Russian-Hungarian relations

American rapprochement with Viktor Orbán’s Hungary?

While readers of Hungarian Spectrum continue to discuss the possible reasons for André Goodfriend’s departure, let me share one right-wing Hungarian reaction to the exit of the former chargé, István Lovas’s opinion piece in yesterday’s Magyar Hírlap titled “The Bell Change.”

One could devote a whole series of posts to István Lovas himself, from his brush with the law as a teenager to the open letter he wrote recently to Vladimir Putin in which he asked him to start a Hungarian-language “Russia Today” because the Russian propaganda television station is actually much better than BBC. Lovas lived in Canada, the United States, and Germany, where he worked for Radio Free Europe. He was considered to be a difficult man who caused a lot of turmoil in the Hungarian section of the organization.

For many years Lovas was a devoted Fidesz man. He already held important positions in the first Orbán government (1998-2002). For years he worked for Magyar Nemzet, most recently as its Brussels correspondent, but a few months ago Lovas, along with a number of other Orbán stalwarts, lost his job. Mind you, the European Parliament had had enough of Lovas even before he was sacked by Magyar Nemzet, especially after he presented a bucket of artificial blood to Sophie in ‘t Veld, the Dutch liberal MEP. The bucket of blood was supposed to symbolize the Palestinian children who were victims of the Israeli-Palestinian conflict. Lovas, himself of Jewish descent, is a well-known anti-Semite.

After having lost his job at Magyar Nemzet and after Putin failed to respond to his plea for a Hungarian “Russia Today,” Lovas moved on. Gábor Széles, who owns Magyar Hírlap and EchoTV, offered him a job. Now he has a weekly political program called “Fault Lines” (Törésvonalak) on EchoTV, and he also writes opinion pieces for Széles’s newspaper.

So how does István Lovas see American-Hungarian relations in the wake of the arrival of Colleen Bell and the departure of André Goodfriend? To summarize his opinion in one sentence: from here on the United States and the Orbán government will be the best of friends.

According to Lovas, André Goodfriend was the darling of those lost liberals who have been wandering in the wilderness “ever since SZDSZ was thrown into the garbage heap of history.” They are still hoping that nothing will change. Originally they were certain that Goodfriend would run the embassy while the newly arrived ambassador would be its public face. Meanwhile, Goodfriend would continue visiting “left/neoliberal SZDSZ or MSZP politicians and intellectuals.”

These liberal hopes were dashed soon after Colleen Bell’s arrival. The new orientation was clear from day one. Bell went and laid a wreath at the statue of the unknown soldier on Heroes’ Square. She visited the Csángó Ball organized every year to celebrate a fairly mysterious group of Hungarians living in the Romanian region of Moldavia, speaking an old Hungarian dialect. These are important signs of the new American attitude toward things dear to the current government: fallen heroes and national minorities. Certainly, says Lovas, Goodfriend would never have been found in such places. Yet liberals don’t seem to have grasped the significance of all this. They think that more Hungarians will be banished from the United States and that Hungary will have to pay a high price for peace with the United States. Most likely, Orbán will have to compromise on Paks, on Russian-Hungarian relations in general, and/or will have to buy American helicopters.

But Lovas has bad news for them. There will be no more talk about corruption cases, and Hungary will pay no price whatsoever. Colleen Bell realized that Goodfriend’s methods had failed. Of course, Lovas is talking nonsense here. Even if Lovas is right about a change in U.S. policy, it was not Bell who decided on this new strategy but the United States government.

Lovas is certain that the change has already occurred. It is enough to look at the new website of the U.S. Embassy in Budapest. There are no more programs on tolerance, on Holocaust events, “all those things that are kicks in the groin of the Hungarian people and their elected government.” A drastic change occurred in U.S.-Hungarian relations which even such liberal-socialist diplomats as Péter Balázs, foreign minister in the Bajnai government, László Kovács, foreign minister under Gyula Horn, or András Simonyi, ambassador to Washington (2002-2010), couldn’t explain away.

This change couldn’t have taken place if Goodfriend had stayed or if the Orbán government had conducted “the kind of servile atlantist policy recommended by Géza Jeszenszky,” foreign minister under József Antall and ambassador to Washington during the first Orbán government. Jeszenszky, who just resigned as ambassador to Norway, had a long interview in which he expressed his deep disappointment with Viktor Orbán and his foreign policy, especially with his attitude toward the United States.

According to Lovas, what happened recently is a victory for Orbán’s foreign policy, a feat that “could be achieved only by the courage and tenacity” of the Hungarian prime minister. The United States government tried to mend its ways by sending someone to Budapest who is not worried about such things as tolerance or the Holocaust. From here on the Budapest embassy will function just as American embassies do in other capitals. The U.S. Embassy in Vienna, for example, does not report “breaking news” about the Anschluss.

Lovas might exaggerate, but something is going on. When was the last time that Viktor Orbán called together the whips of all political parties for a discussion on Hungarian foreign policy? As far as I know, never. As Magyar Nemzet put it, “Viktor Orbán asked for the support of the political parties in reaching the nation’s foreign policy goals.” Among the topics was the objective of “strengthening the American-Hungarian alliance.” Péter Szijjártó, who was of course present, claimed that “political relations with the United States are improving” and that the Orbán government “will take further steps toward the restoration of earlier economic, political, and military cooperation.”

