Hungarians give Fidesz a clear mandate... to do what?

By bne IntelliNews April 27, 2010

Kester Eddy in Budapest -

Zsolt Sandor Nagy was in a positive, if thoughtful, mood on Sunday, April 25. Fidesz, the centre-right Hungarian opposition had just swept to power, gaining a stunning 68% majority in parliament and demolishing the outgoing Socialists - a poor second with just 15% - in the process. Nagy, a taxi driver of 12 years, voted for Fidesz in the first round, but switched to the green LMP, which got 4%, in the second.

"I am a bit fearful about giving so much power to one party. But now they [Fidesz] are in, they have a clear mandate. It'll make a change from the last few years, when they [the Socialist government and opposition] were just arguing and getting nowhere," he said.

Gordon Bajnai, the outgoing prime minister, would no doubt argue that the Hungarian economy, after a decline of 6.3% last year, is now stable and coming out of recession, and that the average worker - like Nagy - is better off after tax changes this year. But that is not the commonly held perception. Viktor Orban, the Fidesz leader, and his party machine hammered the Socialists over economic policy at every opportunity, dismissing Socialist claims of stability to point at rising unemployment and general economic and security fears.

Fine words

Orban, a former law student and political activist in the last years of "soft" communism in the 1980s, won Magyar hearts and minds with promises to strengthen law and order, boost the economy by creating jobs, and both simplify and cut taxation. Such words are fine for the masses, but have more sober-minded economists questioning the maths, especially after Fidesz has up to now routinely denounced the budget deficit prediction (of 3.8% of GDP) as a lie. This is all the more important given that Hungary has been under International Monetary Fund scrutiny since securing a €20bn stand-by loan 18 months ago to help it through its troubles.

Orban himself has spoken only in general about its economic policy, saying details can only be determined "when we know the true state of economic affairs." The markets, however, cautiously welcomed the Fidesz victory, and observers believe Fidesz will come to an accommodation with the IMF that will allow some increase to the deficit without upsetting the markets.

Zoltan Arokszallasi, economic analyst with Erste Bank in Budapest, says: "We think that without any change in the current developments, the budget deficit would be 4.2% this year. We believe that [a Fidesz government] would only increase the deficit target in accordance with the IMF, and that should be accompanied by structural reforms. In our view, the latter scenario could have a positive effect on the growth potential of the economy, even if this is accompanied by accepting a somewhat larger deficit this year."

But Orban's emphatic victory - securing more than two-thirds of the parliamentary seats - means that he can push through much more than mere economic and social legislation. "With this majority he can change the constitution, change the electoral system, re-write the media law and appoint officials, such as the supreme court judges, without consultation [as previously]. I don't think he will, but he could even create a kingdom," says Peter Kreko, director of research at Political Capital, a Budapest think-tank.

Indeed, Fidesz has already said that it will halve the number of MPs (Hungary is currently endowed with 386, the same number as for the old pre-WWI state) and similarly cut the bloated municipal councils. Such streamlining would reduce the state payroll, a plus for the economy - but what of Orban's economic record and support for business?

As prime minister in the centre-right coalition from 1998-2002, Orban initially kept a tight budget and made cautious reforms, including a simplification of the taxation and social security systems. From 2000, however, he implemented a housing subsidy programme that, though highly popular with the middle classes (it's main beneficiaries), later proved costly to the budget. He also upset a string of foreign investors, particularly in the energy sector, by meddling in previously agreed pricing contracts.

Memories of these distant events were revived last October when the Fidesz-led city of Pecs forcibly acquired the operator of the local water works, in which GDF Suez, the French utility, had management rights until 2020. The move was later deemed lawful by a local court - but foreign investors nonetheless took note.

Whatever, with its huge majority, the new government will have no hiding place if things go awry, Kreko notes. "It's a danger for them; they will have no scapegoats, except the outgoing Socialists and perhaps the IMF or euro adoption schemes," he says.

From his driver's seat, Nagy in his taxi agrees. "They are in a position to do something, whether it's for the better or worse. It's up to them; they have no excuses now," he says.

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