Wednesday, April 9, 2014

Insubordinate ‘Maverick’ Orban Wins Another Election

by Pater Tenebrarum

'Not a Nice Guy'

We would normally be inclined to like Hungary's Viktor Orban, not least  because he is widely despised by the EU nomenklatura in Brussels. He also happens to be a staunch anti-communist, which results in Europe's political left instinctively disliking him. Left-liberals are usually in the forefront of the incessant outcry over Hungary's alleged infringements of human rights and European values. One must therefore be careful when assessing the almost continual stream of vitriol that is directed against Orban in the media. However, as you will see further below, he is not entirely undeserving of it.

In recent interviews in the German-speaking press, Orban repeatedly pointed out that he is 'not a nice guy', that Hungary at present in fact does 'not need a nice guy', and that he 'wasn't elected to engage in mainstream politics'. He also stressed his patriotism and defended his support of Christian values, both positions that are considered politically incorrect in Europe.

Due to enjoying a two thirds majority in parliament, Orban's government was able to alter Hungary's constitution. No-one seriously doubted that it was in need of change. The old constitution was essentially a slightly altered version of the Stalinist 1949 constitution, provisionally adapted to a democratic environment. It had always been planned to replace it with a new constitution, but that never happened until Orban entered the scene.

Hungary's new constitution even refers to God, in a phrase adopted verbatim from its national anthem. Mainly it entreats God to bless Hungary and help it to flourish.

In spite of its numerous politically incorrect passages, German constitutional scholar Rupert Scholz judges the new Hungarian constitution to be one that 'by objective criteria is a modern, even exemplary, constitution'. However, as you will see below, this appears to be a somewhat naïve assessment.

Hungary's Economy Recovers

Orban's governing coalition (Orban runs the Fidesz Party, which is in a coalition with the Christian Conservative Party) has chased the socialists from power in Hungary, inflicting almost irreparable damage on them. The socialists under Ferenc Gyurcsány ruled Hungary for two consecutive legislative periods, from 2002 to 2010. The country found itself economically in ruins and nearly insolvent when their reign ended. Public debt soared from 53% of GDP to 82%. This unhappy state of affairs helped sweep Orban to power in 2010.

Hungary has left the economic crisis behind in the meantime, even though Orban's populist economic policies leave a lot to be desired.  Orban preferred to eschew IMF support,  as he didn't agree with the IMF's prescriptions. Today, Hungary runs a current account surplus, which has lowered its dependence on foreign funding. As can be seen below, a number of economic data have actually improved significantly:


Hungary's current account has moved from a perennial deficit to a surplus - click to enlarge.


Hungary's rising foreign exchange reserves mirror this development - click to enlarge.


CPI has begun to decline sharply, however, this is in large part attributable to the government introducing price controls on energy prices - click to enlarge.


After touching the post crisis high of just below 12% several times between 2010 and 2012, the unemployment rate has finally begun to decline noticeably – click to enlarge.

The 2014 Election

In the election last weekend, Fidesz received 44.5% of the vote, which is very likely enough for the coalition to retain its two thirds majority in parliament. The alliance of the left led by the socialists only received about 26% of the vote, an outright debacle for the formerly strongest party in Hungary.

The size of the coalition's parliamentary majority is inter alia due to Hungary's electoral law, which is biased in favor of the strongest parties. The new system has lowered the number of MPs to 199 from formerly 386. However, the main features of the previous system were retained: it is still a mixed 'party list and constituency system'. There are 106 directly elected legislators, plus 93 who are appointed according to party lists (i.e., according to the percentage of the vote each party receives; every citizen has two votes, a constituency vote and a party list vote). In order for a candidate to win in an electoral district, a 'first past the post' system similar to the one in the UK has been adopted. In short, only a relative majority is required to gain a seat via constituency votes (which favors the big parties). Not surprisingly, Fidesz has been accused of gerrymandering of electoral districts to increase its chances. We have little doubt that these allegations are well-founded, since gerrymandering is a long-standing tradition in a number of democracies (even in the US).

