Hungary takes decisive shift to the right and beyond

By bne IntelliNews April 12, 2010

bne -

Hungary's opposition Fidesz party, generally dubbed a centre-right party (though tinged with populist rhetoric), has won a convincing victory in the first round of parliamentary elections on April 11, ending eight years of Socialist rule.

Fidesz leader Viktor Orban, who was Hungary's prime minister from 1998-2002 and will be the next PM, said Hungarians had voted "to defeat hopelessness" by giving it 206 seats in the 386-member parliament. The Socialists took 28 and, worryingly, the far-right Jobbik party, which has risen from nowhere in the last few years by capitalising on anti-Semitism and anti-Roma sentiment, will enter parliament for the first time with a huge 26 seats.

The final division of seats will only be decided after the second round, which will be held on April 25. But it looks almost certain that Fidesz looks close to achieving its goal of a two-thirds majority in the new parliament. That would allow them to make deep structural reforms, including changes to the constitution. Turnout was about 64%, slightly lower than the first round of general elections in 2006.

Home economics

Fidesz takes over an economy that the Socialist government mismanaged for most of its rule but, ironically, has done much to stabilise over the past 12 months, scoring well with international institutions such as the International Monetary Fund (IMF) in the process. The economy shrank by 6.3% last year and unemployment is at 11.4%.

Fidesz leaders have firmly ruled out any cooperation with Jobbik - which analysts say would in any case be counter-productive for both parties. But the prospect of a huge Fidesz governing majority has inevitably provoked concerns that the recent hard-earned economic stability, achieved under the watchful eye of the IMF, could be under threat, particularly if a Fidesz government both cuts taxes and begins to spend state funds to create "one million jobs in the next ten years," as per campaign promises.

Peter Szijjarto, Fidesz chief of staff, insisted in early April that while economic policy had to be "changed from the base to the top," such job creation would "not need a miracle," arguing that tax cuts and simplified procedures would whiten the grey economy. "With tax reforms, we could pull in 80-90% of the grey economy, so we could create 300,000-400,000 jobs fairly quickly [this way]," Szijjarto told a press briefing.

He also denounced the 2010 budget deficit target of 3.8% of GDP, agreed with the IMF, as "a lie," arguing that debts from certain state-owned operations, such as the railways, are not included in the calculations. The final deficit, according to Fidesz, could be as high as 7%.

Lajos Bokros, former finance minister and prime ministerial candidate for the MDF, the smaller right-of-centre party, accuses Fidesz of duplicity on this point. "Fidesz wants to make a 7% deficit by restarting overspending. They hide their intention by saying that they do not know the situation and they need a fact-finding commission first," he says.

Most analysts, however, believe that there is little room for greater state spending. "There is no room for a tangible fiscal loosening, although the 3.8% target will definitely be missed, which may deteriorate investor sentiment somewhat," says Zoltan Torok, head of research at Raiffeisen Bank Hungary.

Perhaps more worrying is the fact that while proclaiming itself as a conservative party, Fidesz made several legally-contested moves against foreign-owned companies whilst in power from 1998-2002, most particularly utilities, for seemingly populist reasons in the past. "There is no question that we need multinational companies and their capital to recover from the recession. But some contracts with utilities were made 10-15 years ago. The situation is different today - we are in a crisis. The average family spends 80-85% of its income on utility bills - this is not normal. Some of these contracts need to be changed," Szijjarto said in response to questions on this issue.

But according to Raiffeisen's Torok, this is erroneous. "The average Hungarian family spends 80-85% of income on basic living, such as bills, food, medicine," he says.

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