Getting Hotter in Hungary

As we have noted on Afoe in recent weeks Hungarian society seems badly divided and faces daunting economic adjustments (and here). This weekend’s municipal elections seem to have resolved nothing, with both sides seeming effectively able to claim some sort of victory:

Preliminary results released by the election office, with some nearly all the votes counted, showed Fidesz winning the mayorships in 15 of Hungary’s 23 largest cities, as well majorities in 18 of 19 county councils.

The Socialists retained power in most of Budapest’s 23 districts and Budapest Mayor Gabor Demszky — supported by the two-party governing coalition — won his fifth consecutive term since the 1990 return to democracy.

Not surprisingly under the circumstances the temperature is rising fairly rapidly. Prime Minister Ferenc Gyurcsany yesterday asked the Hungarian parliament to hold a vote of confidence in his government (and this will now take place on Friday). On Sunday night Hungarian President Laszlo Solyom called on Gyurcsany to step down.

With the outcome of Friday’s vote seeming to lean in Gyurcsany’s favour the opposition Fidesz party are getting frustrated and restless. Opposition leader Viktor Orban is already crying ‘foul’:

Opposition leader Viktor Orban of the Fidesz party said the confidence vote was a “deceitful and worthless trick.” He called instead for a constructive vote of no-confidence in parliament, in which the coalition would be forced to name a new prime ministerial candidate.

While Lajos Kosa, a Fidesz vice president, is being downright provocative:

The budget will come and further austerity measures worth 1,000 billion forints ($4.6 billion) will come too and then in the spring all of us will be chased out (from parliament), all of us, because a general uprising may break out in the country

Indeed the party is currently threatening to boycott the vote:

We will not be there… we won’t take part in this comedy,” Fidesz parliament faction leader Tibor Navracsics told a news conference.

Which all takes us back to that early guest post by P O’Neill where he perceptively warned:

But an older concern is working its way back onto the agenda: how to handle an economic crisis in a member country……However, the risk of the latter type of crisis in a member country is now quite high.”

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

12 thoughts on “Getting Hotter in Hungary

  1. I’m still underwhelmed. Hungarian politics are divided by a left-right “culture war” not too unlike the one in the US. It’s bitterly partisan, and actually running the country tends to take a back seat.

    Fidesz: Former PM Victor Orban is the leader of the opposition, but his position is somewhat precarious. So it’s not surprising that he’s taking a hard line.

    Not surprising, but blackly amusing, considering that the roots of the current crisis lie in Orban’s administration (1998-2002). Orban got elected on a platform of (1) cutting taxes, and (2) improving social benefits. Oh yes, and (3) reducing the deficit… well, that one sort of got lost in the shuffle.

    Doug M.

  2. “I’m still underwhelmed.”

    Well let’s hope you can stay that way :).

    “Hungarian politics are divided by a left-right “culture war” not too unlike the one in the US. It’s bitterly partisan, and actually running the country tends to take a back seat.”

    Yeah, well this is precisely the problem, since this is where the political dimension in economics ‘clicks in’. What Hungary needs right now is the maximum consensus to operationalise a series of what are in any event going to be painful adjustments.

    In some ways Hungary now is like Italy, without the ECB lifeline. And I can’t help thinking that what happens in Hungary over the next couple of years will not only be important for other countries in Eastern Europe, but also for Italy. If things go badly wrong in Hungary this will have ramifications.

    So my preoccupation is not that this immediate crisis is insurmountable, but that the problem may be fudged in a way which mean that the Hugarians get the worst of both worlds, with a pain threshold being passed now, but nothing basic being resolved.

    “Orban got elected on a platform of (1) cutting taxes, and (2) improving social benefits. Oh yes, and (3) reducing the deficit… well, that one sort of got lost in the shuffle.”

    Well now whoever ultimately governs taxes will be raised not cut, and social spending will be reduced not increased, and all of this to achieve (3). And of course with lowered growth in 2007 the taxes hikes will need to be bigger, as will the cuts. Unfortunately there is a certain circularity in all this. If in doubt check out Portugal’s performance post 2000. Hungary does have the advantage of a flexible currency, but this can be a double-edged sword given the presence of so much private debt which is non-forint denominated.

    I still feel you may not appreciate just how the demographic constraints are going to impact these Eastern economies and influence their ability to grow as we move forward.

