Fidesz’s Deficit-Loosening Ideas – Who Will Be the Disciplinarian?

Alex has just arrived back from Brussels, where he had the honour of posing a question to Gert-Jan Koopman, economic affairs adviser to European Commission President José Manuel Barrosso:

Alex: In Hungary, the people who are almost sure to win next April’s elections are talking about letting the budget deficit slide to 7.5% instead of the 3.9% agreed with the IMF. Since the country is small and is not a member of the Eurozone, would this pose a problem for the European Commission?

Koopman: “That would obviously be a problem… Hungary has a convergence plan and we would hope that Hungary sticks to it as much as possible.”

“It’s true that Hungary is a small country that doesn’t use the euro. But if every member starts relaxing its budget discipline… then we wouldn’t have much discipline anymore.”

This response strengthens our opinion that Fidesz, which is all but certain to win Hungary’s April elections with an unassailable majority, will face huge difficulties if they ignore the 2010 budget-deficit target of 3.9% of GDP and try to implement fiscal stimulus policies. The main barrier is not IMF, as several analysts have suggested, but rather the European Union as it trembles in the shadow of the financial markets.

In our previous analysis we described the situation following the Greek crisis as possibly advantageous for Hungary:

Predictably, the Greek crisis caused a domino effect in emerging markets as investors became skittish. The prestige of the euro has also been seriously damaged. Even so, Hungary should be grateful to Greece. After 2006, Hungary gained a reputation as the “liar of Europe” – not just because of former Prime Minister Ferenc Gyurcsány’s infamous “Oszöd speech,” but because of Hungary’s much higher-than-expected budget deficit in 2006. Hungary can now pass on this title to Greece… By tightening their belts and pursuing strict fiscal policy during the recession, Hungarians have become models of prudence, to such an extent that Greek Prime Minister Geórgios Papandréou attempted to calm the markets by saying he would follow the Hungarian path.

At the same time, we added:

The bad news is that Fidesz, the party that is all but sure to win this April’s election, cannot let the deficit climb back upwards.

Fidesz’s chances of renegotiating Hungary’s $15.7 billion (€11.5 billion) loan from the IMF may be better. We should recall the rumours that the IMF had agreed to allow Fidesz to run a deficit of 5.5% of GDP for 2010. While this hearsay has proven false (Fidesz, still an opposition party, is not a typical negotiation partner for IMF), it is based on the fact that the IMF has been open to modifying the terms of its loans in the past.

Fidesz will have a much tougher time convincing the EU that it needs to loosen its deficit target. Koopman’s comment reflects fears of a domino effect – if Hungary wants to loosen the conditions, everyone else will, too. Given the shock over the Greek crisis, the Hungarian economy’s less-than-stellar reputation, and past experience, fears of Hungary falling back into a state of “fiscal alcoholism” would be justified.

Fidesz seems to be getting the message: The party’s policy wonks are talking less and less about fiscal stimulus and Fidesz’s election manifesto is cautious on this question. On the other hand, Fidesz still hopes it will have some room for bargaining – and they probably do. Former National Bank of Hungary Governor Zsigmond Járai, an economist close to Fidesz, recently declared that a 5% GDP deficit would be acceptable for both the IMF and the EU. Given that Fidesz’s “offer” was 7-8% several months ago, we can see a clear tendency toward improvement. And, since serious doubts have arisen about Hungary’s ability to fulfil its 2010 deficit target, 5% may prove quite realistic.

Even if the IMF and the EU are willing to let Hungary’s deficit rise slightly (8% of GDP is out of the question), the price of their indulgence may be deep and extensive economic reforms – an extremely unappetizing prospect for the next government.

Peter Kreko-Alex Kuli

Women in the CEE countries: still not appreciated?

March 8 is the day Europe honors its women, regardless of whether they live in the western or eastern halves. But that’s where the “equality” ends. When it comes to political, economic and social status, females are much better off in the older European Union members than in the former communist states.

Roughly one in four MPs in the EU is female. However, the proportion of women lawmakers in the 12 members that have joined since 2004 is 16%, compared to 29% in the EU15. Since 1998, female participation in national parliaments has increased 8% in the old member states; while some new members have followed this trend, the Czech Republic, Slovakia and Romania lag behind. Hungary has even registered a decline in its proportion of female MPs.