The meeting of the leaders of the parliamentary delegations  Source: MTI / Photo Gergely Botár

The meeting of the leaders of the parliamentary delegations convened by Viktor Orbán
Source: MTI / Photo Gergely Botár

I’m sure that we all want better relations between Hungary and the United States, but the question is at what price. The United States can’t close its eyes to Viktor Orbán’s blatant attacks on democracy, the media, human rights, and civil society. And then there is the timing of this alleged renewed love affair between Budapest and Washington. If true, and that’s a big if, it couldn’t have come at a worse time for Hungarian democracy–yes, liberal democracy. Just when Viktor Orbán’s support is dropping precipitously and when it looks as if he may lose his precious two-thirds majority in spite of all the billions of forints he promised from taxpayer money to the city of Veszprém to buy votes. When a large part of the hitherto slavish right-wing media at last decided to return to more critical and balanced journalism.

No, this is not the time to court Viktor Orbán. It would be a grave mistake. It is, in fact, time to be tough because the great leader is in trouble. Trouble abroad, trouble at home. Frans Timmermans, the first vice-president of the European Commission, in a speech to the European Parliament said the following without mentioning Viktor Orbán’s name: “We cannot let our societies imperceptibly slip back; we cannot allow illiberal logics to take hold. There is no such thing as an illiberal democracy…. We are keeping a close eye on all issues arising in Member States relating to the rule of law, and I will not hesitate to use the [EU Rule of Framework established last March] if required by the situation in a particular Member State.”

Two narratives of the impending Budapest visit of Angela Merkel

As Chancellor Angela Merkel’s visit to Budapest nears, there is conflicting speculation about the purpose of her visit. Merkel will spend five hours in Budapest, apparently on February 2. This short stint will include a meeting with Prime Minister Viktor Orbán and a visit to Mazsihisz, the umbrella organization representing the Jewish religious community. Why is Merkel traveling to Hungary? According to critics, the trip is ill-advised because, with a visit to Budapest, she is implicitly endorsing the illiberal regime of Viktor Orbán. A few days ago one of the leading MSZP politicians announced that the party expects Merkel “to signal to Viktor Orbán in unambiguous terms that he has no place in the community of democratic European politicians.”

Others seem to be convinced that Merkel is going to Budapest to ensure that Viktor Orbán will vote together with the rest of the European prime ministers to extend the sanctions currently in force against Russia. After all, it wasn’t so long ago that the German chancellor made it clear that sanctions can be lifted only after the agreement reached in Minsk is fulfilled. And nothing of the sort has happened. In fact, just this morning Kiev announced that 700 Russian troops had crossed into Ukraine to aid the rebels fighting for control of the eastern provinces.

Attila Ara-Kovács, the foreign policy expert of Demokratikus Koalíció, is one of those who believe that the trip’s main purpose is to convince Viktor Orbán of the necessity of extending the sanctions. But he goes even further when he hypothesizes that Merkel has another message for Orbán in light of the recent demonstrations: he should end the political conflict at home. Somewhat similarly, Stratfor, an American geopolitical intelligence and advisory firm, is convinced that Merkel’s visit is part and parcel of a U.S. “diplomatic offensive” in the region and can be viewed as putting joint U.S.-German pressure on Viktor Orbán. The aim is to stop the spread of Russian influence in the region.

Is this the truth?

Is this the truth?

Or that?

Or this?

The other narrative of the impending Merkel visit comes straight from Fidesz. It is well summarized in the headline of an article by Zsolt Hazafi: “Is Merkel Orbán’s guardian angel?” It is true that the journalist turned the Fidesz message into a question, but the answer is “yes.” The story line goes as follows: Hungary and Germany are very close allies who synchronize all their diplomatic moves. More than that, Orbán’s Hungary is doing Germany’s bidding. Or at least this is what József Szájer, a Fidesz member of the European Parliament, intimated in his interview with Antónia Mészáros of ATV yesterday. As he put it: “Germany sent us ahead” to test the ground vis-à-vis Russia. Berlin, according to him, is just as much against sanctions as Budapest is, but Merkel is constrained, presumably by the United States. Therefore, she secretly welcomes Hungary’s position on the sanctions.

After talking with several high-level government officials, Hazafi gained the impression that in the last few years a Russian-German-Hungarian triangle came into being, a three-way relationship that includes an understanding about building a second reactor at the Paks nuclear power plant. Why would the German chancellor agree to the secret Russian-Hungarian deal on Paks? According to this narrative, Germany, where soon enough there will be no nuclear power plants, will be able to get inexpensive energy from Paks. Fidesz informants pointed out that a German firm was instrumental in making the Russian loan to Hungary possible. They added as proof of the understanding between Germany and Hungary on Paks that Günther Oettinger, former European commissioner for energy matters and a German, raised no objection to the Putin-Orbán deal. Members of the Hungarian government and leading Fidesz leaders consider both visits–Merkel’s and Putin’s–diplomatic triumphs. “Hungary is back on the map,” Orbán allegedly said.

Népszabadság also had its own Fidesz informants. They claim that Germany didn’t object to the Orbán-Putin meeting since Germany and Hungary work hand in hand when it comes to Russia. Some of the more embarrassing statements of Viktor Orbán are no more than trial balloons. One example is the question of sanctions. According to other Fidesz politicians, those who see a connection between the visits of Merkel and Putin “are not far from the truth.” Insiders also claim that the relationship between Merkel and Orbán is close. According to them, the two became closer after their hour-long meeting in Milan last year. Government officials, when claiming close German-Russian-Hungarian cooperation, usually bring up the fact that Klaus Mangold, former CEO of Daimler-Chrysler, was the middleman between Orbán and Putin throughout the negotiations. The informers seem to be pretty certain that “it is no longer in the interest of Germany to talk seriously about the lack of democracy in Hungary.” The author of the article (we don’t know who he/she is because there was no by-line) added that Merkel might have to resort to more serious criticism after “the prime minister’s crude anti-immigration theses” in the wake of the terrorist attacks in Paris.

