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EDP exit seen as a step towards Orbán’s reelection

June 3rd, 2013

Commentators and political analysts ponder the prospects of the Hungarian economy and the chances of government projects as the country is likely to soon exit the EU excessive deficit procedure.

On Wednesday, the European Commission recommended that the Council finally lift the Excessive Deficit Procedure, although at the same time it also criticized the government and recommended structural reforms in order to boost economic growth (see BudaPost May 31). The Ministry of National Economy reported that in 2012, the inflow of working capital increased to 10.5 billion Euro from 3.8 billion Euros in 2011. Most of this, however, was transit capital or the replenishment of funds to banks from mother companies. On Thursday, the IMD World Competitiveness Center (WCC) published its yearly ranking, according to which Hungary slipped five positions, and now stands 50th on the list of 60 developed countries. On the same day, the Hungarian Central Statistical Office reported that in 2012, Hungarian business investment rate was down by 8.7 per cent on a year by year basis, while the number of employed increased by 58,000 since 2011.

There is no reason to be optimistic on the basis of the volume of working capital arriving in Hungary, Véleményvezér suggests. Close analysis of the statistics reveals that most of the money arriving in the country also left immediately or has been used to recapitalize foreign banks. If the outflow is also taken into account, the final balance of real working capital inflow is only 500 million Euros, the centrist blogger calculates.

As for the employment rate, one should notice that it includes the 100,000 public workers the government hired, which suggests that the labour market continues to be sluggish, Noémi Benedek remarks in Népszava. Nor does the left-wing commentator consider lower inflation as good news, since she ascribes it to lower consumer demand, which foreshadows even slower future growth. (This year’s slow growth is an improvement on last year’s recession.)

The declining investment rate promises lower growth despite the government”s hope that exiting the EU excessive deficit procedure will help the economy, Népszabadság comments. Although in the first three months of 2013 the Hungarian economy expanded by 0.7 per cent, the low level of investment in the industrial and energy sector is particularly worrying, the left-wing daily notes, warning that the utility tariff cuts will deter providers from investing.

The proposal by the European Commission to lift the ED procedure against Hungary comes at the worst possible time”, Iván Várkonyi writes in the same daily. The left-wing pundit believes that “irresponsible economic behavior is in our genes, it is an instinct, it is part of our identity”. Since “we are still living in the Kádár-era, we overspend unless … the IMF, the EU or the German Chancellor intervene”, Várkonyi ruminates. He believes that once the EU lifts the excessive debt procedure, the Hungarian government will again increase public spending in order to win the 2014 election. PM Orbán has already hinted at the desirability of a 9 per cent flat rate, he remarks, as well as a significant salary increase for teachers. (The Prime Minister said that at some time in the distant future he would like to see a one digit revenue tax rate. As for the teachers’ “career path” (see BudaPost October 15, 2012), involving an approximately 70 billion HUF pay rise, this was supposed to be introduced in January this year, then in the wake of protests followed by negotiations with teachers’ unions, it was scheduled for the beginning of the new school year, in September. The sum does not, however, figure in the budget. The Prime Minister said he hoped the economy would be in good enough shape to introduce it, nevertheless.)

“If the EU considers meeting the deficit target as its primary aim, it cannot object to the means used to achieve it, including the surplus taxes”, editor Gábort Lambert maintains in Figyelő (print edition). As no foreign bank has so far decided to shut down, and their profits have even risen, the Orbán government has so far managed to put increasing burdens on investors without making their businesses insolvent, Lambert adds. But any further increase of the burdens on international companies and utility providers as well as higher public spending before the 2014 election can undermine the current relative fiscal balance, Lambert warns.

Quite surprisingly, the European Commission is not trying to veil it”s concerns for the profits of highly influential investors in the country”, Matild Torkos comments in Magyar Nemzet on the Commission”s recommendations to the Hungarian government. The pro-government columnist finds it controversial that the Commission recommends that surplus taxes on banks be lifted, and suggests that the utility tariff system introduced in order to reduce household energy prices be abandoned, whilst also fearing for the interests of Hungarian consumers and families hit by the economic crisis. As for the recommendations on continuing fiscal discipline, Torkos agrees that the government should resist temptation and keep the deficit low even after its release from the excessive deficit procedure.

In Magyar Demokrata (print edition), Péter Farkas Zárug contends that Hungary”s release from the EU excessive debt procedure is a clear acknowledgment of the success of the policies of the Orbán government. The conservative analyst, nonetheless, cautions against relaxing the tight fiscal grip, since, he believes, it cannot be taken for granted that the balanced budget can otherwise be maintained in the midst of low GDP growth.

We must acknowledge the achievements of Mr Matolcsy”s unusual economic policies, Ákos Balogh writes in Mandiner. The conservative blogger who has been highly critical of Mr Matolcsy”s strategy, notes that the government has managed to reduce the deficit while keeping public debt under control and even achieved a modest GDP growth. Regarding the opinionated and over-politicized debate around the lifting of the EU procedure, Balogh suggests that right-wing commentators should acknowledge that the welfare spending cuts which played a crucial role in lowering the deficit were started by the Bajnai government in 2010. The left, on the other hand, should reconsider its demagoguery, which blames the government for the restrictions and promises a significant increase in social benefits, Balogh concludes.

As for the political consequences, Miklós Újvári in Világgazdaság reckons that . Mr Orbán has been saying ever since 2010 that he was waging a freedom fight against foreign influence, and now he will claim victory. The left-wing commentator admits that the EU and left-wing opposition parties wanted to use the excessive deficit procedure as a weapon against the Orbán government, by linking the worries about its unpredictable economic policies to concerns over the weakening of democratic institutions. Taking all this into account, Hungary’s exit from the procedure is a major feat for Orbán, who has now taken a big step toward reelection in 2014, Újvári concludes.

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