Hungary On The Threshold of a Recession?

During the Autumn of 2006 we had quite an exchange of opinion on this blog about the future destiny of the Hungarian economy, largely between me and Doug Muir. At the time Doug was relatively optimistic, and I much less so. We nearly even had a bet about whether Hungary would enter recession during 2007, a bet which it turns out I would have lost had I taken Doug up on the challenge, since, although the jury is still out on what happens in the 4th quarter, Hungary may just manage to eke out positive growth right through to years end, but only by a very short nose, as a quick glance at the chart in this post here will reveal.

In truth, at the time I didn’t really know enough about the Hungarian economy to hold a strong opinion, but I was struck by the peculiar and combustible mixture of problems that the country seemed to be facing, with deficits everywhere (both fiscal and current account), private individuals who seemed to be addicted to the contraction of non-local currency debt (largely in Swiss Francs) at a rather alarming rate, a central bank which seemed to be condemned to try and drain the ocean with a teaspoon given the limitations and strong headwinds they faced when trying to implement standard monetary policy in the face of the new rules of financial globalisation, and a population which was falling due to both the low fertility level, and the comparatively low level of male life expectancy which existed (something which complicates enormously the normal policy remedy for ageing workforces of increasing the employment participation rates of the over 60 age group).

Twelve months later, and with a brief public scuffle with the Economist safely under my arm, I have no such doubts. Hungary is heading for recession, whether the dreaded R flag is actually raised in this quarter or the next one, and when it does come, unfortunately, it is unlikely to be a brief and easily brushed-off affair, since all the dials which now point to red indicate that unwinding this particular distortion is likely to be a very slow and painful process. One of the reasons I now feel so confident in making this statement is that some 12 months ago, and hot the heels of my debate with Doug, I founded the Hungary Economy Watch weblog, to study the problem, and while scratching and scratching my head, try to work out just why it is that Hungary is apparently so different from the rest of the EU10, and indeed whether the study of Hungary and its problems might not help us see what might eventually be in store for the rest of the group after the big overheating correction finally takes place. Continue reading

Too Much Money Chasing Too Few People, Or Russia’s Current Inflation Problem

Russia has been in the news over the last few days, as much as anything for its recent attempt at “unfair” (the term is the one used by the OCSE) elections. Both Alex and Doug have already commented on this (and Manuel Alvarez has a useful summary of the electoral system and the outcomes it produces here), so in this post, I would like to draw attention to another reason why Russia should be in the news, its growing inflation problem.

As you may, or may not, know, inflation is currently accelerating in Russia, as indeed it is across a large part of Eastern Europe and Central Asia. Regular readers of this blog will know something of the precarious situation which exists in the Baltic States (Latvia, Estonia, Lithuania, a fuller summary of some of the issues arising here can be found in this post). Some, like the Economist, would more or less dismiss the Baltic phenomenon, since the Baltics are, at the end of the day, “pipsqueaks”. But Russia is no pipsqueak, and should Russia be falling victim to some variant or other of the “Baltic syndrome” then this will be no laughing matter (could this be a case of the Baltics sneezing and the global economy catching a cold?). Unfortunately the early warning signs are that it may well be.

The argument I will present is that the sudden acceleration in inflation which we are now witnessing across a whole swathe of emerging economies in Eastern and Central Europe is not simply accidental, or coincidental. Nor is it a simple by-product of collective poor institutional quality, bad government and/or endemic corruption. Of course there is no shortage of all of these, and in varying measure, but there are larger, and in historical terms grander, “big picture” processes at work here, and what is so striking about these countries is that no matter the differences in their policy and institutional mix, under the right circumstances they all go shooting off in the same direction. So what is happening? Continue reading

The UK’s Toxic Discourse; Miliband and Euro-Defence

Richard Corbett MEP points to a bizarre feature of British debate on Europe; there is absolutely no certainty as to how anything will be reported or received. David Miliband recently gave a speech at the College of Europe in Bruges in which he stated that it was undesirable that the EU states’ deployable armed forces amounted to less than 100,000 men out of something like two million under arms in total.

(It’s a pity he still won’t answer the damn questions about Iraqi employees.)

The Daily Express, reliably insane under the ownership of porn king Richard Desmond, claimed he had a “project for the Islamification of Europe”. This is because he thinks the single market should eventually include North Africa; apparently the Express has forgotten that it demanded the UK should impose restrictions on the movement of labour, like France and Germany did, when Poland joined the EU.

The Daily Mail thought he was planning a “new EU empire”. The Independent and sometimes the Guardian thought he was diminishing the EU; the Guardian also separately praised the speech, thus scooping the pot for consistency.

What is this accusation of “diminishing” the EU (which Nosemonkey also bought into) based on? Well, it’s not the EU’s defence policy he was criticising, more the fact there isn’t more of one. And the most quoted sentence was that “Europe will be less important in 2050 than it was in 1950” – everyone seems to have read this as Euro-bashing.

However, how could it possibly not be true, given that by then India, China, and probably Brazil will be major world powers? Unless you’re expecting the United States to collapse, the EU will be one among many powers; rather than one of the three world industrial bases Harry Truman spoke of in the 1940s.

Meanwhile, there is real progress being made; when HMS Illustrious does the Royal Navy’s next eastern deployment she may have Italian or Spanish Harrier AV8B aircraft aboard. Granted this tells us more about the ragged state of the British armed forces, but it’s a start; although what the Spanish government will make of the following proposal is anyone’s guess:

The Royal Navy continues to study the idea of making Gibraltar the home of one of the new aircraft carriers.

Plans for a carrier base have been in development for several years. The idea would make Gibraltar home to one of Britain’s two new aircraft carriers along with the support fleet that accompanies it.

The Transition is Over

“Transition to democracy” was one of the European politics geek’s terms of art ever since 1989; there’s even an AFOE category devoted to transition and accession to the EU. According to Tim Garton Ash, one of his old dissident friends kept a large file of documents under the rubric “TD”; he suggested, wisely, that it ought to have been TC, for “Transition from Communism”. There’s even Transitions Online.

The transition is over. It’s now clear that even the aspiration for it in Russia is dead; the “administrative resources” are now aiming for a one-party Duma. TOL itself is more optimistic; they reckon there is a chance for a significant Communist revival, which would at least mean the opposition was a real, existing political party. However, who can do anything but laugh at the thought of e-voting in Russia? E-voting everywhere else in the world has been bad enough, and its well-publicised fiascos will deaden any criticism of Russia’s version.

It’s the end of an era. Earlier this week, I watched a BBC documentary about the shutdown of the BBC World Service’s programmes in Central and Eastern Europe; a whole microculture of Polish and Bulgarian broadcasters in West London signing off. They, of course, can claim that it’s mission accomplished, especially as the Kazcynski Kidz lost the elections.

The next point to watch here is the fate of the OSCE, and specifically its office of democratic institutions and human rights; Putin has promised to “reform” it. (As you know, Bob, AFOE hates the word “reform”.) It should be pretty clear what “reform” will consist of; a dictators’ club veto on publishing anything critical. This is something that badly wants watching, as I doubt there is much political will in the West to keep it going.

If we want to take the EU as a magnet for democracy, peace, and other good stuff – basic norms of civilised behaviour – ODIHR needs either support, or else to be transferred into the competence of the European Union, safe from post-Soviet vetoes or US fiddling.