So, here we have two irreconcilable narratives. I find the Fidesz version of close German-Hungarian relations hard to believe. There are just too many signs that contradict it. Unless, of course, we assume duplicity on the part of Angela Merkel. After all, time and again she expressed her misgivings about Russian aggression and her support of the sanctions, including additional ones if Russia refused to cooperate. Such a double game would make no sense, especially now that Russia is in serious economic and political trouble. Thus, my hunch is that the sudden talkativeness of Fidesz potentates is a concerted effort on the part of the Orbán regime to burnish the prime minister’s image, to point to his diplomatic importance and genius, and to portray him as one of the most important leaders in Europe.

I am inclined to believe that the main reason for the Merkel visit is indeed the question of the sanctions and Hungary’s overly chummy relations with Putin. I am also convinced that Merkel will talk about what Hungarians call “the democracy deficit,” which is something that is hard to ignore given the wide coverage of Orbán’s illiberal state and the latest demonstrations. In brief, I consider this latest tsunami of leaks by Fidesz politicians to be a part of a disinformation campaign.

Vladimir Putin’s impending visit to Budapest

Népszava, a social democratic paper, is generally well-informed about the “secrets” of the government. This time it surprised its readers with a front-page article announcing a planned visit by Vladimir Putin to Budapest sometime in March. Budapest, judiciously spurned by western political leaders of late, is becoming a hub of diplomatic activity. Angela Merkel is scheduled for a five-hour visit on February 2 and now the news about Putin.

The newspaper pointed out that this will not be Putin’s first visit to Budapest. He was the guest of Ferenc Gyurcsány in February 2006 when the Hungarian prime minister supported the idea of the Southern Stream to the great annoyance and disapproval of both the United States and Viktor Orbán. Orbán at that time considered such a policy to be the equivalent of treason. The paper also called attention to Viktor Orbán’s about-face when he paid a visit to Moscow in November 2010 and again in February 2013.

Actually Népszava missed an earlier indication that a change in Russo-Hungarian relations was in the works. In November 2009, prior to his becoming prime minister, during a visit to St. Petersburg as one of the vice presidents of the European People’s Party Orbán attended the eleventh congress of the ruling United Russia Party. During this visit he indicated to Putin that he wanted “to put Russian-Hungarian relations on an entirely new footing.” He had made up his mind to conduct a pro-Russian foreign policy once in power.

Viktor Orbán and Vladimir Putin in Moscow, January 2014 Source: Europess / Getty Images / Sasha Mordovets

Viktor Orbán and Vladimir Putin in Moscow, January 2014
Source: Europess / Getty Images / Sasha Mordovets

Perhaps the first person to comment on the news of the visit was László Kovács, former foreign minister, who happened to be a visitor on the early morning program “ATV Start.” He assumes that the initiative for the visit came from Moscow. Zoltán Sz. Bíró, a Russian expert, shares Kovács’s hypothesis. Putin must have been the one to suggest the visit in the hope of convincing Orbán to veto the extension of EU sanctions against Russia, which expire in March. In Biró’s opinion, a veto by Orbán not supported by any other EU country would poison the relationship between Hungary and the West for a very long time. Therefore he doubts that Orbán would dare to go that far.

Attila Ara-Kovács, head of the “foreign cabinet” of the Demokratikus Koalíció, told Klubrádió that he knew about the impending visit for about a week but, according to his information, Putin’s visit will take place not in March, as Népszava reported, but on February 9. In his reading, it was Orbán who invited Putin and not the other way around, perhaps to show the world that he is not alone in his battle with the United States and the European Union. If Orbán sensed that Angela Merkel intended to deliver “bad news” during her stay in Budapest, perhaps a looming visit from Putin might temper her disapproval. Ara-Kovács considers this latest move of Orbán a provocation that will only add fuel to the fire in the strained relationship between Hungary and the West.

What are the reactions of the opposition parties? As usual, MSZP is hibernating. Not a word from József Tóbiás, the party chairman, or from anyone else. Együtt somewhat naively demands that the government consult with all parliamentary parties “in preparing the meeting between Prime Minister Viktor Orbán and the Russian president.” Együtt can wait for such a consultation. Együtt joined LMP in its opposition to the construction of the Paks2 nuclear power plant. Both parties want the government, during the prime minister’s meeting with Putin, to break its contract for a 10-billion-euro Russian loan to have Rossatom build the plant. Well, that will not happen either but it is possible, as Zoltán Sz. Biró suspects, that Russia for financial reasons will give up the idea of the project. PM’s reaction was the most sensible: the party would like to see a huge demonstration against Putin’s visit organized by all the democratic opposition parties as well as by the civic groups that were responsible for the recent mass demonstrations.

László Szily, the blogger of Cink.hu, correctly pointed out that, if it is true that Putin is coming to Budapest, Viktor Orbán just did those who have been expressing their anger against his regime in the last few months a huge favor. The most recent demonstration showed signs of fatigue, but Putin in Budapest could resurrect the old enthusiasm of the crowds and just might unite the hitherto anti-party civic groups and the democratic parties into one large and potent group. Moreover, too cozy a Russian-Hungarian friendship might cause a rift within Fidesz itself. A lot of Fidesz voters are adamantly anti-Russian.  In Szily’s words, “The vacillating opposition on the streets can be grateful to the prime minister because kowtowing to Russia, parading with the dictator is the kind of event that could successfully bring together the dissatisfied left, right, and liberal public.”

