Former PM bemoans Hungary's Balkan turn

By bne IntelliNews January 31, 2013

Kester Eddy in Budapest -

Gordon Bajnai, the economist who led Hungary's "technocrat" Socialist government from 2009-2010, launched a blistering attack on current economic policies, warning that Hungary is diverging from the successful Central European countries and unless changes are enacted will turn into a "Balkan" economy plagued by "low growth and stagnation for a generation."

Speaking at a meeting of the American-Hungarian Chamber of Commerce on January 29, the former prime minister, who in October announced a return to the political fray, accused the government of Viktor Orban of "seeking power... and... amateurism", and of being "unable to understand the consequences" of the constant changes to the legal environment.

"The economic problems are caused less by the global crisis and more by bad governance," he charged. "The economic philosophy they are following is losing jobs and ruining the economy at every step."

Drowned by the flood of changes

The attack comes just days after Orban defended his policies since winning a two-thirds majority in parliament in the spring of 2010, declaring that following the "flash flood" of changes now is the time for Hungarians to "reap the harvest" of reforms.

The government stresses it is more than meeting the budget deficit targets (of below 3%) after it inherited a "catastrophic" debt-laden country on taking power and has since cut the debt while laying the foundations for growth and jobs. Economy Minister Gyorgy Matolcsy on January 28 said Hungary's GDP "should be doubled by 2025."

Bajnai, though admitting that the 80% debt level inherited by the Orban government "was not its fault", said it was "sad" that after nationalising 13 years of private pension savings the debt levels were barely changed and that unemployment was getting worse and Hungary's economy in the doldrums. GDP shrank by an estimated 1.5% in 2012, and independent estimates for this year hover around growth being flat. "We handed over a growing economy [in 2010], even in the crisis. Whatever they say in Vasarosnameny [referring to a recent declaration by the prime minister] the Hungarian economy, the unemployment rate, has not improved, and the number of jobs is decreasing in Hungary," Bajnai said.

The introduction of the "flat tax" - nominally set at 16% - had hit the lower-paid workers disproportionally, and the subsequent increase in minimum monthly wage to HUF93,000 (€325), meant to offset the difference, means businesses can afford "neither to create jobs, nor even maintain the jobs they have," he argued.

In addition, investment has fallen to "levels not seen since the early 1990s; it is not even sufficient to meet amortisation levels," he said.

Bajnai fingered what he termed the third main reason for economic decline as the emergence of "a small circle of oligarchic entrepreneurs" that have been transforming money into political influence, and vice versa. "This has been going on for two decades, and by today this circle of entrepreneurs has gained really decisive influence in Hungary," he said. "All this adds up to bad governance, and the interests of the nation are seriously harmed."

While the government repeatedly talks of upholding the national interest, in fact it only upholds its desire for power. "Do you think when Hungary is fighting Europe, is it in the national interest to reduce the retirement age of judges? Or restrict media freedom, or limit the independence of the central bank? Of course it isn't. It's about interests of power," he said.

Bajnai called for a radical change in the exercise of power, including genuine consultation with the public. "When the prime minister goes to Brussels [January 30], it would be nice if Brussels drops the EDP [excessive deficit procedure] if it means a radical change in the Hungarian economy, but not if it means the government can spend money before the next elections to win votes. That is not in the national interest," he declared.

Bajnai, who heads a loose formation of opposition groups called "Together 2014", declared his intention to fight the next elections, due in the spring of 2014, last October at a rally in Budapest. His appearance was met with a wave of sympathy among the general public, one poll giving his party "in the making" up to 14% voter support.

However, bickering among the groups, along with a fierce advertising campaign linking him to fellow Socialist and former PM Ferenc Gyurcsany, dismissed as a disgrace by his opponents, has seen the initial burst of enthusiasm fall away sharply, with a later estimate giving his movement just 4% of potential voter support.

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Erste claims Hungary is breaking peace deal with banks

bne IntelliNews - Hungary will breach its February agreement with Erste Group if it makes the planned reduction in the bank tax conditional on increased lending, the Austrian lender's CEO ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Notice: Undefined index: subject_id in /var/www/html/application/controllers/IndexController.php on line 335