    One thing is now sure: 2007 is going to be a very complicated year in Hungary.

  3. “considering that the roots of the current crisis lie in Orban’s administration (1998-2002). Orban got elected on a platform of (1) cutting taxes, and (2) improving social benefits. Oh yes, and (3) reducing the deficit… well, that one sort of got lost in the shuffle.”
    This is definitly untrue.
    deficit (in percentage of GDP):
    2000 6,2%
    2001 3,4%
    2002 4%
    2003 5,7%
    Orban in power: 1998 – May 2002
    The real problem: the unbelievable stupid, incompetent management (mismanagement would be a proper term) of the economy by the socialists. What we see in Hungary is the agony of the Left.

  4. In my previous post deficit=current account deficit.
    Deficit of the budget (according the ESA 95, percentage of the GDP):
    2001 7,7%
    2002 7,4%
    2003 5,9%

  5. I thought that first set of figures seemed awfully good.

    Deficit figures for 1997-99? A URL would also be nice.

    Doug M.

  6. Holy God! Please spare me from ex-pat douchebags pontificating on Hungarian politics!

    With the outcome of Friday’s vote seeming to lean in Gyurcsany’s favour the opposition Fidesz party are getting frustrated and restless. Opposition leader Viktor Orban is already crying ’foul’.

    Are you smoking dope? Viki is not crying foul but pointing out the obvious foregone conclusion of the confidence vote. Especially considering MDF’s involvement.

  7. What I have found English:
    IMF: Hungary–Statistical Appendix, 1997
    Unfortunately it is mainly pre-1997
    http://www.imf.org/external/pubs/ft/scr/1997/cr97104.pdf
    IMF: Hungary – Selected Issues, 1999
    (pdf, 8.7MB!)
    http://www.imf.org/external/pubs/ft/scr/1999/cr9927.pdf
    IMF on Hungary
    http://www.imf.org/external/country/hun/index.htm
    OECD Economic survey of Hungary, 2005 (Policy Brief)
    http://www.oecd.org/dataoecd/9/0/35105097.pdf
    Hungary: External links to macroeconomic reports and data
    http://www.oecd.org/dataoecd/26/1/18636751.htm
    Hungarian National Bank, Annual Reports
    http://english.mnb.hu/engine.aspx?page=mnben_evesjel

    The sources of may original numbers were published only in Hungarian.

  8. For what its worth here’s the link to the OECD Economic Outlook 2006. The economioc data does not make very attractive reading.

    As we can see from the tone adopted by one of the contributors above the situation in Hungary is hardly conducive to dialogue at the moment. At the end of the day it is a lot less important to decide who is responsible for the mess than it is to get the necessary unity to do something about it.

  9. At the end of the day it is a lot less important to decide who is responsible

    That is debateable. On the long run it may be very important to see a government punished for fudging economic data.

  10. “On the long run it may be very important to see a government punished for fudging economic data.”

    Normally Oliver I would absolutely agree with you, indeed my “In the morning, in the evening and at night” post was hardly at attempt to excuse Gyurcsany in any way, and Solyom is probably right (but I am trying to avoid getting drawn in to the details of Hungarian politics).

    The problem is really “will Hungary have a long run”?

    This question is not so ridiculous as it sounds. Obviously Hungary as a nation state will continue to exist, this is not my point. The issue which is posed is whether Hungary will have a social and economic future which will inspire any sort of confidence.

    We are only 5 to 10 years away from the time when the demographic issues will hit Hungary very hard indeed. If Hungary descends into internicine political warfare now, then the economy may well crash in 2007. Simply foreign investment may well come straight out, and as the forint sinks the mortagages will become unbearable. If they let themselves inflict this kind of damage then the time they have left will be largely lost. This is the issue.

    Oh, and there is that other little issue of contagion. If Hungary seriously crashes then the rest of Eastern Europe will be affected. These are not insignificant matters, and for that reason I think an end to the fueding and a consensual government built about an agreed belt tightening programme is now an urgent necessity.

    Does this mean that Gyurcsany should go, probably, but he should be replaced by someone who can command cross party support, otherwise it will all end in tears, and that won’t take too long to happen. That is all.

  11. Re: Edward, last paragraph
    Yes, that is essentially the way out of the crisis. There are two persons to loose from this solution: Gyurcsany and Orban. They will “destroy” Hungary for their own leadership.

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