One party was elated by the news: Jobbik. This afternoon Jobbik published an official statement, the theme of which was “Hungary must represent the interests of peace and neutrality.” Márton Gyöngyösi, the party’s foreign policy expert, said that Jobbik is a supporter of Viktor Orbán’s “eastern opening” and “considers Russia an economic, political and cultural partner of Hungary.” Budapest, because of the Hungarian minority in the Subcarpathian region of Ukraine, shouldn’t side with its western allies. Gyöngyösi went even further than the rather subdued official statement when he told Hiradó, the organ of state propaganda, that “it is unacceptable that the Hungarian government, blindly representing western interests, is ready to throw the Subcarpathian Hungarians as bones to the West.”

It is hard to know what the next couple of months will bring on the international scene. We have no idea what kind of message Angela Merkel will deliver to Budapest on February 2. We don’t know what foreign reactions to Putin’s visit will be. But domestically the Russian president’s visit might just be a potent catalyst for political change.

International pressure on Viktor Orbán: Russia, Putin, and Gazprom

There is real concern among former Hungarian diplomats and foreign policy experts that Hungary’s isolation is practically complete and that she may remain the only “strategic ally,” to use Viktor Orbán’s favorite term even in connection with China, of Vladimir Putin’s Russia. And if the Orbán government does not try to extricate itself from this situation, the consequences can be serious. Although Fidesz supporters are convinced that the United States has embarked on the destabilization of the country with the goal of removing Viktor Orbán from power, this cannot be Washington’s intent. After all, the opposition is in disarray and replacing Orbán with another Fidesz politician would not accomplish anything. A new prime minister would be merely a figurehead; the real power would remain in the hands of Viktor Orbán.

Admittedly, on the surface this conspiracy theory finds some support in the coincidence of the American move to ban six corrupt officials and businessmen from the United States and the massive demonstrations against the internet tax that soon enough became a protest movement against the whole regime. But the latter wasn’t the U.S.’s doing. It was the folly of the Hungarian government that seems to commit more and more mistakes lately. Did Viktor Orbán lose his magic touch, or has he navigated himself into an impossible situation in which the “peacock dance” is no longer possible? He is increasingly being faced with a stark choice: either total commitment to the side of Russia or capitulation and acceptance of the rules of the game within NATO and the European Union.

Orbán might be a good politician–if we define a good politician as someone who can play one person against another, who can fool his allies, who disregards the law, and who within a few years manages to institute a one-party system, because that is what we have in Hungary. But his track record shows that he cannot govern, that he cannot run a country successfully. We who watched his first four years between 1998 and 2002 with growing concern knew that already, but it seems that in the eight years that followed his disastrous rule the Hungarian people forgot why they went out in record numbers to make sure that this man and his regime don’t come back.

The situation today is ten times worse than it was during his first administration. He has transformed the country into an illiberal democracy, and his pro-Russian policies have alienated Hungary’s allies. Viktor Orbán is considered to be a pariah and someone who is toxic because of his potential influence on some of the other countries in the region. Western politicians look upon him as a fellow traveler of Vladimir Putin. And, indeed, they seem to borrow each other’s ideas. Orbán copies Putin’s attacks on NGOs, while, it seems, Putin was inspired by Orbán’s nationalization of the textbook industry, reported just yesterday in the western press.

During his first administration Orbán was fiercely anti-Russian, and it seems that he didn’t change his mind on that score until lately. In December 2009 a Hungarian foreign policy expert and obvious admirer of Orbán described the forthcoming Fidesz victory as “Moscow’s nightmare.” Early in his second administration he worked furiously on a quasi-alliance system from the Baltic to the Adriatic in which Hungary would have a leading position. But his fellow prime ministers in the region wanted nothing to do with Orbán’s grandiose plan. He made every effort to dislodge Surgut, a Russian company that had a 21.2% stake in MOL, the Hungarian oil and gas company. By May 2011, after lengthy negotiations, the Hungarian government bought out Surgut, paying a very high price. At that time Hungary was no friend of Russia. Not yet. However, according to Fidesz sources, Orbán decided to radically change course sometime in early 2013.  He spent about six months pondering the issue and came to the conclusion sometime during the summer of 2013 that he would turn to Russia for an expansion of the Paks nuclear power plant. According to the same sources, his decision was based on his belief that the Czech Republic and Germany would need cheap energy which Hungary would be able to provide.

Since then, with the outbreak of the Russian-Ukrainian conflict, the political climate in Europe has changed dramatically. Orbán’s flirtation with Russia is looked upon with more than suspicion. The West considers Viktor Orbán and Hungary a liability. Soon enough, I believe, he will have to show his true colors. No more peacock dance. But it seems that Orbán by now is embroiled in all sorts of machinations with Russia in general and Gazprom in particular. The current setting for Hungarian machinations with Gazprom is Croatia.

Just a few words by way of background. In 2008-2009 MOL acquired a 47.47% stake in INA, the Croatian oil and gas company. In 2011 a Croatian newspaper reported that Zsolt Hernádi, CEO of MOL, had been accused by the Croatian prosecutor’s office of bribery. Naturally, the Hungarian prosecutor’s office found nothing wrong, but the Croats eventually went so far as to hand the case over to Interpol. As a result, Hernádi couldn’t leave the country; otherwise he would have been subject to immediate arrest. More details can be found in a post I wrote on the subject in October 2013. The decision was eventually made to get rid of MOL’s share in INA, but the Croatian government does not have the kind of money needed to buy MOL’s stake. Lately, there has been talk in the Hungarian press that MOL will sell its shares to a Russian buyer, most likely Gazprom itself. So, Gazprom will not only store gas in Hungary but might even control almost half of INA in Croatia.

