Tweet
A SINKING SHIP? IS IT TIME FOR ORBAN'S HUNGARY TO TURN WESTWARD?
Hungarian Spectrum
http://hungarianspectrum.wordpress.com/
Sept 5 2012
Just as I feared, we will have to return to Azerbaijan, not so much
as a diplomatic issue but as a part of the financial plans that may
have been behind the decision to release a convicted murderer to Baku.
Because surely no one will believe the story the Hungarian Foreign
Ministry came up with yesterday, that Hungary was conned by the
Azeris. The current claim is that the Hungarians believed in the
honesty of the Azeri president and his ministry of justice. And look
what happened. Surely, a very unlikely story.
The talk about negotiations with the Azeri government over the purchase
of 2-3 billion euros' worth of Hungarian government bonds turned out
to be true. After all, the Turkish bank that was supposed to issue
the bonds confirmed it. However, on September 3, the State Oil Fund
of the Republic of Azerbaijan issued this statement: "Regarding the
news about the purchase of Hungarian debt obligations, the State Oil
Fund of the Republic of Azerbaijan publicly reveals that SOFAZ is not
considering any investment into debt obligations or other financial
tools in Hungary." Since then we learned that SOFAZ, even if it had
wanted to, couldn't have bought junk bonds in such quantities.
Because, let's not forget, about two years ago Hungarian government
bonds were downgraded to junk status. According to Portfolio.hu,
SOFAZ's official investment strategy specifies that only 5% of the
fund can be invested in highly speculative assets.
I'm sure that we will never know what was promised. Something had to
be, because I can't believe that Viktor Orban would be so naive as
to let loose a much coveted "national hero" simply as a favor. Just
yesterday I heard an interview with Orban's old roommate and political
ally Gabor Fodor, who knows him well. According to Fodor, to Orban
the notion of making a gesture is a totally unfamiliar concept. He
doesn't even make a secret of the fact. In fact, he boasts about it.
So, I am still going on the assumption that Orban one way or the other
was expecting big bucks from Azerbaijan, the prospect of which now
appears to be fading by the hour. Thus it seems that Viktor Orban is
ready to change course yet again. Most likely because he cannot do
anything else.
The last time I wrote about the stalled IMF/EU negotiations the
prospects for an early agreement seemed grim. The IMF spokesman
announced at the very end of August that there was no date fixed for
the renewal of the talks that had been interrupted at the end of July.
The sticking point was apparently the transaction tax on the Hungarian
National Bank, on which Viktor Orban was insisting. Analysts excluded
the possibility of an agreement in the fall and predicted a possible
conclusion of the talks sometime next year. Portfolio.hu was even more
pessimistic. The economic journalists working for this financial paper
were certain that the aid talks will not continue at all. Details of
the state of the negotiations a week ago can be found in my August
31 post.
So, great was my surprise when I read in the September 3 issue of
Magyar Nemzet that the office of Mihaly Varga had informed them that
negotiations will continue in September. This morning Viktor Orban
himself talked about the resumption of negotiations and expressed
his firm belief that a favorable conclusion to the negotiations is
just around the corner. It will occur sometime during the fall. He
added that, although there are still outstanding issues that must
be ironed out, the negotiations are proceeding well. "The ball is
now in Hungary's court," he added. As for the transaction tax on the
Hungarian National Bank, Orban indicated that "there is intention on
both sides to find a middle ground." A few minutes later Mihaly Varga,
the chief Hungarian negotiator, decided to chime in and emphasized
that Hungary cannot afford not to have an agreement. Actually, he
used the expression "nem úszhato meg az IMF-hitel."
Why this sudden eagerness to talk with the IMF? One reason might be
the possibly empty promises of the Azeri government. However, there is
another piece of news that most likely reached the Hungarian government
sometime in the last twenty-four hours. Bruxinfo.hu reported from
Brussels today that the paper had received news from reliable sources
that the European Commission may launch an infringement procedure
against Hungary on September 27 over the financial transaction tax
Hungary plans to introduce in 2013. European Union sources confirmed
that, in addition to the European Central Bank, the European Commission
also has very strong doubts that this planned transaction tax is in
line with EU regulations. As soon as this news hit, the Hungarian
forint began to fall. At 2:30 p.m. the euro/forint cross was trading
at 284, an hour later at 286.
It is quite possible that Viktor Orban is becoming desperate. He tried
to get money from China, Saudi Arabia, and Azerbaijan and came up
empty-handed. He also tried to get out of the obligations that bind
Hungary to the European Union. It doesn't matter how often he tells
his followers that Hungary's economic war of independence against
the European Union has been successful, the fact is that without
EU assistance Hungary would immediately collapse. Almost everything
that's being built in Hungary is being done with European funds. If
these funds were to disappear, Hungary would end up high and dry.