Proportion of female MPs in national parliaments
	Hungary	Romania	Czech Rep.	Slovakia	Poland	Bulgaria	EU15 average
January 1998	11.4%	7.3%	15.0%	14.7%	13.0%	10.8%	21.3%
January 2010	11.1%	11.4%	15.5%	18.0%	20.0%	20.8%	29.3%

Perhaps parliamentary elections in spring 2010 will bring change in Slovakia, Czech Republic, and Hungary. But regardless of the outcome, male domination of Hungary’s national assembly is unlikely to change: Less than 8% of candidates in single-member constituencies are female. The problem should not be solved by positive discrimination or quotas, as these tools frequently reinforce negative stereotypes about women (They’re weak, that’s why they need institutional support.) Still, change in gender norms would be beneficial.

The reasons for these phenomena are complex. Underrepresentation cannot simply be explained away by gender discrimination.  Fewer women are interested in politics than men: In the 2009 round of European Social Survey (ESS), a biannual EU-funded poll of societal attitudes, 55% of male respondents said they were “very interested” or “quite interested” in politics. Only 42% of women answered in the same manner.

Gender equality in the workplace is even more important than in politics, as it affects the life of practically all women. Men in the EU still earn significantly more then women, with the average pay gap at about 15 percent, according to official Eurostat statistics. There is no significant difference between the old and new member states in this regard. Lower wages for women are due in part to the difficulty of females getting into management positions. In the CEE countries, this handicap is backed by social prejudices: Nearly half of the Slovakians think women do not always have the necessary qualities to fill such positions, compared to an average 23 percent in the EU15.

Women in the EU12 are also behind their Western European peers in terms of health outlook. Life expectancy is much lower for women in the post-Soviet bloc than in the EU15. Life expectancy for men in the EU12 is even worse. This means more widowed years for women – still not a great perspective.

Communism’s official policy of eliminating differences between women and men in the workplace and politics has clearly failed. Instead, 40 years of state socialism has cemented rigid female role patterns. These countries need years of hard work if they want to change attitudes and thought patterns – and not just among men, but among that section of humanity that is being honoured today. More then 15 percent of Hungarian women agree strongly that when jobs are scarce, men should get preference over women, according to the 2009 ESS survey.

 

Female inequality is not just an ethincal, but a political risk factor as well. According to World Economic Forum’s latest Corporate Gender Gap Report, leading companies are not doing enough to advance the cause of gender equality. The number of female and male graduates in higher education is almost equal; wasting this potential talent decreases a country’s competitiveness, which has become increasingly important since the global economic crisis struck. Political decision makers cannot afford to damage their country’s competitiveness due to gender inequality.

Common Misunderstandings About Hungary

Over the past few weeks I have been meeting with leading analysts from banks, funds and other financial institutions from all over the world. Everybody is interested in what’s going to happen to Hungary after the elections and what risks the future may hold. I have come to realize that there are two common misunderstandings about Hungary.

The first is about the euro. Accession to the euro zone is not the focus of the election campaign at all. Except for the far-right Jobbik party, all mainstream political parties agree that Hungary needs to adopt the euro as soon as possible. This is actually the only political issue that enjoys widespread political consensus. Parties don’t campaign for or against the euro and don’t expect any political benefits from doing so. Financial analysts tend to see the euro as essential for political success, but that’s not the case. The issue is simply not on the table. Of course, should Jobbik perform surprisingly well in the elections (which is exactly what I anticipate), the euro may get into the spotlight. This scenario is unlikely, since Jobbik will not have any real power unless it becomes Fidesz’s coalition partner or wins the elections. Neither scenario can be excluded, but at this stage neither has much chance.

Certainly Fidesz has not helped foreign analysts better understand its stance on euro. Fidesz’s economic- and fiscal-policy talking heads have declared several times that boosting the economy (even at the price of boosting the deficit) is a priority, while introduction of the euro is not. There is a persistent conflict within Fidesz between the desire for short-term economic growth and quick Eurozone accession.

The second misunderstanding stems from Western political experience. In old democracies, voters usually reward or punish the incumbent government based on the country’s economic situation. If the economy is doing fine, voters tend to support the incumbent party; if not, they vote for the opposition. This is not valid for Hungary. The country’s economic performance has never had any effect on the outcome of the elections. There is no correlation between support for the government and GDP growth.

At the same time, Political Capital’s research has found a strong correlation between support for governing parties and the perceived state of the economy and the perceived outlook for living standards. Hungarian voters are strongly influenced by perception — and there is frequently a disconnect between the popular perception of economic growth and reality. This is why many of the analysts I met were surprised that Hungarians don’t appreciate the caretaker government’s performance.

Krisztian Szabados