from the country asking for his extradition. Tobin didn’t, and therefore the Supreme Court of Ireland ruled in Tobin’s favor. As Reding explained, this is the law, whether we agree with the outcome or not. Under the circumstances she can do nothing.

Then there is another case in which Navracsics suddenly discovered that Reding didn’t do her best on Hungary’s behalf. A Hungarian woman in the middle of a divorce ended up with her husband and child in Bora Bora. The husband took her passport away and has been keeping her and her son captive. According to Navracsics, he wrote to Reding about the case on February 14 but has gotten no answer. By now it seems that Reding is really fed up with Navracsics and his ministry because she found it interesting that “these accusations surfaced only after the Commission announced that it is analyzing the legality of the constitutional amendments.” Reding claims that she answered Navracsics’s letter on March 19. Moreover, she got in touch with the French minister of justice and asked her to investigate the case. Reding sarcastically mentioned that perhaps Navracsics should check his mailbox because the Hungarian Embassy in Brussels acknowledged the receipt of her letter. And she added her final observation: “Such mistaken information surely doesn’t improve the relations between Budapest and Brussels.”

I doubt that Navracsics’s answer to Reding dated April 8 will mend the already strained relations between the commissioner and Navracsics. Here are a few choice sentences: “Your statements of late have plenty of factual errors.” He goes on to elaborate. He claims that he wrote a second reminder on March 17 to Reding which must have prompted her to write him on the 19th. He added that two of his letters have still been unanswered. The first he wrote on November 13 and second on November 16 about the Tobin case. In addition, Reding keeps talking about judicial independence in connection with the early retirement of judges when the European Court of Justice in its ruling wrote only of “discrimination on the basis of age”; the decision had nothing to do with the independence of the judiciary. And a final dig: “Madam, you asked me to check my mailbox. I ask you to check your facts.” So, relations between Brussels and Budapest are splendid!

I should mention that Hungary has problems not only with the European Commission but also with the European Parliament, which will discuss the Hungarian constitution on April 17. As far as we know Viktor Orbán was not invited, but Orbán is “theoretically ready to debate” with the MEPs. This weekend he will consult with József Szájer whether he should go. Meanwhile the European Parliamentary Committee on Civil Liberties, Justice and Home Affairs prepared a document “on the situation of Fundamental Rights: standards and practices in Hungary (pursuant to the EP resolution of 16 February 2012)”–Rapporteur is Rui Tavares, Portuguese MP. Apparently even the European People’s Party members of the committee signed the report. Doesn’t sound too promising from the Hungarian point of view.

 

Vicious attacks on critics of the Orbán government: George Kopits and Kim Scheppele

I’m in trouble again. I don’t know where to start because in the last three days an incredible amount of news emerged from the turbulence of Hungarian political life.

But perhaps I should first say a few words about topics we’ve already covered but thanks to the Hungarian penchant for not letting sleeping dogs lie remain in the news. This compulsion on the part of the Hungarian government to answer every criticism usually works against them.  To take but a single instance of how counterproductive these constant counterattacks can be, consider the case of the German children’s show on the Kinder Kanal (KiKa) about the Orbán government’s attitude toward democratic rights. There is no need to describe the details of the case, but the Orbán government took this “affront” so seriously that Viktor Orbán himself felt it necessary to tell the Germans off about “brainwashing” German children. The result? Another cartoon, this time showing Viktor Orbán dressed up as a clown stomping his feet and threatening his critics. Did Hungary need this? Certainly not. And did HírTV, a pro-government television station, have to respond with a primitive cartoon of its own about Angela Merkel who can do anything because Germany has a lot of money? Again, certainly not. In fact, it would have been best to have said nothing.

Well, something similar is going on at the moment but on a much more serious level. The Hungarian government has taken offense at criticisms from sources a bit higher up than a kiddie show in Germany.

In the first instance, the Hungarian National Bank’s new deputy governor decided to write a letter to the editor of The Wall Street Journal in connection with an opinion piece published in the newspaper by George (György) Kopits, former chairman of Hungary’s Fiscal Council between 2009 and 2011. I wrote about this hard-hitting letter in which Kopits called Viktor Orbán’s newly constructed regime “a constitutional mob rule.”

Newspapers normally give a government or important state institution the opportunity to answer any article it finds objectionable. So The Wall Street Journal had to publish at least part of Ádám Balog’s letter to the editor. Balog, a thirty-two-year-old with no banking experience, gained the favor of his boss in the Ministry of the Economy from where he followed György Matolcsy straight to the Hungarian National Bank. Now, it seems, he’s the bank’s “hit man.”

A very short letter appeared only in the European edition of the paper although Kopits’s piece appeared in the American edition as well. Let me quote the text that The Wall Street Journal decided to publish:

In his recent op-ed, George Kopits urges action against Hungary by international financial markets and the European Union (“Constitutional Mob Rule in Hungary,” March 28). Mr. Kopits criticizes the operations of Hungary’s central bank in particular.