The potential loss of revenue from the transaction tax is a problem
by itself. Without Orban's cherished transaction tax on the Hungarian
National Bank there will be an even larger hole in the 2013 budget.
As it is, the budget is more than shaky because it is based on overly
optimistic economic growth numbers. Orban got rid of the Budgetary
Council that was supposed to be the watchdog over the government's
handling of the budget because he feared that they would look too
hard at the government's figures. So instead of an office with a
staff of forty he appointed three men to oversee the budget. Surely,
he thought that these men would not disturb much water. Well, he
was wrong. Árpad Kovacs, the head of the new Budgetary Council,
is demanding reliable data from the Ministry of National Economy;
he refuses to accept the figures offered by the ministry. Right now
the ministry and the budgetary council are at loggerheads.
According to analysts, as it now stands the proposed budget is short by
about 500-600 billion forints. Without changing course it is unlikely
that the country can survive economically. It seems that Orban might
have to give up some of his "unorthodox" policies. For example, the
flat tax. Moreover, he seems ready to turn his ship from its eastward
course back toward the old, decrepit, tired Europe that is incapable
of handling its own problems but ponies up a lot of money for Hungary.
Of course, there are still people who are skeptical about Orban's real
intentions. Peter Oszko, finance minister in the Bajnai government,
is one of these. In an interview this morning he expressed his belief
that because of the forint's fall this afternoon Orban and Varga came
out with these optimistic stories about the negotiations in order to
calm the nerves of the markets. Nothing will come of the negotiations.
I'm a little less skeptical. Mostly because I heard this afternoon
that Viktor Orban will be paying an official visit to Berlin in
October where he is going to meet Chancellor Angela Merkel. They
will be talking about bilateral diplomatic relations and the further
strengthening of economic ties. These forthcoming negotiations were
prepared by Peter Szijjarto in Berlin where he met Christoph Heusgen,
foreign adviser to Merkel and a member of the staff of the chancellery;
Cornelia Pieper of the foreign ministry; and Peter Hintze of the
economic ministry. Szijjarto told his negotiating partners that
Hungary agrees with Germany on the necessity of a strong Europe and
Hungary will support all German efforts in this direction. According
to Szijjarto, there was agreement that "after the crisis is over the
European Union's economic engine will be cooperation between Germany
and Central Europe."
So, is Orban getting desperate or is this just another one of his
typical games? We will see.
Hungarian Spectrum
http://hungarianspectrum.wordpress.com/
Sept 5 2012
Just as I feared, we will have to return to Azerbaijan, not so much
as a diplomatic issue but as a part of the financial plans that may
have been behind the decision to release a convicted murderer to Baku.
Because surely no one will believe the story the Hungarian Foreign
Ministry came up with yesterday, that Hungary was conned by the
Azeris. The current claim is that the Hungarians believed in the
honesty of the Azeri president and his ministry of justice. And look
what happened. Surely, a very unlikely story.
The talk about negotiations with the Azeri government over the purchase
of 2-3 billion euros' worth of Hungarian government bonds turned out
to be true. After all, the Turkish bank that was supposed to issue
the bonds confirmed it. However, on September 3, the State Oil Fund
of the Republic of Azerbaijan issued this statement: "Regarding the
news about the purchase of Hungarian debt obligations, the State Oil
Fund of the Republic of Azerbaijan publicly reveals that SOFAZ is not
considering any investment into debt obligations or other financial
tools in Hungary." Since then we learned that SOFAZ, even if it had
wanted to, couldn't have bought junk bonds in such quantities.
Because, let's not forget, about two years ago Hungarian government
bonds were downgraded to junk status. According to Portfolio.hu,
SOFAZ's official investment strategy specifies that only 5% of the
fund can be invested in highly speculative assets.
I'm sure that we will never know what was promised. Something had to
be, because I can't believe that Viktor Orban would be so naive as
to let loose a much coveted "national hero" simply as a favor. Just
yesterday I heard an interview with Orban's old roommate and political
ally Gabor Fodor, who knows him well. According to Fodor, to Orban
the notion of making a gesture is a totally unfamiliar concept. He
doesn't even make a secret of the fact. In fact, he boasts about it.
So, I am still going on the assumption that Orban one way or the other
was expecting big bucks from Azerbaijan, the prospect of which now
appears to be fading by the hour. Thus it seems that Viktor Orban is
ready to change course yet again. Most likely because he cannot do
anything else.
The last time I wrote about the stalled IMF/EU negotiations the
prospects for an early agreement seemed grim. The IMF spokesman
announced at the very end of August that there was no date fixed for
the renewal of the talks that had been interrupted at the end of July.