INA: Managed by MOL

INA: Managed by MOL

And now let’s return to American-Hungarian relations. According to some observers, “the highly unusual step of blacklisting six people with ties to the government in Hungary, a NATO ally and European Union member,” also has something to do with the “growing closeness between Hungary and the Kremlin over energy that could undermine Western attempts to isolate Russian leader Vladimir Putin over his intervention in Ukraine.” So far there is not much new in that assertion, published in an article by Reuters. We have known all along that, in addition to Orbán’s domestic policies, his relations with Russia were a serious concern to the United States and the European Union. What is new in this revelation is that Washington is apparently keeping an eye on the possible MOL-INA deal with Gazprom. According to the article, Chris Murphy, U.S. senator from Connecticut, was dispatched to Zagreb “to lobby the government … on the issue.” Another interesting piece of information gleaned from the article is that State Department official Amos J. Hochstein, Acting Special Envoy and Coordinator for International Energy Affairs, met Hungarian Foreign Minister Péter Szijjártó and had a “productive meeting during Szijjártó’s recent visit to Washington about MOL’s stake, the South Stream, and Hungarian gas deliveries to Ukraine.”

All in all, it seems to me that Viktor Orbán is in over his head, especially with a foreign minister with no diplomatic experience. Szijjártó was an excellent spokesman for Viktor Orbán as the head of the “parrot commando,” but he is not qualified to be foreign minister, especially at such a delicate juncture.

It is hard to tell what Orbán’s next step will be. Fidesz media attacks on the United States are fiercer than ever, and its admiration of Russia is frightening. But more about that tomorrow.

Viktor Orbán picks another fight with the West, this time over the Southern Stream

I know that everybody is intensely interested in the Hungarian government’s latest brainstorm, the introduction of an internet tax, but I would rather wait with an analysis of this latest scandal until it becomes clear what the fate of the proposal will be. So far the reaction to this new tax has been so vehement that the government most likely will have to retreat. When an article in the right-wing Válasz predicts that “if we had an election today Fidesz would lose big,” I think it’s time to order a quick turnabout. I would like to add just one observation on a related topic: the Hungarian budget must be in a sorry state if an additional tax must be levied on soap and detergent, allegedly because they are harmful to the environment. Let’s not contemplate the detrimental effect of curtailing the use of soap because this would take us too far afield.

So, instead of dealing with the effects of an internet tax, I will look at other recent governmental decisions that have been detrimental to Hungary’s relations with the United States and the European Union. What I have in mind is Viktor Orbán’s flirtation with Putin’s Russia, which is being watched with growing concern in Washington and Brussels. Already there have been a couple of moves indicating close cooperation with Russia that raised eyebrows in the democratic world: the building of a nuclear power plant by a Russian firm on Russian money, Hungary’s refusal to support the common European position on the Russian sanctions, a tête-à-tête between Gazprom and the Hungarian prime minister followed by the Hungarian decision to stop supplying gas to Ukraine, and the government’s decision to let Gazprom use Hungarian facilities to store gas in case Russia cuts off the flow of gas through Ukraine.

These moves worried and irritated the United States and the European Union, only compounding their concerns about all the transgressions of the rules of democracy committed by the Fidesz government against the Hungarian people. Years have gone by; at last western politicians are slowly, ever so slowly deciding that they have had enough. After Norway it was the United States that openly showed its dissatisfaction with the domestic and foreign policies of the Orbán government. Yet, as the last few days have demonstrated, Viktor Orbán is not changing tactics. On the contrary, as I wrote yesterday, he is strengthening ties with countries whose relations with the United States and the European Union are strained. Almost as if Viktor Orbán purposefully wanted to have an open break with Hungary’s western allies.

Yesterday one could still hope that Viktor Orbán would  come to his senses and would at least make some gestures, but as yesterday’s meeting between Péter Szijjártó and Victoria Nuland indicated, the new Hungarian foreign minister was sent to Washington without a Plan B. By today, however, most likely in his absence, the government came out with a new idea. What if the Hungarian office of taxation and customs (NAV) announces that in the last several years they have been diligently pursuing their investigation of those criminal elements who through tax fraud unfairly competed against the American company Bunge? Maybe it will work. Mihály Varga, minister of national economy, announced this morning that four of the culprits are already in jail. Very nice, but there is a fly in the ointment. Most likely the U.S. State Department remembers, as I do, that András Horváth, the whistleblower at NAV, months ago gave a detailed description of the ways in which these criminals operated. He asked NAV to investigate and disclose their findings, but the managers of the tax office first fired Horváth and a couple of days later announced that after an internal investigation found everything in perfect order. So I doubt that the Americans will fall for that bogus story.

Yesterday Portfólió asked “how to make the USA more angry with Hungary,” but they “did not have the faintest idea that the government has been holding the best answer to that and it beats every idea [the Portfólió] have ever had.” So, what is it? In order to understand the situation we have to go back to the controversy over Russia’s new pipeline already under construction–the Southern Stream–that would supply Russian gas to Bulgaria, Serbia, Hungary, Austria, Slovenia, Greece, and Italy. The United States and the European Union were never too happy about the project and now, in the middle of the Russian-Ukrainian crisis, they are especially leery of Putin’s plans. In fact, the European Commission asked the Bulgarians to stop the construction of the pipeline in their country. They obliged. The European Union also warned Serbia that they can forget about future membership in the European Union if they agree to support the project right now.

southern stream

In Hungary construction has not yet begun, but the Orbán government seemed to be afraid that something similar would happen to them what happened to the Bulgarians. They decided to act. Changing the law by now has become a Fidesz pastime. Today Antal Rogán proposed an amendment to a 2008 law on natural gas that will allow any gas company to construct a pipeline. The original law, in harmony with laws of a similar nature in other countries, specified that the company in charge of the construction has to be a certified transmission system operator who must conform to international rules. Since pipelines are transnational projects, the countries involved must coordinate their individual projects. What the Hungarians hope is that as a result of this amendment Hungary will not be bound by any international constraint. Starting the project will depend only on the Hungarian Energy Office, which could give permission to any company it chooses to construct the pipeline. Portfólió suspects that both the European Union and the United States will be “furious” upon hearing this latest Hungarian ruse.

