The Barking Dogs and the Hungarian Caravan

Wed, 18 Jan 2012

Worsening economic conditions might limit Hungarian government’s power and reverse authoritarian policies of Viktor Orban

January 2 marked the first formidable demonstration of the year against the Hungarian government. Tens of thousands of Hungarians gathered in front of the Opera house at the major avenue of Budapest to express their opposition to the new constitution which was simultaneously celebrated by the government members inside the building. Most people had more reasons other than the constitution to demonstrate.

The opposition politicians accuse the ruling Fidesz party and Prime Minister Viktor Orban in intense concentration of power while dismantling the principles of checks and balances between the state institutions. They also criticize the government’s authoritarian style of decision-making: a two-thirds majority in the parliament and Orban’s loyal president Pal Schmitt, who has not yet used his veto power, give Fidesz a luxury of adopting new laws and making political decisions without any consideration of public opinion. Opposition cites the recent cardinal laws on media, central bank, electoral and judiciary system to name a few as clear instances of declining pluralism and democracy in Hungarian politics. These laws and the new constitution, the opposition argues, serve to strengthen the current government’s power grab in almost every aspect of public and political life within Hungary and to ensure disproportionate Fidesz advantage in the future parliamentary elections. The fact that the opposition has labeled the current governance as “Putinization” and the demonstrators in front of the Opera house were shouting “Lukashenko” indicates that the long-serving president of Belarus might lose his notorious status as “Europe’s last dictator” to its Central European colleague.

The concerns of Hungarian people and opposition parties are also shared outside fo the country. The first major sign of discontent with Orban’s rule in the European Union came already in the beginning of 2011. In January of last year several members of the Green Party in the European Parliament protested against the media law of Hungary with their mouths taped, holding the placards that read “Censored” while Viktor Orban was giving a speech in front of them. The irony in that situation was that Hungary held the rotating EU presidency at that time.

Since then and increasingly during the last several weeks, the top officials in Washington and Brussels have been voicing concerns over the newly adopted cardinal laws as well as different provisions of the new constitution. Hillary Clinton and Jose Manuel Barroso have intensified correspondence with Orban. While the US State Secretary was highlighting her concern over "systematic dismantling of Hungary's democratic institutions", the EU Commission chief was urging Orban to either withdraw or amend certain laws- most importantly the one related to the National Bank of Hungary, as they contravened the EU law. With the new year, the European parliament became more vocal in condemning the Hungarian government. Guy Verhofstadt, the leader of ALDE, fiercely argued for the legal and political sanctions against Hungary "to protect democracy and fundamental rights in Hungary and in the EU today and avoid setting a dangerous precedent as well as a bad example for aspirant countries wishing to join the Union".

Pal Schmitt compared this increasing criticism from abroad to a dog’s barking that according to a Hungarian proverb cannot stop a caravan. A “caravan”, as Schmitt has implied, is government policy that aims at total revitalization of Hungary. To eradicate all the Communist leftovers and to correct the flaws in economics made during the previous eight years of the Socialist party rule, as Fidesz claims, a sweeping wave of reforms is needed. This leaves no room and time for extra checks and balances. Constitutional majority in the parliament makes Fidesz comfortable enough not to worry much about domestic opposition. As Schmitt’s metaphor indicates, criticism from Washington and Brussels will not make the government change its course. However, the worsening economic conditions of Hungary might shake up Orban’s position quite a bit.

Until November 2011, the government officials always repeated that Hungary has to recover from the 2008/2009 economic crisis without any foreign help and they would not address the International Monetary Fund which was seen as a main source of public debt rising to 80% of GDP. This vision of self-reliance gave Orban and his government enough self-confidence to pursue somewhat unorthodox economic policies, largely focused on reducing public debt as well as budget deficit, and boosting small and medium enterprises.

However, things did not work out as planned. The unemployment rate has not changed significantly since the election of Fidesz. Inflation of the national currency, the forint, has accelerated during the last two months and consumer prices are going up. The EU is criticizing the government’s inability to create such economic arrangements that will ensure sustainable correction of budget deficit. At the same time, all the major rating agencies, S&Ps, Moddy’s and Fitch, have downgraded Hungary’s investment rating to the junk status with negative outlook. As the American ambassador to Hungary points out, the government’s often unexpected economic policies, such as the nationalization of private pension funds to fill up the budget holes, threatens the stability and confidence in market and discourages investment. As a result, many independent experts argue that Hungary is on a brink of stagnation if not recession.

The gloomy economic outlook in the country directly threatens Orban’s undisturbed rule in two ways: it decreases independence from the EU and IMF and increases discontent among Hungarians. First, already in November the government started to rethink some of its guiding principles of economic policies and decided to form an agreement on a stand-by loan with IMF to bring back confidence in the economy and avoid the second wave of financial crisis, which, as many analysts agree, is almost unavoidable without IMF support. However, recent legislative activities have brought doubts whether the IMF will cooperate or not. Christine Lagarde, the IMF chief, stated: "Before the Fund can determine when and whether to start negotiations for a Stand-By Arrangement, it will need to see tangible steps that show the authorities' strong commitment to engage on all the policy issues that are relevant to macroeconomic stability”.

With the combined power of the EU and IMF to make the decision about financial support, Hungary has realized that it has much to lose without considering their suggestions. Tamas Fellegi, the chief negotiator of Hungary with the IMF, expressed the Hungarian government's willingness to discuss all concerns raised by the participants. Orban himself admitted that “when the arguments on behalf of the European Union are convincing then it's better to accept and follow that line”. This might mean to reverse some of the legislation that the EU Commission deems to be incompatible with the EU laws and values.

The second and perhaps more worrying consequence of worsening economic conditions is the growing opposition inside the country. While the new constitution might be unacceptable for many, the unemployment or the possibility to become unemployed is the most widespread fear. The crowds on January 2 in front of the Opera were shouting “Bovli”, which means “junk”, indicating to the downgrading of Hungary’s investment rating to the junk status.

A recent polls show that popularity of Fidesz is waning. During the last year, as one of the polls suggested, the party lost the support of around one million voters. While the left-leaning opposition parties look unorganized and fractioned, the only force that is gaining more support is Jobbik. It is a radical nationalist party, often accused of anti-Semitism and unfair treatment against the gypsies of Hungary. It is also famous for its anti-EU stance. According to the latest polls, Jobbik’s rating is as high as the Socialists’, which makes this right-wing party only a step away from becoming the second most supported party after the ruling Fidesz. Unless the economic situation gets better, the disillusionment with the current government is going to rise among the people. And as history has shown many times, the radical-nationalist ideas flourish during times of economic hardship.

by Gela Merabishvili