Tim Gosling in Prague -
Hungarian Prime Minister Viktor Orban launched another broadside against foreign investors and media on September 9, warning that the era of "colonisation" is over. The heightened rhetoric ahead of the elections next year will only raise worries amongst investors.
Orban and his ruling Fidesz party have been campaigning for some weeks now as they push to try to recapture the constitutional majority currently enjoyed at elections to be held in the spring at the latest. Opening the autumn session of parliament, the PM both boasted of his government's economic prowess, reiterated promises to cut energy bills, and continued the pressure on the banks to take more losses from their foreign-currency loans.
"Hungary is an independent, sovereign country," Orban proclaimed as he set out the agenda for the parliamentary session. "The era of colonisation is over. Utility price cuts, the elimination of the foreign currency loan regime and rescuing families and their homes are national causes for us."
The resumed attack on the banks is the most immediate issue affecting investor confidence. As bne has reported, Fidesz effectively launched its election campaign in a sudden move in July, as it reopened an issue it had previously said was not in its plans. However, forcing the banks to shoulder more big losses from the hundreds of thousands of mortgage loans made in Swiss franc and euro should offer a clear populist boost at the polls.
Previously full of rhetoric concerning "negotiations" with the banks, the government upped the ante in early September. Following up ultimatums issued by officials, Orban told the lower house: "The banks abused their own position and [exploited] the people's naivete. They were propagating [forex-based] loans while they were aware of the potential risks. They knew exactly what would happen if exchange rates went haywire, they [played down] the risks to customers in advance, [and] they made a deal that meant a huge profit only for them."
Repeating a chilling new demand that the banks should be ready to absorb the bulk of the losses in phasing out such forex loans, the PM added: "It is a moral obligation of the banks to modify the [loan/mortgage] contracts. We are calling on the banks to bear most of the losses stemming from the exchange rate changes themselves. If they do not comply voluntarily by November 1, the government will take steps [to do so]."
On top of the benefits at the ballot box however, Fidesz will also rid itself of what is one of the last remaining brakes on its erratic and unorthodox policymaking - the vulnerability of the population to currency market swings. Turning his ire back onto those markets, Orban played up to his domestic audience once more as he rounded on foreign commentators. "London-based analysts are the modern day equivalents of Soviet scientists," the PM thundered. "We are more cautious than them [and] expect 2% economic growth for next year." The fact that consensus in the latest Reuters poll was for a 1.5% growth in 2014 did not deter his claim.
Continuing his theme, Orban also told the parliament that his government has freed Hungary from the yoke of foreign interests by developing the economy. He praised the successful exit from the EU's excessive deficit procedure - Hungary's first budget gap below 3% since it joined the bloc, albeit mostly paid for by crisis taxes - as well as continued falls in inflation.
Helping that slowdown in price rises, as well as a similar vote-boosting move to the banking issue, Orban reiterated that further reductions of retail energy tariffs are on the way to follow the 10% cut in January. The quashing of energy bills - at the expense of mostly foreign investors - is a "symbolic step by which the country is ending defenselessness," he insisted.
He also boasted of the move in July to pay off the International Monetary Fund early and send it packing out of the country, reports Portfolio.hu. "We have freed the country from the grip of the International Monetary Fund. Hungary has repaid the IMF loan to the last cent," he reminded Hungarians. "Only those countries whose reserves are sufficient and whose government is stable can manage this. We have ended the constant pressure by which this organization would have forced austerity on us."
While it has been a common feature since he came to power in 2010, Orban has accelerated his efforts to tap into the populism seen rising across Europe during the crisis. He has in the past compared the EU to the Soviet Union and German Chancellor Angela Merkel's policymaking to Nazi tanks which invaded in 1944.
However, as the 2014 elections approach, investors will worry that words will turn to actions. The banks lost millions on an earlier scheme to alleviate pressure on forex debtors, and the CEO of the country's top lender OTP said recently that the sector could end HUF950bn out of pocket, which would "see the economy collapse".
In summing up, Orban told his audience: "The banks and corporates in monopolistic positions had better get used to this new situation. Now we are stronger and they have to adjust to Hungarians, not the other way around. No one will get extra profit at the expense of the Hungarian people again in this country."
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