Prime Minister Viktor Orbán’s Fidesz party is trying to win the October 3 municipal elections using roughly the same tactic that brought it a 68% majority in Parliament last April: Make vague, crowd-pleaser promises without disclosing the dirty details of how they will be fulfilled – or more importantly, who is going to pay for them. There is certainly nothing unusual about politicians making unrealistic promises. But Fidesz has raised it to an art form: When pressed for more information, party leaders not only resort to tried-and-true political subterfuge, they behave as if they have no obligation to explain themselves.
Fidesz’s state secretary in charge of healthcare, Miklós Szócska, last week refused to elucidate his plans to overhaul the medical system, saying it would inappropriate during a political campaign, according to the Népszabadság newspaper.* This is an interesting take on democracy: A sitting government should clarify its budgetary priorities only when the voting is over. The press would have skewered Szócska in the United States, where he earned his master’s in public administration from Harvard University. But his words barely made a ripple on the Hungarian political radar screen.
Leading Fidesz candidates see no reason to defend their positions in public debates – a basic tenet of democracy in developed countries. István Tarlós, the runaway favorite to become Budapest mayor, refuses to go head-to-head with his rivals. His spokeswoman said Tarlós prefers to spend his time with the people of Budapest rather than other politicians. Ákos Kriza, Fidesz’s mayoral candidate in Hungary’s third-biggest city, Miskolc, did not show up for a September 15 debate with incumbent Socialist Mayor Sándor Káli and independent Ákos Hircsu. This means neither Tarlós’ nor Kriza’s ideas will be subject to the kind of scrutiny that only a debate can bring. Of course, both men have a strong precedent: Orbán refused to debate other parties’ nominees for prime minister ahead of the April 11 ballot.
Fidesz is also keeping its plans for the 2011 budget under wraps. On July 5, Fidesz restored an old law that extends the deadline for the government to present its draft budget until Oct. 31 in election years. Without this change, the Orbán administration would have had to send its 2011 spending plan to Parliament before the municipal vote. It is understandable that a brand-new government needs an extra month to get its spending priorities in order. However, Fidesz is facing an EU-imposed budget-deficit target of 2.8% of GDP for 2011, which would be a record-low shortfall since 1995. The budget is therefore bound to bring some negative news, whether it be delays in promised income-tax cuts, lower social spending or sector-specific corporate levies similar to the “bank tax.” Problem is, voters will not know the details until after the polls close.
Nonetheless, Fidesz is poised to sweep every county and nearly every major city on election day, if opinion polls are correct. Popular revulsion toward the main opposition party, the Socialists, is so strong that many Hungarians will stick by Fidesz no matter what they say. Perhaps it would be wise to recall the words of U.S. President Andrew Jackson: “Eternal vigilance by the people is the price of liberty.” In modern-day parlance: “Democracy: Use it or lose it.”
*Szócska’s office declined to confirm or deny whether the Népszabadság quote was accurate.
– Alex Kuli
Few institutions generate stronger hatred among emerging-market investors these days than Romania’s Constitutional Court. By striking down the Romanian government’s pension cuts June 25, the court sparked financial panic that led to a general loss of investor confidence in the entire Central and Eastern European region. As a result of the court’s ruling, the IMF decided to postpone its June 28 review of its €20 billion standby loan; fund managers are currently discussing the fate of the loan’s next €900 million tranche – money that the country desperately needs.
The ruling sent credit-default swap prices skywards while currencies across the region tumbled. The Romanian lei hit a record low of 4.37 to the euro on June 28. Not only investors who took the hit: Households and companies that have foreign currency-denominated loans are now at a higher risk of default than ever before, especially in Hungary, where more than 600,000 households have foreign-currency credits. Weaker currencies and higher debt-service expenses can hamper economic recovery; moreover, a rise in non-performing loans may destabilize the banking sector. It would be unjust to blame Romania’s Constitutional Court for all Central Europe’s economic hardships ¬ but its ruling is helping to destabilize the region’s still-unstable economies.
After the court handed down its decision, Romania’s government decided its only recourse was to raise the value-added tax to 24% from 19% as of July 1, or lose its IMF lifeline. Romania now has the second-highest VAT in the European Union behind Hungary, Sweden and Denmark at 25%. This kind of austerity measure will affect all Romanians, and not just pensioners. Is there anyone in Europe who is satisfied with the court’s action (besides maybe a few hundred thousand Romanian retirees)? The fact that the Constitutional Court is one of the most important democratic counterweights to the government is poor comfort to the millions who must bear the brunt of the ruling.
Across the border in Hungary, the problem is just the opposite. There, the governing Fidesz party is systematically eliminating institutional checks on its power, emboldened by a two-thirds parliamentary majority that allows the party to amend the Constitution singlehandedly. Last month, Fidesz MPs watered down the Constitutional Court’s independence by changing the rules for nominating the judges. Under the old system, each parliamentary caucus had the right to delegate one member to a committee that would nominate a judge by consensus. The full Parliament would then vote on the nominee, with a two-thirds majority required for confirmation to the court. Under Fidesz’s new rules, the governing majority will nominate Constitutional Court judges. Parliament still needs to confirm each candidate with a two-thirds majority, but Fidesz controls 68% of the seats. Fidesz can thus appoint and elect Constitutional Court judges on its own.