The operation of the National Bank of Hungary is lawful and transparent, contrary to Mr. Kopits’s claims. Under the leadership of new governor Gyorgy Matolcsy, the central bank has replaced an essentially one-person management system with a system based on a broader foundation. During this transition, the turnover in the central bank’s staff, including managers and subordinates, was less than 4%. That means that essentially the same people work at the Hungarian central bank as before.

The real threat to the authority and professionalism of the central bank lies not in such changes to management, but rather in criticisms, like Mr. Kopits’s, that are not supported by facts.

Adam Balog / Deputy Governor / National Bank of Hungary

That was published on April 2. Obviously, the leadership of the Hungarian National Bank was dissatisfied with the excised version of Balog’s letter to the editor. They decided to make public the original, which was full of ad hominem attacks against Mr. Kopits.

Here is the original version:

Gyorgy Kopits’s outlash harmful for the interests of Hungary

A discredited person criticizes the Hungarian central bank in the international press

Gyorgy Kopits, a former member of the National Bank of Hungary’s Monetary Policy Council has urged action from international financial markets and the European Union against Hungary. Mr. Kopits heavily criticized Hungary, and the operations of the central bank in particular, in the editorial section of the Wall Street Journal on March 27.

American readers may not be familiar with Mr. Kopits’s career in Budapest. He was a member of the Monetary Policy Council of the National Bank of Hungary between 2004 and 2009. He received the request to fill that post from Zsigmond Jarai, who was finance minister in the first government of the current Prime Minister Viktor Orban, who Mr. Kopits furiously criticized in his article, and then was appointed by the same government to the post of central bank governor.

Mr. Kopits held his position in the Monetary Policy Council, the top decision-making body of the central bank, in a period when lending in foreign currencies was on the rise. Foreign currency loans continue to place a major burden on tens of thousands of Hungarian families and firms to the very day. The National Bank of Hungary is among those that are now making efforts to mitigate the damages, to lower the impact.

Gyorgy Kopits’s criticism of the central bank—while it harms the prestige of the independent central bank—also lacks credibility. As the president of the Fiscal Council, Mr. Kopits approved Hungary’s 2010 budget, in which revenues were significantly over- and expenditures underestimated. Without immediate measures, the budget deficit of the 2010 budget would have been above 7% of gross domestic product as against the originally planned 3.8% of GDP viewed as attainable by Mr. Kopits.

The operations of the National Bank of Hungary are lawful and transparent. The new central bank’s management under the leadership of [new central bank governor] Gyorgy Matolcsy replaced the essentially one-person management system with a system based on a broader foundation in March. Turnover in the central bank’s staff, including managers and subordinates, was less than 4%. That means that essentially the same people work at the Hungarian central bank as before. Not the changes in central bank positions but rather the malicious writings similar to that of Mr. Kopits, which are not supported by facts but are unfounded, are posing a threat to the authority and the professionalism of the central bank.

Ádám Balog, Deputy Governor, Magyar Nemzeti Bank.

Vicious dog / beardenb / flickr

You will, I’m sure, notice that the English of the original version leaves a lot to be desired. And, instead of answering Kopits’s criticism, Balog hurls personal attacks on him. He is “a discredited person.”  He is ungrateful because he received his post on the Monetary Council of the Hungarian National Bank thanks to Viktor Orbán whom he now “furiously” criticizes. During his tenure on the Monetary Council wrong decisions were made concerning “lending in foreign currencies,” so he is responsible for the current financial problems of hundreds of thousands of Hungarian families and businesses. Kopits not only “harms the prestige of the independent central bank” but “also lacks credibility” because he was “president of the Fiscal Council” that approved the 2010 budget despite the fact that in that budget “revenues were significantly over- and expenditures underestimated.”

Similar personal attacks were launched against Professor Kim Lane Scheppele the other day by Gergely Gulyás, the great Hungarian “expert” on constitutional law. I am almost certain that the letter was not written by Gulyás. The language of the text and its reasoning points to someone who received his legal training in the United States. Moreover, the author of the letter is thoroughly familiar with laws of individual U.S. states which, with due respect to Gergely Gulyás’s wide ranging knowledge of the law, is probably outside the purview of someone who received his law degree at the Catholic Péter Pázmány University in Budapest.

The ad hominem attacks on Professor Scheppele are similar in tone to those Ádám Balog leveled against Kopits, but they are considerably more sophisticated. The document is worth reading in its entirety, but here are a few choice tidbits: “unfounded allegations,” “factual mistakes,” “academic freedom … does not equal freedom from facts,” “egregious mistakes ,” just to mention a few descriptions in the first couple of paragraphs of a fairly long letter. The author of the letter even accuses Professor Scheppele of misleading Paul Krugman who allowed her to use his blog in The New York Times, because if he knew about all the misinformation in her writing Krugman “would surely object to … using him in such ways.” Body blow after body blow.

I can only surmise that the Orbán government came to the conclusion that they crossed the line with the latest amendments to the constitution, which may have grave consequences for Hungary. Therefore, serious critics like Kopits and Scheppele must be discredited. I expect these attacks on critics of the Orbán government to continue unabated.

