Debts & Democracy: Hungary Builds an EU Autocracy

by Thomas Ország-Land (March 2012)

Heavily indebted Hungary is heading for the rocks, endangering the fragile economies of fellow EU member countries. Bankruptcy may still be averted by an emergency injection of billions of Euros. But that could ensure the indefinite rule of a populist, authoritarian Hungarian leader who has already laid the legal infrastructure to  turn his nascent, post-Soviet democracy into a repressive state reminiscent of the Communist and Fascist models.

VIKTOR Orbán, the ultra-Conservative, populist Hungarian prime minister, astonished the world financial markets on assuming power in April 2010 by declaring that his post-Communist predecessors had cooked the books and brought the national economy to the edge of collapse. His claim was quickly exposed as an inept negotiating ploy to obtain easy cash from lending institutions eager to contain the mounting debt crisis of the European Union (EU) of which Hungary is a member.

Orbán and his economy minister György Matolcsy have thus earned the contempt of their Western counterparts and the mass communication media. But in less than two years in power, they have managed to create a genuine, imminent sovereign debt crisis. Now it really could endanger the vulnerable economies of this entire region. And formerly Soviet-dominated Hungary is poised to lose its hard-won democratic freedoms.

The present Hungarian government in fact inherited the books from a politically neutral, caretaker administration that had been in power for a year before the last landslide elections. Its figures have stood up to the scrutiny of the country’s creditors. These include the International Monetary Fund (IMF) which has already granted 20bn Euros in emergency credit to Hungary. Orbán now wants to double that figure. But the stakes are much higher than that. The new regime has already created the legislative conditions essential for the indefinite survival of single-party rule similar in many ways to the retired, Soviet-inspired power structure that was in place here during the bygone youth of Orbán and Matolcsy.

The free fall of Hungary’s national economy has been caused by a hugely controversial legislative programme enacted in feverish haste. Using its stunning parliamentary majority, Orbán’s Fidesz government has muscled through a new constitution and a raft of supporting laws and regulations in the absence of cross-party support or any semblance of national consensus. These rules, enforced rigidly and in some cases with retrospective effect, disable the traditional checks and balances of democratic administration, undermine human as well as property rights, curb the freedom of the mass communication media and introduce gender and religious discrimination.

As the cynical cadres of the administrative class in the bad old days of Soviet domination spouted communism in which they did not believe, so their modern counterparts today spout democracy in which they also do not believe. Such a culture feeds unspeakable corruption and intolerable arrogance of power. But while the old regime managed to keep its relations sweet with the Western banks, the wildly unpredictable and sometimes self-contradictory economic policies of the Orbán-Matolcsy duo have managed to frighten away business.

The principal global credit rating agencies have responded by downgrading Hungary’s sovereign bonds to junk status, sending the value of the national currency spiralling downwards and consequently inflating the national debt. The interest yields fetched by Hungary’s 10-year bonds have recently approached 10%, well in excess of sustainable levels. Malév, the Hungarian national airline, has just announced its bankruptcy, terminating its services forthwith. The insolvency of BKV, the mass transit monopoly of the capital of Budapest, is widely expected within weeks.

Hungary is one of the most indebted East European economies with external liabilities in excess of 106.5bn Euros, equal to its gross domestic product. The state must repay 5bn Euros of sovereign debt this year. How will the country service the next major batch of its liabilities when they mature late in March?

Professor Iván Szelényi of Yale University perceives a carefully constructed master-plan behind the apparently irrational blundering of Hungary’s financial management, deliberately aimed at national bankruptcy. Writing in the authoritative Heti Világ Gazdaság (HVG) – a weekly journal similar in some ways to The Economist of London – the noted Hungarian sociologist ventures that the Orbán administration is engaged in a risky but plausible gamble known only to the inner circle of its policy makers, intended to dump the bulk of the country’s sovereign debts. The HVG analysis points to an audacious precedent set by Argentina whose bonds were also marked down to junk status in 2002.