Fidesz’s efforts have met with harsh criticism at home and abroad. Outgoing President László Sólyom expressed his displeasure by vetoing the law on Constitutional Court nominations. However, Hungarian law makes it easy for MPs to override presidential vetoes, so Sólyom’s gesture was largely symbolic.
Romania and Hungary are grappling with problems that are mirror images of each other: In Hungary, Fidesz is meddling with nomination processes to switch off institutional controls on its powe; the Constitutional Court is just the tip of the iceberg. In Romania, an overly independent Constitutional Court is wreaking havoc across the region. The underlying tension is nothing new: Economic and governmental efficiency and the high principles of democracy are more often enemies than friends.
On the other hand, Fidesz doesn’t necessarily need the Constitutional Court to drive Hungary’s economy to near-bankruptcy; as the events of June 2010 proved, Hungary’s government is perfectly capable of doing that on its own.
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.
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
Nationalism loves nothing like uncertainty. People who feel insecure about their place in the global pecking order compensate with patriotic zealotry. Politicians love to manipulate this anxiety with vague, hard-to-pin-down policies on national greatness. Ambiguity is key: It makes it easier to deflect criticism from uppity liberals at home and gives them broad wiggle-room in the face of international condemnation.
Slovak Prime Minister Robert Fico has demonstrated a genius for nebulous nationalism in his handling of Slovakia’s amendments to its language law. The new rules, which took effect in January, are designed to force Slovakia’s ethnic Hungarian population to speak more Slovak. Yet they are shrouded in such obscurity that people have broad freedom to read them as they please. This is a gift for nationalists not just in Slovakia, but in Hungary, with even Prime Minister Gordon Bajnai – not known for chauvinistic posturing – getting in on the game. The opposition Fidesz party, which is all but certain to replace Bajnai’s Socialists in Hungary’s April elections, is likely to escalate the tension. The ultra right-wing Jobbik party, which could conceivably beat the Socialists into second place next April, will certainly hold Slovakia’s feet to the fire.
The gist of the law is that Slovakia’s 520,000-strong ethnic Hungarian minority can get fined up to €5,000 if they use any language other than Slovak in government settings, unless the local population is more than 20% Hungarian. This raises Fico’s standing among nationalist voters and scares the stuffing out of ethnic Hungarians, which increases the likelihood that Fico will keep his job in Slovakia’s elections in June. The fact that not a single individual has been prosecuted under the law – and Fico has pledged that none will – is immaterial.
Bajnai, who knows a vote-magnet when he sees it, established a HUF 50 million (€183,848) fund on February 1 to pay the fines of ethnic Hungarians who breach the language law. Anyone can contribute to the fund, raising the possibility that wealthy Hungarian emigrés will rally to the cause. The fund is fodder for nationalists. Slovakia’s Culture Ministry complained that Bajnai is interfering in Slovakia’s domestic affairs. The Slovak National Party, a member of the governing coalition, accused Hungary of encouraging Slovak citizens to break the law.
In Hungary, Fidesz leader Viktor Orbán pledged his wholehearted support for the fund. Fidesz takes a much more strident tone on Slovakia’s Language Act than Bajnai’s Socialists: “They need to get over the fact that we exist,” said Zsolt Németh, Fidesz’s point man on foreign affairs, in a July 2009 interview with FigyelőNet. “When [Hungarian diplomats] are on the offensive, their words must not be subject to interpretation.”
What is subject to interpretation is the Slovak Language Act itself. Under pressure from the Organization for Security and Cooperation in Europe, Fico’s government adopted a set of 21 non-binding criteria under which the law is to be enforced. The guidelines say that any fine must be justified by at least six of these criteria; however, the law contains no such provision, according to Lukáš Fila, who writes on the language law at Slovak newspaper Sme. It is thus unclear what constitutes a punishable violation.
Fico’s criteria contain other absurdities. “You are not allowed to use a minority language when talking to the postman if you are in a place where fewer than 20 percent of the population belongs to that minority,” Fila said. “The guidelines say you can, providing you both agree to do so – and everyone else who is present also gives their consent.”
This is what happens when national insecurities clash: Fico, whose country has only existed in its current form for 17 years, sallies forth like Don Quixote to slay the dragon of Hungarian hegemony – a threat that does not exist. The Hungarians, still miffed about losing most of their land after World War I, rush to help their kinfolk fight a ridiculous law that has little chance of being enforced. All the more absurd, given that Hungary is Slovakia’s fifth-biggest foreign investor, having sunk nearly €2.1 billion into the country.
It is no accident that all this is happening against the backdrop of elections in both countries. The likely winners – Orbán and Fico – share the same admiration for big-government policies tinged with nationalist rhetoric. It is precisely this similarity that will make it impossible for them to cooperate.