Nosedive in Budapest The Political Origins of Hungary's Economic Crisis

AFP

By Clemens Höges

Part 2: Ruining the Economy


Soon afterwards, Gyurcsány lost his majority in the parliament and resigned. There was a transitional prime minister, and in the end Orbán won his two-thirds majority in a resounding victory.

In the last few months, Gyurcsány has tried to reposition the Socialists. "The next conflict will not pit right against left," he preaches, "but democrats against autocrats." This, he says, is why the party must "move toward the center." And yet, he adds, "the Socialists want to turn left."

To address these changes, he established a new party in October, the Democratic Coalition. Recent polls show that party at about 5 percent, with the Socialists at 20 percent, and Orbán's Fidesz Party at 38. But the next election isn't until 2014.

If Gyurcsány had called for new elections earlier, at least Orbán would not have achieved the two-thirds majority that has allowed him to rewrite the constitution as if it were a piece of scrap paper, says András Vértes. "As a result, we now have more of a political than an economic problem." Vértes, who is not aligned with any party, was considered as a transitional premier after Gyurcsány's resignation. But he told the members of parliament that if he were appointed to the position, he would only bring experts into his government, not politicians. He also insisted that every member of his parliamentary group sign a pledge stating that they would not vote against these experts for an entire year.

It killed his prospects. Vértes laughs, as he sits between palm trees in the offices of GKI, the economic research institute he heads. The country's largest, it works primarily for the European Union, with Vértes and his team keeping Brussels informed about what is happening in Hungary.

'We're at an Impasse'

Orbán is unpredictable, his policies are arbitrary, and he is playing around with the economy, of which he has little understanding, says Vértes. For example, Orbán imposed a special tax on banks that "practically eliminates their profitability." The tax appeals to many Orbán supporters, because they already see bankers as gangsters. The premier is forcing a crisis tax on major companies mostly in the telecommunications and energy sector -- also a popular idea, because it mainly affects foreign companies. Orbán has introduced a 16 percent flat income tax which, says Vértes, benefits high income earners and is disadvantageous to ordinary citizens.

The consequences, says economist Vértes, are that the banks no longer lend money, the telecommunications companies are hardly investing anymore, and consumer spending is taking a hit. "Now we're at an impasse."

The "extraordinary measures" are temporary and are primarily meant to kill time until economic reforms take effect, says Zoltán Cséfalvay, a professor of economic geography. He is a state secretary in the Economics Ministry responsible for international financial matters. There is a European flag in his office, but it is very small and is standing on a table in the corner.

He cites numbers that don't sound half bad. The budget deficit, he claims, was 2.8 percent in 2011 and will end up being 2.5 percent in 2012. Greece -- a country whose name, he says, shouldn't even be mentioned in the same sentence with Hungary -- has a sovereign debt load worth more than 160 percent of GDP, while Hungary's is only 80 percent.

Back on its Feet

The professor has many other numbers. But even if they are all correct, what he is saying really amounts to the same thing Vértes is saying, namely that Hungary has more of a political than a financial problem. Of course, Orbán's man sees the root of the problem in the rest of Europe, and with foreign powers. "Those, for example, who introduce special taxes are always violating economic interests," he says.

He toys with an oddly flattened Plexiglas egg on his desk. Hungary sent such eggs, called Gömböc, to Expo 2010 in Shanghai. The shape is based on exciting mathematical problems. In any event, the object does the same thing as a roly-poly doll: No matter how much it is pushed around, it always returns to an upright position. The state secretary proudly points out that two Hungarians performed the calculations to make the device.

Now the question is whether the country as a whole can likewise find the formula that will allow it to get back on its feet.

Translated from the Germany by Christopher Sultan

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