These are hard new times for beleaguered Hungary

Author: Vladimira Briestenska
14 May 2009 - Issue : 833

New Hungarian Prime Minister Gordon Bajnai speaks during his press conference to announce the crisis management programme of his government in the Parliament building in Budapest, Hungary, 19 April 2009

Hungary’s new Prime Minister Gordon Bajnai, taking over from the previous politician Ferenc Gyurcsany, who had headed a minority Socialist government for one year after the opposition Free Democrats quit his coalition, has introduced in last few days very strict reforms aiming to tackle the country’s economy. The new government, which started its working period on Monday 19 April, is determined to temporarily freeze and cut the social subsidies, pensions, maternity support and to also to decrease the energy subsidies.

"Hungary, facing the biggest economic downturn in nearly two decades, must implement fast and painful reform measures or will risk a deepening crisis,” said Prime Minister Gordon Bajnai.

Restrictions and reforms introduced by Hungary’s government cover the issues of cutting the mortgage subsidies, setting up the new taxes on real estate and rinsing up the turnover taxes above 20 percents. The last public surveys demonstrated that most of the people were expecting the harder times coming.

“If we would not employ the strict program until the end, the Hungarian economy could easily fall into the recession, thousands of working places would disappear and the payers of the hypothecs could lose their estates,” said Gordon Bajnai.

Main reasons for these radical measures of Bajnai’s government are the negative economic prognoses and the declining trend of the trust to the Hungarian economy. Bajnai said quick and credible reforms, which he did not outline in detail, could restore investor confidence in Hungary and put the country back on track to joining the euro zone. Most analysts doubt Hungary will be able to adopt the EU currency before 2014.

“The development of the Hungarian economy has been in a wrong direction for few years and the situation nowadays is really fragile, therefore we have to prevent the big collapse. However this radical saving program can be very politically dangerous for the Socialists as their popularity is declining and can fall even more. We could conclude that opposition represented by the Fidesz will gain from this situation,” said analyst Péter Krekú.

"The jobs and livelihoods of tens but maybe hundreds of thousands depend on how we manage this economic crisis. What Hungary needs is not simply to reduce costs short-term, but we need measures which are of structural nature, which will put Hungary on a long-term growth path… The implementation of the programme will hurt, it will demand sacrifice from many, it will affect every family and every Hungarian, but it will have results," said Bajnai.

Political opposition (FIDESZ) does not recognize Prime Minister Bajnai as a legitimate politician and as a Prime Minister and has doubted his right to apply the mentioned restrictions. “This is a very strict programme, which will bring hundreds of families into the unhandled situation,” claimed Péter Szijártó, spokesperson of the Fidesz.

The European Union did not stand cold to the critical situation in Hungary and has contributed significantly to a 25.1 billion Euro (32.7 billion US dollars) package led by the International Monetary Fund to rescue the Hungarian economy, which is expected to shrink by 6 percent this year.

"I believe Hungary has the potential to put these rather dark days behind it and become an economic success story. We believe Hungary is taking now the right steps to turn this round and achieve sustainable growth and jobs in the future. The Commission welcomes in particular the crisis management measures announced earlier this month," said European Commission President Jose Manuel Barroso after meeting Hungarian Prime Minister Gordon Bajnai.

COMMENTARY

Statement of Zsolt BECSEY, Hungarian Member of European Parliament for EPP-ED and member of the Committee on Economic and Monetary Affairs

Instead of euphemistic "strict economic reforms" we can clearly talk about harsh restrictions. Without doubt, Gordon Bajnai's hands are forced: his predecessor's, Ferenc Gyurcsány's government ran the country into a deep debt and recession, then asked the EU and the IMF for help. These latter require a rather high price for their quick loans.

Their utmost aim and dictate is diminishing the extremely high current and State deficit, which in itself would be a comprehensible target. However, there is a recession of 5-6 % in Hungary, and to reduce deficit in such a recession is simply abnormal, as for short term targets long-term development is sacrified.

One example is the cruel restrictions in the social field, among them one especially revolting: that of the radical cut in the maternity leave and allowances in a country - and in a Europe! - where demographic decline is one of the major strategic challenges.

There are juridically doubious measures as well, such as the dictate by the creditors to cut Hungary's national top-up in the agrarian sector. The top-up was intended to reduce the competitiveness drawback of the new Member States' agriculture in allowing these countries to supplement from their national budget Community assistance which were set for them lower than that of the "elder" Member States' allowances up to 2013, by their Adhesion Treaty. In this deplorable case it goes clearly about the violation of the EU primary law (i.e. the Adhesion Treaty), or to put it less polite but more clear: about blackmailing - from the very Commission's side! With the compliance of the Hungarian government, of course, sadly.

There are hardly any stimulating measures in the Bajnai governement's programme. Burdens remain high, even overseized. And raising the VAT-level in the current situation, as PM Bajnai does, is simply lethal: nothing else than sheer recovery for momentary shortage of funds.

PM Bajnai accepted to bring public deficit under 3 %. But it became uncertain whether EU big projects could be co-financed any more, among others.