My suspicion that the Fidesz political elite fears serious countermeasures from the European Union was only reinforced when I heard Viktor Orbán’s Friday morning interview on Magyar Rádió. According to him, Hungary’s economic performance doesn’t warrant the continuation of the excessive deficit procedure, but he expects no fairness in Brussels toward Hungary. The country must be prepared for the possibility that the European Union will not be satisfied with the current figures and the government’s predictions for 2013. Hungary will be punished unfairly.

Critics must be discredited one way or another.  Just as the Austrian paper, Der Standard, said the other day: “Fidesz politicians are bloodthirsty, unscrupulous, and vindictive.”

Individual initiative versus centralized bureaucracy: The Hungarian case

We often talk about the incompetence of the Orbán government. Top positions go to devoted party cadres. Expertise doesn’t matter much. Party loyalty, on the other hand, is paramount. Or, even better, loyalty to Viktor Orbán.

This incompetence, however, is not confined to the upper echelons; it permeates every level of the administration. It is enough to think of the painfully inadequate response by the government agency responsible for emergency services during the March 14-15 snowstorm. I understand that in the wake of all the winter snow the rivers are now rising and some roads are already under water. We’ll see how the Hungarian version of FEMA handles the next emergency situation. I’m sure that, whatever the case, the prime minister will once again think they are doing a “heck of a job.”

This government is particularly inept, but even better organized administrations have often failed to address national problems in a meaningful way. Consider, for instance, government efforts at tackling the plight of the Roma population. Over many years a lot of money has been poured into projects with very little to show for it. Yes, there are a few hopeful signs. More Gypsy boys and girls finish high school and the number of those who don’t even finish eight grades is on the decline. Yes, a few more Roma youth end up in college but not enough. The task is enormous and certainly one cannot expect overnight miracles, but it is becoming obvious that government alone is incapable of solving the problem.

In general, a highly centralized structure is the wrong venue in which to solve local problems. The reorganization of the firefighters is a good case in point. When I heard that thousands of fire departments will be centralized I was puzzled. How can you centralize fire departments? After all, fires are local. It was only after I saw an interview with the head of the firefighters’ union that I suddenly understood how it works or rather how the new system doesn’t work. If a fire breaks out, let’s say in Hévíz, the emergency call doesn’t go to the Héviz Fire Department but to the county seat of Zala County, Zalaegerszeg, which is 27 km away. The people in Zalaegerszeg then transmit instructions to the fire station closest to the scene of the fire. This is crazy.

In the Orbán administration centralization is a key concept, and I guess those who designed this system followed what they perceived to be the desired strategy. Whether it made sense or not.

And the new system turned out to be nonfunctional. The right hand didn’t know what the left was doing. Firefighters who were helping in the snowstorm were sent to locations where allegedly they were needed, but when they arrived the locals had no idea why they had come and what they were supposed to do.

Those who were stuck on the highways saw no policemen, no firefighters, no rescue workers for as long as twenty hours. The first people who reached them were local volunteers who put together money and food and supplied the people half frozen in their cars with some nourishment and hot tea. The locals were the ones who took stranded families to their own homes and gave them shelter and food. Local initiative worked while centralized state authority failed miserably.

But back to the Roma issue. I mentioned just yesterday that about 7% of the country’s population is of Roma ethnicity. Their poverty and lack of education is a serious social, economic, and political problem. And over the past twenty years successive governments  had little success in reversing this trend. It doesn’t matter what glowing reports we hear from Zoltán Balog, the minister in charge of Roma affairs, the situation is not getting any better. On the contrary, because of the racist anti-Roma propaganda of Jobbik, a neo-Nazi party, discrimination against the Roma is growing. In the past I read about initiatives of NGOs, individuals, and some small churches in certain localities that managed to achieve measurable success in Roma villages, but there is need for many more such ventures.

The other day I read an article in Magyar Narancs by Péter Felcsuti, formerly head of the Hungarian Banking Association, about a case that shows the better side of Hungary. There is a village high school attended practically exclusively by Roma children in one of the poorest counties in northeastern Hungary. The education the children receive in this school is poor, and even if a few of the students make it to college they end up with teacher’s certificates or degrees not really useful in today’s economic climate. It is not clear from the article how it happened, but a department head of a good university–I wouldn’t be surprised if it was Corvinus University, which specializes in economics and business–found out about the plight of that village high school. And he came up with a plan.  He got in touch with the principal of a Budapest “elite”  high school and asked him whether the teachers in that school would be willing to volunteer their time to prepare promising students in the village high school for entrance examinations in subject matters necessary for admittance to the best universities in the country. A large number of the elite school’s teachers volunteered as did at least 25 students from the department where the idea of intensive mentoring was born. That means that about fifty people spend their weekends in the village mentoring promising students. The intensive weekend course will be followed by summer camp. The mentoring has already begun, and we will see whether it is more effective than the government efforts of the past.

One only wishes there were more volunteer programs: a united effort by universities, high schools, and concerned citizens to try to change things on the local level. Whatever they achieve will certainly be  more useful than distributing chicks and seeds to people who have no corn for the chicks and no expertise in growing vegetables. Teaching Roma children the skills necessary to become entrepreneurs, professionals, even prime ministers offers some promise for the future.