Clever Hungarian lawyers, who seem to specialize in circumventing the letter of the law, might think that this scheme is foolproof, but I suspect that EU lawyers will find the legislation full of holes. Hungarian papers suggest that the Orbán government is playing for time. But the case is settled, they argue; the pipeline will be built. Surely no one will force Hungary to destroy it.

Let’s contemplate another scenario. What if the European Union and the United States in joint action put such pressure on the Hungarian government that the plan must be abandoned? As it is, according to analysts, Budapest is already between a rock and a hard place. When political scientist Gábor Török, who has the annoying habit of sitting on the fence, says that “the Orbán government is in big trouble. It was before but now it is different. It will not fall, surely not now…. But if it does not recognize the fork in the road or if it chooses the wrong road, we will mark the events of today as a definite turning point.” And in an interview this afternoon Ferenc Gyurcsány twice repeated his belief that Hungary is at the verge of leaving the Union and, when it happens, it will not be Viktor Orbán’s choice.

I wouldn’t go that far, but I do predict that the screws will be tightened. Among those who will apply pressure will be Norway since the Hungarian government audit office just came out with its report claiming that Ökotárs, the organization in charge of distributing the Norwegian Civil Funds, has used the money inappropriately. A criminal investigation will be launched.

We know that Barack Obama said that the American government supports NGOs in countries where they are under fire. Today we learned that Veronika Móra, chairman of Ökotárs, was a member of a delegation that visited Washington in late September. During that trip the NGO leaders were received by President Obama in the White House. By contrast, Péter Szijjártó did not get any higher than one of the assistant undersecretaries of the State Department. If I were Viktor Orbán, I would take that as a warning.

Hungarian foreign minister in Washington: A stalemate

Let’s cut to the chase: neither the Hungarian nor the American position has changed despite Foreign Minister Péter Szijjártó’s meeting with Assistant Undersecretary Victoria Nuland in Washington today. So far we have two brief reports on the meeting. The first was published in Magyar Nemzet; its source is HírTV, which sent its own crew to Washington for the occasion. The second is from the Washington correspondent of MTI, which I found in HVG. The former is a more expansive summary of what transpired between Nuland and Szijjártó, complete with direct quotations from Szijjártó himself.

What did we learn from this report? Despite repeated American explanations of why the U.S. government is unable to reveal the names of the individuals who have been banned from entering the U.S., Szijjártó was still hoping for such information. Here is Szijjártó in his own words: “I asked the government of the United States to share with us creditable information on the basis of which they accuse certain Hungarian citizens of corruption.” As long as there is no such information “we cannot move forward…. It is only the United States that can make the first move.” A stalemate. The United States expects the Hungarian government to clean up the country’s thoroughly corrupt behavior toward international businesses while the Hungarian government’s interpretation of the situation is much more narrowly defined. As far as the Hungarians are concerned, there may be some corrupt officials but unless the United States names these people the Hungarian government can do nothing. The only positive development, according to Szijjártó, was that Nuland did not repeat the threat uttered by Goodfriend that “if that trend continues it may reach a level where the United States can no longer cooperate with Hungary as an ally.” I do hope that Szijjártó doesn’t interpret this omission to mean that Goodfriend made an empty threat  because I’m almost certain that if Hungary stonewalls, other harsh steps will be taken against the Orbán government. And for the time being stonewalling seems to be the Hungarian diplomatic strategy.

The MTI report was more upbeat. Who knows why Szijjártó changed his story, but he did. No more talk about who will have to take the next step. Instead, he emphasized his government’s willingness to fight corruption and said that in this fight the two governments can count on each other. Economic and military relations between the two countries are excellent. According to Szijjártó, Nuland was full of praise for Hungary’s decision to supply gas to Ukraine. There was an interesting remark made in passing. It turned out that Nuland brought up some specific criticisms of certain pieces of Hungarian legislation, but Szijjártó brushed these objections aside as being irrelevant because they have been accepted and approved by the European Commission.

György Szapáry, Hungarian ambassador to Washington, and Péter Szijjártó MTI / Ministry of Forreign Affairs and Trade / Tamás Szémann

György Szapáry, Hungarian ambassador to Washington, and Péter Szijjártó
MTI / Ministry of Foreign Affairs and Trade / Photo: Tamás Szémann

What did the Hungarian government know about the coming storm? It seems a lot, and not only about the corruption cases. One had to be blind and deaf not to notice the growing dissatisfaction of foreign governments with the Orbán regime. One also assumes that Hungarian diplomats do their job and write reports on the current attitude toward Hungary in their host countries. Of course, given the atmosphere in government offices in the Orbán regime, it is possible that the ambassadors don’t dare tell the truth. Still, although there was a stream of denials of any wrongdoing and everything was chalked up to Hungarian liberals’ squealing and turning against their own country, I believe they knew full well that trouble was brewing all around. And yet Népszabadság‘s Ildikó Csuhaj, who seems to have good Fidesz sources, claimed today that Viktor Orbán himself knew nothing about the NAV affair. One wonders how much disinformation from “reliable” Fidesz sources lands on Csuhaj’s desk. This seems to be one of them.