The new electoral law for the first time extended the right to vote to Hungarians living abroad as well, another move favoring Orban's party. Orban frequently stresses that the government has the duty to defend the interests of  Hungary's large diaspora.

In the wake of Fidesz political success, Jobbik, a rather unsavory radical nationalistic party, has gained a large share of the vote as well. It scored 20.86% of the vote in this weekend's election, up more than four percentage points from the previous election. While Fidesz cannot be blamed for Jobbik's success, it is slightly disconcerting that a crypto-fascist party enjoys such huge support in Hungary.

Anyway, the upshot is that the man Europe's socialists love to hate is running Hungary for another four years. However, in spite of the fact that Orban is a politically incorrect thorn in the side of the eurocrats, we by no means want to indicate that the man and his policies are somehow beyond critique. In fact, to our dismay he is quite an etatiste himself, only one with a nationalist flavor.

Orban's Policies

As mentioned above, Orban's staunch anti-communism and the fact that the EU's political and bureaucratic elites hate his guts both come as a strong recommendation of the man. He was even arrested once by Hungary's communist regime for standing up for a hero of the 1956 uprising and demanding that the Soviet occupiers leave Hungary. However, when examining  his policies, we find they leave a lot to be desired, to put it mildly.

There is for instance Hungary's media law, which stipulates that the media must engage in 'balanced' reporting. What constitutes 'balanced' reportage is determined by a state media council, which is of course entirely staffed by Orban appointees. Orban has offered a few concessions to the EU by amending the law, but its essence reportedly remains unchanged. Clearly the media law is contrary to freedom of the press and the heavy fines attached to violations undoubtedly invite self-censorship by journalists.

A number of other authoritarian laws have come into force as well along with the new constitution. Among them are acts that curtail the independence of the courts and the country's central bank. For instance, prosecutors may choose which judges hear what cases. Concurrently the retirement age of judges was lowered by eight years, in a transparent move to enable the appointment of new judges more to the government's liking. The constitution also withdraws official recognition from more than 300 religious denominations, depriving them of the tax exempt status they have hitherto enjoyed. The constitutional court was emasculated, after delivering a number of verdicts declaring laws introduced by the Fidesz government as unconstitutional. In fact, Orban simply wrote all the laws the constitutional court considered unconstitutional into the new constitution – hence they are ipso facto no longer 'unconstitutional'. As an aside, the new constitution also bans gay marriage, which is another reason it is frowned upon by many in the EU (in our view the matter should be none of the government's business and certainly has no place in a constitution).

With regard to the central bank, it has become even more of a statist institution than central banks usually are, as it is now more or less under direct political control. There is probably no need to explain why putting a central bank under direct political control is even worse than having a nominally independent one. Not everything is bad though: the constitution also ensures a 16% flat tax for individuals, which is to be extended to businesses as well.

It should be mentioned that it doesn't matter that Orban and his policies enjoy widespread support in Hungary (there have e.g. been very large  demonstrations in favor of Orban and Fidesz when his disagreements with the EU were boiling over). A country's constitution is usually not a document every aspect of which is designed to satisfy populist sentiments. On the contrary, it should be deliberately designed to protect the rights of individuals (which by extension ensures the protection of minorities, if need be against the wishes of the majority). Orban's constitution and the legal initiatives closely associated with it instead smack of statism and regimentation.

Hated by Banks, Loved by Car Makers

Orban has drawn the ire of global banks when he decided that the banks would have to pay a special tax to make up for their role in the financial crisis.  They were moreover forced to eat foreign exchange-related losses stemming from consumer loans (mainly mortgages) denominated in foreign currencies. To this it should be noted that debtors were of course not forced by anyone to take out loans denominated in Swiss francs (the most popular currency for such loans). People were motivated by the lower monthly payments these loans made possible due to interest rate differentials prevailing at the time. However, banks do share a great deal of responsibility for aggressively marketing these loans to people who were unable to properly judge the risks involved on account of their lack of financial literacy.