Argentina then limited the convertibility of the peso, suspended its national debt and, despite the disapproval of the IMF, agreed to its settlement at a 70% loss reluctantly absorbed by the creditors. Professor Szelényi believes that the Fidesz economists are trying to emulate what has become known as “the Argentine miracle” that led to soaring national productivity despite a temporary inflation and a flight of capital.

But for the EU, such an outcome here could encourage the contagion of the sovereign debt crisis to several more member countries. And for Hungary, it may well lead to the loss, under a persistent and corrupt quasi-Fascist dictatorship, of the country’s fledgling legal and human rights culture that has been nurtured since the collapse of Soviet rule two decades ago.

“While the EU has been focused on the debt problems of Greece and Italy, a potentially more profound challenge has been developing in Hungary… whose administration increasingly resembles the autocratic regimes of Russia and Belarus,” observes The Washington Post in a deeply troubled editorial. The newspaper concludes that tolerating the acquisition by an EU government of powers undermining the administration of democratic control and draining the very lifeblood of political pluralism would be incompatible with the West European character of that entire community.

Heading its list of new laws and regulations most worrying Hungary’s democratic partners is the compulsory retirement of some 270 judges, their replacement with proven Fidesz supporters and the authorization of another to decide which court is to try whom. There are many other causes of concern. A leading opposition radio station has been denied a license by a new media board controlled by the Orbán establishment. The country’s electoral districts have been redrawn in a way to favour the Fidesz party in all foreseeable future elections.

The administration has also curbed the competence of the parliamentary ombudsmen, suspended the data protection authority and taken powers to end the independence of the central bank. It has seized the reserves held by the private pension funds. It has introduced a basic uniform tax regime by means of a legislative formula designed to make it administratively difficult for future governments to alter it. It has denied official recognition to many religious denominations including the Episcopal and Methodist churches, several Jewish congregations and all Muslim sects.

And the Fidesz constitution emphasizes the supremacy of Christianity in Hungarian culture, narrows the grounds for protecting the individual against unfair treatment and specifically fails to outlaw hostile discrimination meted out on the grounds of sexual orientation, an explosive issue here in homophobe Eastern Europe. Horrendously, the constitution denies the enduring culpability of the Hungarian state for the murder of some 600,000 of its Jewish, Roma, homosexual and politically dissident citizens during the Holocaust and seeks to trivialize the tragedy by equating the Holocaust atrocities with those committed during the subsequent Soviet administration.

The EU holds few instruments to rein in an errant member state. The European Commission – the administrative headquarters of the EU in Brussels – has initiated action on technical issues that could lead to sanctions to punish Hungary for the breach of its treaty obligations in support of the independence of the judiciary, the central bank and the data protection authority. These and related issues could go before the European Court of Justice of the EU as well as the European Court of Human Rights of the Council of Europe, both of which wield jurisdiction in Hungary. In addition, the EU is empowered to suspend Hungary’s voting rights under rules adopted after 2000 when a far-Right political party temporarily joined the government of neighbouring, fellow EU-member Austria. Hungary could also lose many advantages derived from its EU membership including a generous flow of development aid funds.

Mark Palmer, who served as America’s ambassador to Hungary during the heady days of regime change and the birth of democracy here, has expressed the fear that this country could be eventually booted out of the EU as well as the North Atlantic Treaty Organization. Several countries within and without the EU are discreetly supporting proposals current in the political opposition here, for the removal of the prime minister from power and the establishment of a caretaker administration until the next elections due in 2014.

The leading Hungarian daily newspaper Népszabadság wonders whether the forces of the West might solve Hungary’s problems by toppling Orbán. “They did that with the Italian Berlusconi and the Greek Papandreou,” it recalls, “replacing them with predictable and sober technocrats. But Hungary is a harder nut to crack. Dismissing the head of a government in charge of a large parliamentary majority is no easy task. And the situation is exacerbated by the sorry state of the Hungarian parliamentary opposition.”