Although there was plenty of evidence of growing U.S. dissatisfaction with Viktor Orbán’s policies, he did not change his ways on issues that seemed important to Washington. He even ignored Zsolt Németh’s warning. I wrote about a conference held in Washington on October 2 where one of the speakers was Németh, an old friend of Orbán–at least until recently, who received a very chilly reception. It was here that Victoria Nuland delivered the speech I republished in Hungarian Spectrum. Today Németh decided to speak and tell the world that he had forewarned Orbán about the impending bomb that might be coming from Washington. The interview with Németh appeared in Válasz. In it Németh expressed his hope that “several of the questions surrounding the [NAV] affair will be cleared up.” (As we know by now they were not.) Hungarian right-wing journalists dismiss corruption as the real cause of the present situation. In their interpretation the reference to corruption is only a pretext. Válasz‘s reporter also wanted to know whether the real reason for the ban on corrupt officials is Viktor Orbán’s relations with Russia. Németh wouldn’t dismiss corruption entirely, but he thinks that in addition to the Russian connection there are other very irritating issues: the NGOs, Hungary’s attitude toward Ukraine, the Russian sanctions, and the speech on “illiberalism.” Németh sensed all that, and on his return to Budapest he informed the foreign minister–still Tibor Navracsics then–and the prime minister of his experience. At the end of the interview Németh indicated that a new chapter should open in U.S.-Hungarian relations: “we are right after the election, both countries will send new ambassadors. Let’s see the good side of this affair: we are at a point from which we can take off.” Although not in so many words, what Németh suggests is an entirely new Hungarian foreign and domestic orientation.

Németh is most likely right. I can see no room for improvement in U.S.-Hungarian relations if the Orbán foreign policy proceeds apace. I even have my doubts about improvement if Orbán makes some adjustments in his domestic and foreign policies. By now Orbán strongly believes in his vision of a new Hungary in which liberalism has no place. This new Hungary is an authoritarian country with pseudo-democratic trappings. He is also convinced in the declining West and the rising East. He will not change course. He really can’t. He is what he is. He can never satisfy the demands of western democracies.

Just to reinforce my point about Orbán’s mindset, here are two pieces of news about the latest Hungarian diplomatic moves. Hungary may be experiencing a serious diplomatic crisis with the United States but the foreign ministry just announced that Hungary will open a cultural and commercial agency in Northern Cyprus, a “country” recognized by only one country, Turkey. This move might make Hungary’s relations with two EU countries, Greece and Cyprus, less than friendly. This is a gesture toward Turkey, whose “illiberal democracy” is a thorn in the side of western democracies.

The second diplomatic move also sends a not too cordial message to the United States. Two days ago the Iranian Tasmin News Agency announced that a Hungarian parliamentary delegation is scheduled to pay an official visit to Iran. The visit will be fairly long. The delegation is headed by deputy speaker János Latorcai (KDNP). The invitation to the Hungarians was extended by the deputy speaker of the Iranian parliament Seyed Mohammad Hassan Abu Torbifard. It is interesting that reports of controversial Hungarian diplomatic moves usually don’t appear in the Hungarian press. Hungarians hear about the events from the other countries’ news agencies. From a later Tasmin News Agency report we learned that Latorcai had a meeting with the chairman of the Iranian parliament’s national security and foreign policy commission, Alaeddin Boroujerdi. According to the report, Boroujerdi made the following comment during their conversation: “the illogical and wrong policies adopted by the US and its regional allies have caused the spread of terrorism and instability across the region and their continuation has turned terrorism into a global concern.” As for Iranian-Hungarian relations, the Iranian politician said that “the two nations have great potential for the enhancement of relations in the political, economic, and cultural fields.” Latorcai, for his part, emphasized that “Budapest is determined to strengthen its ties with the Eastern nations, with Iran in particular.” One must wonder whether these diplomatic moves are the result of inexperience or, as I suspect, are designed to irritate Hungary’s allies and flaunt the country’s total independence. Whatever it is, this attitude will eventually lead to diplomatic disaster. It’s just a question of time.

An optimistic prediction: The Orbán regime’s inevitable demise

I would like to report on a lengthy article that appeared on 444.hu on September 18, 2014, written by someone who calls himself “Nolite Timere,” “don’t be afraid” in Latin. The piece has the upbeat title “The NER’s coming demise.” An optimistic title, that is, for those who are opponents of the Orbán regime. It is a prediction few people believe today in Hungary. In fact, an increasing number of editorial and op/ed pages forecast exactly the opposite. So, let’s see on what basis Nolite Timere makes his prediction.

Before I attempt to summarize his argument, let me remind everybody that NER is the abbreviation of Nemzeti Együttműködés Rendszere or, in English, the System of National Cooperation. In the first few months of the Orbán administration one could hear a lot about NER, but by early July I wrote that, despite Péter Szijjártó’s best efforts, the designation had disappeared from usage. Well, the name may have disappeared, but Viktor Orbán’s proclamation of NER signaled the beginning of a new era and a new political system. The text of the proclamation can be found in the above cited post.

Nolite Timere begins his argument by saying that NER rests on shaky foundations. Its support comes exclusively from Fidesz voters. The graph below shows the tight correlation between those Hungarians who support Fidesz and those who are satisfied with the performance of the government.

Therefore, opposition to the government automatically means opposition to the regime. Once this government loses power, the new government will most likely try to dismantle the NER. A lot of economic and political players may even find themselves in legal trouble. Therefore, maintenance of the Orbán system is of vital importance to those in power today.

Blue: the country is moving in the right direction. Orange: voters' support of Fidesz Source: 444.hu

Blue: the country is moving in the right direction. Orange: voters’ support for Fidesz
Source: 444.hu

The graph shows how the population reacts to financial fluctuations. At the beginning of 2012 only about 17-18 percent of the population was satisfied with the government’s performance, but as soon as utility prices were lowered and the impoverished population got a few thousand extra forints a month, they were once again ready to support Fidesz and its government. Conclusion? Viktor Orbán must make sure that he can reduce the number of dissatisfied voters for twenty or thirty years by increasing the well-being of the population. Nolite Timere’s prediction is that he will not be able to pull this off. At least this is what earlier efforts tell us.

