FionaK |
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| I also had a wee look at the recent history of Hungary. This was because the story we are being told is that the previous government was defeated in a free and fair election because of corruption and fiscal mismanagement. It occurred to me that this was much the same tale told wrt Greece, and I thought that was quite a coincidence.
I am not in a position to know what really happened in either country. But the above is not the only narrative available. Here is another:
The previous government was led a man called Gyurcsany: who was the head of the socialist party. It seems that this party lied about the state of the Hungarian economy in order to secure re-election and this became known because there were tapes confirming it. So let us accept that is true. The tapes, we are told, led to widespread popular anger and there were riots in 2006. That may be true as well: but it is possible it is not entirely unrelated to the austerity measures which were adopted after the revelation, rather than a response to "corruption" as generally understood. However that may, be Gyurcsany's government introduced austerity measures including fees for visiting the doctor and for hospital stays: and student tuition fees, for example. The aim of that was to reduce the budget deficit so as to allow Hungary to join the EU and to adopt the euro as its currency. The timing is different but this is not very different from what we are told happened in Greece: though it is not clear that it is true in that case I see it has become "true" by dint of repetition, by now. Astonishingly the people do not seem to have approved this programme (and note that this was a socialist government - a word that by now has no referent in europe) and they rejected adoption of the euro in a referendum in 2008. The governing coalition broke down and the Gyurcsany's government became a minority in the parliament: but stayed in power. The economy took a downturn. This is sometimes stated as if it was related to the events just outlined; but in 2008 ALL economies in europe took a hammering: as did the US economy. I see no necessary relationship with internal affairs. But whatever the cause Hungary turned to the IMF, they EU and the World Bank: and got a loan of $25 billion
The socialist party held on (by dint of a "constructive" vote of no confidence in Gyurcsany which he engineered and which had the effect of a change of leadership of the party) until the scheduled elections of 2010: when Fidesz won a landslide in seats (though not in votes).
On one reading the socialists were the authors of their own misfortune, by misstating the state of the economy: on another it was the demands of the EU conditions for membership which led to both the lies and the austerity: and in turn they led to the fall of that government. I do not know why governments in Greece and in Hungary were so keen to join the eurozone that they would deceive the people about the situation (if, in the case of Greece, they did that) but it seems to me there has to be some big advantage in membership to lead to that outcome. I wonder if it is because trade with the EU is difficult from outside? Don't know.
Hungary did not adopt the euro. It has its own currency and it is able to devalue. That should mean it is in a better position than Greece and Spain and Portugal, which cannot do that. However the problem for Hungary is that much of its debt is denominated in foreign currency. What that means is that if the currency falls the cost of servicing debt rises. (As an aside, this was the position of Germany after WW1. It had to pay reparations in foreign currency: so nothing it could do domestically could raise the money. That is the origin of hyperinflation so far as I can see: it is little or nothing to do with government's printing money per se: it is printing money to buy foreign currency to pay debt that causes the catastrophe. That is at least a partial answer to a question Vninect raised some time ago on another thread about why private sector creation of money did not lead to hyper inflation as one would expect if one believed neoclassical economic fairy stories).
In July of this year Hungarian sovereign debt stood at 80% of GDP. That is very far from being a crisis. It is not the 60% figure demanded by EU rules: but nobody much is meeting those and in the scheme of things it is not so bad. But once again the private debt is included in this so called "sovereign debt crisis", and when that is factored in the total foreign debt was 135% of GDP.
The same report notes that Hungary had a strong trade surplus. But like many other countries in this sorry saga it had "enjoyed" a consumer boom in the early part of the last decade. Driven by debt. Lent by foreigners. Do you recognise any of this?
From 1999 to 2002 there was a big increase in consumption: that then levelled off. What that means in another way of saying it is that demand stopped rising so quicky: and that means there is less economic activity; and less tax is paid.
In 2006 the boom came to an end: I am sure it is a coincidence that that coincided with the austerity measures introduced that same year: because austerity improves things, doesn't it? Only it doesn't. It makes government revenue fall, as we have seen again and again. Hungary already had a fiscal deficit because demand was not rising so fast: it got much bigger after 2006 when demand began to fall.
Having its own currency should have meant that was not a problem: devaluing means that your stuff is cheaper and so you sell more: and indeed Hungary has a big trade surplus, which has grown a lot since 2008. In theory that means that GDP should grow and all should be well. But 55% of Hungary's debt is in denominated in foreign currency: so that does not work, as already explained. (This is also relevant to another question Vninect raised about Greece: that was about inflation of the currency and the effect on exports: predicated on the notion that Greek left the eurozone. Hungary shows that the value of the currency doesn't make a guaranteed difference of the sort he had been discussing: because if the debt is in a different currency you can't necessarily outrun it even if you hold inflation down: and in greece's case the debt would be in euros, at best. Sorry, another digression). The boom in exports has not led to growth because the money goes to service debt which is more expensive because of the very same thing that allows the exports in the first place: devaluation of the currency. So despite its export success Hungary has not enjoyed good growth. This is compounded by the fact that private debt is also often in foreign currency (mainly swiss francs). Even mortgages on domestic houses are often denominated in that way.
It follows that Hungary has no way forward unless it reneges on the debt. The current government does not wish to do that any more than Ireland or Portugal or Spain or Italy want to. So they have raised interest rates twice since they came to power, and the base rate is now 7%. The aim is to support the currency. Go figure. Domestic demand falls when you do that: it is austerity by any other name and it means that revenues fall further: which in turn means the deficit grows and you need to borrow more by issuing bonds: which you can't sell.
Maybe the people are on the streets in defence of abortion rights or because they are concerned about civil liberties: or just maybe they are getting poorer and their children are emigrating and they don't like it any more than Greek people do. What is abundantly clear is that the economic powers that be are not worried about politics: they want their money. In getting it they might just bring about the totalitarian outcome they say they are concerned about. We have seen that before
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