Index, the authoritative Hungarian news agency, understands that the government is responding to the intensifying pressure brought to bear simultaneously at many levels with catastrophic ineptitude crystallized in the conflicting attitudes expressed by politicians and diplomats. But the source of the confusion is the prime minister himself.

Orbán has adopted a conciliatory and sometimes even servile tone in his often long delayed response to a persistent series of stern, top-level warnings from Hungary’s strategic Western allies. These have notably included Germany (which holds the bulk of Hungary’s export markets) as well as France, the United States and neighbouring Austria.

But at home, the charismatic prime minister passionately eggs on his followers to intensify their “freedom fight” against a vaguely described EU scheme to encroach on the national sovereignty. The mass rallies organized by Fidesz are frequently supported by Hungary’s resurgent neo-Nazis displaying their disgusting World War Two regalia and placards declaring their undying opposition to their land being reduced to a “colony” of the EU.

Orbán, aged 49 years, is a first-generation graduate offspring of a disadvantaged provincial working class family that has enriched itself spectacularly during his career in politics. He served as a successful cadre of KISZ, the league of Communist youth, that secured him a university place during the declining days of Soviet rule. He eventually won a scholarship to Oxford to read law, and founded Fidesz, a party of anti-Communist young democrats, that he led towards the extreme Right of politics.

His power base has been assembled in the worst tradition of East European dictatorial control. All significant initiatives within the Fidesz establishment must necessarily originate from the boss. All his subordinates function under merciless expectations to suspend their personal judgments as a prerequisite of survival in their lucrative positions. Such working conditions generate savage pressures of responsibility as well as paranoia at the top.

Orbán appears to be responding to the pressure very poorly. The political circles of Budapest are awash with plausible gossip of the signs of tension surfacing in his public as well as private life. Orbán served as prime minister once before and lost two of the last three parliamentary elections. One I trust who knows him well believes that another defeat would destroy him. Nevertheless, this convincing orator can still command large crowds at public meetings – even if students sometimes claim afterwards that they had been paid to attend.

Fidesz won 53% of the vote in the last elections on an aggressively nationalist platform. Its election campaign exploited a popular discontent generated by the world recession, and it carefully refrained from revealing the nature of its controversial legislative programme. Because of a quirk of the electoral law, the vote has given Orbán a subservient two-thirds parliamentary majority enabling him to decree anything – but anything! – he wishes.

As might be expected, his party’s electoral popularity is quickly falling away. The latest, authoritative Ipsos poll concludes that only 16% of eligible voters would be prepared now to support Fidesz. If the government survives to the next election, its greatest hope of success may lie in the continued inability of the fragmented parliamentary opposition to mount a coordinated challenge, suggests Professor Kim Lane Scheppele of Princeton University in an insightful new analysis.

“Things are very bad again in Hungary,” she adds. “People are physically afraid.” She has just revealed that she has received a death threat.

György Konrád, the best-selling Hungarian novelist and literary legend, warns that “my homeland is beginning to resemble the post-Soviet dictatorships of Central Asia; some are even calling it Orbánistan.” He writes in The New York Times and the German Frankfurter Allgemeine Zeitung that many young Hungarians are already planning to flee Westwards to escape hopelessness at home, as they did after the failed 1956 revolution against the Soviets.

Konrád, 79, contributed greatly to the birth of Hungary’s parliamentary democracy. He told me recently that he should like to quit politics. But this is no time to quit.

He is energetically advocating an emerging consensus between the Right and the Left of the political spectrum for the temporary establishment of a broad coalition of specialists in power that would prepare for the next elections. The future as he sees it is “not entirely dark… I have been a satisfied witness to the fall of two authoritarian regimes, fascism and communism. The end of the third is in sight. Since it is built on falsehoods, its fall will be less than graceful. We might have managed to avoid this disease. At least, I hope, we shall learn from it.”

THOMAS ORSZÁG-LAND is a poet and award-winning foreign correspondent who writes from his native Budapest.

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