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Viktor Orbán’s debt-saving package

September 14th, 2011

Left-wing commentators accuse Orbán of sending an anti-market message with the six point plan outlined in Parliament on Monday. A pro-government pundit acknowledges the risks of such an unorthodox strategy, but finds the proposals fair and reasonable.

Addressing Parliament in Budapest on Monday, PM Viktor Orbán unveiled a series of measures to ease the debt pressure on households and the government. These include a 35 per cent VAT rate for luxury items, which will depend on authorisation by the European Union. Most importantly, the Prime Minister announced his support for a plan proposed by his own parliamentary group on Friday to allow individuals indebted in foreign currencies to pay off their mortgages at much improved exchange ratesOrbán promised to introduce an interest rate ceiling, to combat the widespread practice of usury – unscrupulous investors taking advantage of the dire financial straits of some families to lend them money at massive interest rates. He also promised to fix household energy prices and utility tariffs..

The first reactions focus primarily on the scheme to facilitate the repayment of loans denominated in foreign currencies. The Hungarian Banking Association has announced that it will appeal against such legislation to the Constitutional Court and to the Court of Justice of the European Union. The Austrian Foreign Minister warned that the proposal posed “an existential threat” to Austrian banks, which hold a total of 6 billion Euros in Hungarian debt. Index.hu reports that a paper prepared by the Ministry of Justice fears the proposal may well violate both the Hungarian Constitution and EU norms, and may result in the Hungarian state  paying huge sums in compensation and fines. The Prime Minister told Parliament that Hungary had a reply in store in case of negative decisions by “international fora.”

“If we are looking for a pattern (in the government’s economic policies), we find only one fundamental principle. The unconditional belief in power, or even the omnipotence of the state,” writes Zsolt Zsebesi in the pro-Socialist Népszava.

According to Zsebesi, the Orbán government questions the core idea of the 1989 regime change by promoting “a state capitalist or – wild socialist – order, in which the state thinks on behalf of individuals. Fidesz is building a socialist economy, in which there is no role for private property, individual initiative or risk taking.”

Levente Tóth in the left-wing Népszabadság suggests that the government’s economic plans lack coherence. He contends that neither the extra taxes imposed on banks, nor the nationalization of compulsory pension funds have fulfilled expectations, and so the government is now improvising further measures to fill the gaps in this year’s budget. Nevertheless, it remains absolutely unclear what Orbán will do to reduce the deficit next year to 2,8 percent. “Either the government has no idea, or it does not yet want us to know about it,” Tóth concludes.

The package amounts to a proposal to “split the losses between the bank and the debtor,” according to Anna Szabó in the pro-government Magyar Nemzet. She recalls how irresponsibly banks offered loans denominated in foreign currencies before the crisis struck. In many cases, they even talked customers into switching their Forint denominated loans into Swiss Francs and Euros. Szabó thinks that banks are also responsible for the current debt crisis, and should therefore share the costs of saving debtors who now find themselves in deep water.

She admits that the government’s proposal may weaken the Forint, but if it works out, it will in the long run reduce Hungary’s exposure by reducing indebtedness in foreign currencies. “The national defence lines must be rebuilt from the ruins.”

As for the possible political consequences, political analyst Gábor Török remarks that the government’s plans take the wind out of the sails of the opposition parties. The left-wing MSZP and LMP as well as the radical right-wing Jobbik have based their rhetoric on bashing Fidesz for not doing enough for Hungarian families in debt.

This, however, is a very risky strategy, Török warns. “If the problems are not resolved and the system does indeed collapse, the public will immediately blame the politicians, rather than the banks.

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