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Is it Worth Fighting With a Central Banker?

Hungarian Prime Minister-designate Viktor Orbán and his Fidesz party have launched a series of verbal attacks on National Bank of Hungary (NBH) Governor András Simor over the past few weeks. As Political Capital had warned, Fidesz’s plan to “conquer” the central bank from Simor was in the works long before the elections.

Once the elections were in the bag, Orbán went straight from the frying pan into the fire. At an international news conference April 26, Orbán labeled Simor an “offshore jouster,” a reference to the central banker’s offshore business dealings. We have analyzed what constitutional or technical instruments a government would need to replace a central banker. Now I would like to ask: Is it worth it?

Before the elections, the markets were optimistic about Orbán’s expected victory. The future seemed rosy – a stable government with a strong devotion to economic and fiscal discipline, despite the political conundrums of the campaign. Then came the surprise: First, international coverage of the elections did not focus on Fidesz’s historic two-thirds majority in Parliament; rather, the headlines played up the electoral successes of the ultra right-wing Jobbik party. A second blow hit Fidesz when foreign journalists at Orbán’s first post-election news conference emphasized his remarks on Simor instead of his political and economic plans. Reporters and market analysts focused on only one thing: how the war with the central bank would affect Hungary’s financial stability.

So Orbán’s first international appearance after his historic ballot-box victory brought controversial results. Since then, Fidesz and even Orbán have somehow moderated their words on the governor, but uncertainty remains. Unfortunately, this uncertainty can easily become a risk factor at a time when market players are nervously watching events in Greece and predicting the collapse of the Eurozone. The forint has already started to tumble against other major currencies; some analysts say the war between the government and the central bank might increase the forint’s vulnerability.

To be fair, Simor made several mistakes. Though he did nothing illegal when he transferred part of his wealth to the sunny island of Cyprus, global investors can hardly consider it reassuring when the person who is responsible for the stability of forint evacuates his money to… well, let’s call it a “tourist resort.” In preparation for the war with Fidesz, Simor hired a highly controversial figure to be his communications consultant, giving more ammunition to the hitmen in the pro-Fidesz media. Simor explained his choice by saying the the NBH needs ‘brand management’. For God’s sake, the central bank is not Toyota or BP.

Nonetheless, I recommend both sides stay calm, or at least keep the fight behind closed doors, not in front of cameras. What Hungary needs is a relaxed environment. The country has plenty of problems to cope with. The last thing it deserves is an exchange-rate crisis or a downgrade by international credit-rating institutions.

Krisztian Szabados

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