Abby Innes on Hungary: Viktor Orbán goes for broke (1)

This piece by Dr Abby Innes, Lecturer in the Political Economy of Central and Eastern Europe, European Institute, LSE is cross-posted from the original source at EUROPP blog LSE. I am grateful to the author and to LSE itself for letting me cross post. It is good for my untrained eye to see the matter from this point of view. For convenience of reading I will post it in three parts, all three today. Comments at the end of the third part.



Contemporary Hungary is offering an abject lesson in how quickly democracy can go to hell when politicians confront thankless options and take the low road. The Fidesz-dominated coalition government came to power in 2010 on the high stakes promise of ‘no more austerity’ and it has been selling a fantasy of national renewal on the top of increasingly authoritarian government practice and deteriorating financial conditions ever since. To make good on its electoral promises one of Fidesz’s first measures was to pay for tax cuts by expropriating private pension funds back into the public budget: an act that put the budget into a one-off surplus for 2011 but which damaged Hungary’s international financial credibility which worsened thereafter – government debt has had ‘junk bond’ status for many months now. By March 2011 the government announced its economic strategy in the form of the Széll Kálmán Plan: a programme, so it turned out, of severe austerity, particularly for lower income groups. It presaged significant cuts in health, welfare entitlements and higher education but promised the creation of a million jobs within ten years.

At the root of Hungary’s sluggish growth and extreme political remedies is the lowest employment rate in the region – barely one in two of those of working age - and an exceptionally high tax wedge on labour, second only to Belgium’s within the OECD in recent years. By 2006 Hungary had Swedish/French levels of public spending at Polish levels of per capita income. When coupled with a post-2007 crisis in privately held foreign debt the former Socialist government was left with nowhere to go but to unprecedented economic retrenchment: something they were no longer trusted to manage after revelations they had already lied about the real condition of Hungary’s public finances back in 2006 in order to win that election, and subsequent corruption scandals. Enter Fidesz and Viktor Orban in a coalition with the Hungarian Christian Democrats, with a constitutional supermajority and the temptation, given the unrewarding economic situation, to embark on the most almighty recasting of the rules of the Hungarian political game: what has ensued is a bacchanalia of populist-nationalist elite self-indulgence and hatred-mongering that has taken Hungary’s international reputation from a regional reform leader to pariah status in two years, and its political economy deeper into the mire.


[continued in next post]