The sticking point was apparently the transaction tax on the Hungarian
National Bank, on which Viktor Orban was insisting. Analysts excluded
the possibility of an agreement in the fall and predicted a possible
conclusion of the talks sometime next year. Portfolio.hu was even more
pessimistic. The economic journalists working for this financial paper
were certain that the aid talks will not continue at all. Details of
the state of the negotiations a week ago can be found in my August
31 post.
So, great was my surprise when I read in the September 3 issue of
Magyar Nemzet that the office of Mihaly Varga had informed them that
negotiations will continue in September. This morning Viktor Orban
himself talked about the resumption of negotiations and expressed
his firm belief that a favorable conclusion to the negotiations is
just around the corner. It will occur sometime during the fall. He
added that, although there are still outstanding issues that must
be ironed out, the negotiations are proceeding well. "The ball is
now in Hungary's court," he added. As for the transaction tax on the
Hungarian National Bank, Orban indicated that "there is intention on
both sides to find a middle ground." A few minutes later Mihaly Varga,
the chief Hungarian negotiator, decided to chime in and emphasized
that Hungary cannot afford not to have an agreement. Actually, he
used the expression "nem úszhato meg az IMF-hitel."
Why this sudden eagerness to talk with the IMF? One reason might be
the possibly empty promises of the Azeri government. However, there is
another piece of news that most likely reached the Hungarian government
sometime in the last twenty-four hours. Bruxinfo.hu reported from
Brussels today that the paper had received news from reliable sources
that the European Commission may launch an infringement procedure
against Hungary on September 27 over the financial transaction tax
Hungary plans to introduce in 2013. European Union sources confirmed
that, in addition to the European Central Bank, the European Commission
also has very strong doubts that this planned transaction tax is in
line with EU regulations. As soon as this news hit, the Hungarian
forint began to fall. At 2:30 p.m. the euro/forint cross was trading
at 284, an hour later at 286.
It is quite possible that Viktor Orban is becoming desperate. He tried
to get money from China, Saudi Arabia, and Azerbaijan and came up
empty-handed. He also tried to get out of the obligations that bind
Hungary to the European Union. It doesn't matter how often he tells
his followers that Hungary's economic war of independence against
the European Union has been successful, the fact is that without
EU assistance Hungary would immediately collapse. Almost everything
that's being built in Hungary is being done with European funds. If
these funds were to disappear, Hungary would end up high and dry.
The potential loss of revenue from the transaction tax is a problem
by itself. Without Orban's cherished transaction tax on the Hungarian
National Bank there will be an even larger hole in the 2013 budget.
As it is, the budget is more than shaky because it is based on overly
optimistic economic growth numbers. Orban got rid of the Budgetary
Council that was supposed to be the watchdog over the government's
handling of the budget because he feared that they would look too
hard at the government's figures. So instead of an office with a
staff of forty he appointed three men to oversee the budget. Surely,
he thought that these men would not disturb much water. Well, he
was wrong. Árpad Kovacs, the head of the new Budgetary Council,
is demanding reliable data from the Ministry of National Economy;
he refuses to accept the figures offered by the ministry. Right now
the ministry and the budgetary council are at loggerheads.
According to analysts, as it now stands the proposed budget is short by
about 500-600 billion forints. Without changing course it is unlikely
that the country can survive economically. It seems that Orban might
have to give up some of his "unorthodox" policies. For example, the
flat tax. Moreover, he seems ready to turn his ship from its eastward
course back toward the old, decrepit, tired Europe that is incapable
of handling its own problems but ponies up a lot of money for Hungary.
Of course, there are still people who are skeptical about Orban's real
intentions. Peter Oszko, finance minister in the Bajnai government,
is one of these. In an interview this morning he expressed his belief
that because of the forint's fall this afternoon Orban and Varga came
out with these optimistic stories about the negotiations in order to
calm the nerves of the markets. Nothing will come of the negotiations.
I'm a little less skeptical. Mostly because I heard this afternoon
that Viktor Orban will be paying an official visit to Berlin in
October where he is going to meet Chancellor Angela Merkel. They
will be talking about bilateral diplomatic relations and the further
strengthening of economic ties. These forthcoming negotiations were
prepared by Peter Szijjarto in Berlin where he met Christoph Heusgen,
foreign adviser to Merkel and a member of the staff of the chancellery;
Cornelia Pieper of the foreign ministry; and Peter Hintze of the
economic ministry. Szijjarto told his negotiating partners that
Hungary agrees with Germany on the necessity of a strong Europe and
Hungary will support all German efforts in this direction. According
to Szijjarto, there was agreement that "after the crisis is over the
European Union's economic engine will be cooperation between Germany
and Central Europe."
So, is Orban getting desperate or is this just another one of his
typical games? We will see.