All regimes since 1919 attempted to do two things simultaneously: continuously raise living standards and at the same time satisfy the expectations of their own base. The Horthy regime failed because it was unwilling to break up the large aristocratic and church estates; Mátyás Rákosi favored those who came from the working class and the peasantry to such an extent that by 1952 there was widespread hunger in the country; János Kádár refused to give up the primacy of the communist party in economic matters and therefore could maintain the modest but steady rise in living standards only as the result of  cheap Soviet energy and foreign loans. Once there were no more loans and no cheap oil the regime collapsed. The slow economic growth that began in 1995-96 lasted only as long as there were state-owned companies to be sold. After 2002 the economic growth could once again be maintained only through indebtedness. In 2008 that came to an end.

Hungary’s perennial problem ever since modern capitalism arrived in the region is a lack of capital. Since 1990 almost all capital came from abroad, and this has at least two serious drawbacks: it is expensive and it can be moved at any time. However, a country without its own capital must first rely on foreign sources. This was the case in Hungary between 1867 and 1914. Originally 60% of all investment came from Austria and Germany, but over the next 35 years a new generation of Hungarian capitalists grew up who learned from their foreign colleagues and amassed capital of their own. By 1914 only 25% of investment came from outside of the country. (Note that Viktor Orbán wants to achieve the same shift in the source of investment in a few years. Failure is guaranteed.)

Nolite Timere is convinced that in a country short on capital it is dangerous to build a regime that has only shaky legitimacy, as NER does. “The trick can be achieved only with foreign help … the regime survives only as long as foreign capital is coming in.” There was no appreciable economic growth in Hungary, yet the government lowered taxes, raised pensions, built stadiums. Where did they get the money? In part from foreign companies, in the form of extra levies, the lowering of utility prices, and many other tricks that took away large chunks of these companies’ profits. In some cases the companies even had to dip into their own capital to satisfy the Orbán regime’s appetite.

The second source is naturally the European Union. Between 2007 and 2012 Hungary received subsidies equivalent to 21% of the country’s GDP. In 2013 monies coming Brussels amounted to 5% of the GDP. In 2014 it will most likely be higher. In brief, “the future of the regime depends on the availability of foreign capital.”

The author is convinced that the end is nigh. All the money taken from foreign firms and received from the European Union was only enough to raise real wages modestly in the second half of 2013 and early 2014 in preparation for the coming election. As a result of the large amount of capital pumped into the economy, GDP growth in 2014 is expected to be substantial. Government propaganda points to this as a great success that will continue into the future. This is unlikely, claims our author.

Banks and other foreign companies are at a breaking point; they can absorb no additional levies. Bayern LB, owner of MKB, is a case in point; it threw in the towel and sold its Hungarian holding to the state rather than pay all the debts it accrued as a result of the government’s interference in its business activities. It is very possible that others will follow. If the state then sells these banks and other concerns to its supporters, it will be difficult to extract more taxes from them or even to maintain the low utility prices. After all, there will be no foreign money coming in to replenish the losses.

The leaders of the regime might try to attract foreign companies, especially German and Austrian businesses, to Hungary, but such recruiting has its limits. After all, the government wants to strengthen those Hungarian capitalists who are friends of the regime. That’s why the government makes a distinction between “good” and “bad” foreign investors, thereby limiting their number. Of course, the question is how long a foreign company can remain a “good company” and when Viktor Orbán will decide that, after all, he made a mistake. Moreover, Nolite Timere thinks that unless some kind of miracle happens, the amount of money coming from Brussels in 2016-2017 will decrease sharply as a result of the very nature of the system of disbursement.

And so Viktor Orbán needs capital from outside the European Union and the United States. Hence the “Eastern Opening,” which up to this point has not brought real results. That’s why Orbán turned to Vladimir Putin last year and signed a 10-billion euro secret agreement for a Russian company to construct a new atomic reactor in Paks. Most of that money will not add to Hungary’s GDP because once construction actually begins on the reactor the lion’s share of the work will be done by the Russian company that “won” the contract. In comparison to the EU subsidies, this Russian money is small potatoes, 120 billion euros a year as opposed to the 30,000 billion coming from Brussels. Of course, it is possible that Orbán is hoping for very inexpensive gas from Russia, which would add another 50 billion euros worth of capital a year.

The maintenance of the Orbán regime in the long run needs all three sources of financing: the EU, Moscow, and Western capital via government bond purchases. If any one of these three falters, the regime itself might be in danger. Brussels must pay without delay. Withholding money might upset the delicate financial balancing act of the Orbán government. As far as Paks is concerned, the Russian-Ukrainian crisis came at the worst possible time from Orbán’s point of view. Even before the crisis Brussels was not exactly happy either with the building of the Southern Stream or with the secret Russian-Hungarian agreement to have Russia build a nuclear reactor inside of the European Union. In addition, one never knows what may happen in the internal financial markets that might weaken the forint further. Hungarian bonds might be less attractive to foreign investors if the United States raises its interest rates in the future. All this could have disastrous effects on the Hungarian economy. This is especially so because the capital that is coming into the country is not being used to lay the groundwork for further economic growth. Instead it is being used to artificially raise living standards, lower utility prices, hand out higher pensions, maintain the flat tax, buy companies to be passed on to friends of Fidesz, and erect state-financed projects like stadiums and renovate state-owned buildings. With such a strategy no country ever became highly developed.

Hungary managed to lock itself into a position of total economic dependence. At this stage the regime no longer cares from whom the money comes or how much it costs in the long run; what counts is that comes and that it comes fast. When foreign capital dries up, this regime will inevitably fail.