Bank advisors tended to play the risks down or didn't mention them at all (this happened not only in Hungary, but elsewhere in Europe as well). People should definitely have read the fine print of their mortgage contracts, but let us not forget that banks already enjoy a position of extraordinary privilege, since they are allowed to create deposit money from thin air. One should at least expect them to properly inform their customers about the risks they will be exposed to in such exotic products.

It could well be argued that these products were subject to 'mis-selling' (a number of UK banks e.g. had to pay monies back to their customers after it was found they had not warned them of the risks inherent in interest rate swaps. Note that in these cases the clients of the banks were arguably a great deal more sophisticated than the average retail customer). However, such cases are always difficult to judge. Customers did after all sign the contracts and fine print or no fine print, if the contracts clearly spelled the risks out and were not in conflict with existing law, it is hard to argue that they should be declared null and void retroactively.

Recently, Hungary's government also introduced price ceilings on energy prices, a law evidently intended to increase the populist appeal of the ruling party shortly before the election. This lowered official consumer headline inflation rates dramatically and certainly pleased households (prices were specifically lowered in favor of households. Although Hungary's energy prices were actually already slightly below the EU average, households as a rule use a far larger share of their income to pay for energy, as incomes in Hungary are lower than the EU average). However, price controls always come to grief at some point down the road, as economic laws cannot be suspended by political fiat.

Lastly, on the positive side, European automobile makers seem to widely regard Hungary as a desirable manufacturing location. Audi produces two million car engines per year in Györ (in the world's largest such factory), Mercedes started producing its B-class cars in Kecskemet in 2012, and plans to expand production this year, adding the new CLA model to the roster. Beginning this year, Opel plans to produce 600,000 engines per year in Szentgotthard. This is obviously a sign that not all big enterprises regard Hungary's economic policies as bad for business. Evidently they judge the rewards to outweigh the risks.

He's Always Waving

Finally, it seems to be advantageous if one is a 'friend of Viktor'.  Felcsúts, a village with a population of 1,700, has experienced an unusual upswing since Fidesz' reign began. It turns out that Viktor Orban and his family come from this previously rather sleepy little hamlet. Lörinc Meszaros, an old friend and party colleague of Orban's, is the mayor of Felcsúts. Today the former gas plumber is among Hungary's 100 richest men. Not only does his construction company apparently make sizable profits from various government contracts (such as building the new soccer stadium of Felcsúts), but he is also one of Hungary's biggest cattlemen these days. The country's national development agency proves helpful in this endeavor by providing the pasture.

A soccer stadium big enough to host more than twice as many visitors as the village has inhabitants is not the only recent achievement of Felcsúts. It also boasts of a new football academy, a new gymnasium, and a new 'house of culture'. Moreover, its long abandoned railway station has been renovated and reopened, and recently the village even got an airport license. In fact, Felcsúts is held to be one of Hungary's richest communities nowadays. It is a veritable Hungarian luxury miracle. As retired villager Mihaily Gudics, who already knew Orban's father and grandfather, told a reporter:

We all love Viktor and are proud of him. He's a good lad. Whenever he sees us, he's waving.”

Well, if he's waving at them, then it must be all good.


Hi there! Viktor Orban spots a fellow Felcsúts villager and waves at him.

(Photo via Getty Images / Author unknown)


The Hungarian Forint against the dollar, weekly – moving sideways in a wide band - click to enlarge.

Hungary, 10-yr-yield

Hungary's 10 year government bond yield – benefiting from the calming of the euro zone debt crisis – click to enlarge.

PS: h/t to Austrian newspaper 'Die Presse', which has been a valuable source for this article, especially the wondrous tale of Felcsúts' glorious boom.

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