Download Current responses to the crisis Hungary

The Politics of Crisis
Beyond Orthodoxy
Gábor Scheiring
Védegylet
What has happened?
2008 October: major drop in the value of
forint
 2009 March: another major drop

◦ 1 € = 317 HUF (a year before it was around
245)
◦ Rumors that if it reaches 320 mass loan
defaults will happen and the government is
going to freeze bank accounts

Complete freeze at the market for
government bonds - bankruptcy
5 year sovereign CDS (bps)
Crisis management: Enter IMF

25 billion loan
◦ IMF: 15,7 billion $
◦ EU 8,1billion $
◦ WB 1,3 billion $

In return
◦
◦
◦
◦
Constant monitoring from IMF
Reducing wages of public servants by 7,5%
Reducing pensions by 3%
Keeping budget deficit below 2,5%
Political responses

Government (Socialists)
◦ Cuts in personal income tax and social
security contributions to boost
competitiveness
◦ Raising VAT
◦ But – lack of confidence, lack of parliamentary
majority
◦ Gyurcsány resigns as he cannot get through
his proposal
Political responses

Reform Allience (HAS + leading capitalists)
◦ ~ 1000 billion HUF, 3,3 billion € cut in expenditures
◦ Tax and social security contributions cuts
◦ „Rationalizing schools”, cutting social spending

Free Democrats and Democraric Forum
◦ ~ 2000 billion HUF, 7 billion cut in expenditures
◦ Far reaching tax cuts and restructuring of welfare
services, decreasing the number of local
governments, closing universities, privatization of
health care and the pension system
Bad macroeconomic management?
General government balances
6.0
4.0
2.0
0.0
1996
% of GDP
-2.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Czech Republic
Estonia
Hungary
-4.0
Latvia
Lithuania
Poland
-6.0
Slovak Republic
Slovenia
-8.0
-10.0
-12.0
-14.0
Premature Welfare State?
Total Expenditure on Social Protection
35
30
EU (15 countries)
EU (25 countries)
25
Czech Republic
% of GDP
Denmark
Germany
20
Estonia
Latvia
Lithuania
15
Hungary
Poland
Slovenia
10
Slovakia
Finland
5
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Lessons
No direct relationship between crisis and
budget deficit
 No negative relationship bw. economic
development and redistribution
 What then?

Semi-Peripheral Integration

Privatized and unregulated banking sector
◦ Short term speculative money
◦ Early warnings: IMF, BIS
◦ Euro/Frank loans
 Long term consumer loans financed through short tems cross
border loans
 Although international rates were dropping, Hungarian
interest were on the raise
 Continue to make substantial extraprofit
Semi-peripheral integration

Dualistic economy
◦ FDI not able to solve employment problems if not
networked well into the local economy
◦ Direct state subsidies and tax exemption
disproportionally favor FDI at the expense of local
economy
◦ Liberalized banking sector allocated money towards
consumer loans
 Current account imbalances and risks
 Harder to get access to capital for local firms
◦ Reduced the policy space for local counter-cyclical
demand management
Ways out beyond orthodoxy

Bolstering state capacity
◦ Economic planning
◦ Strenthening bureaucracy (higher wages, examinations, identity)

Re-regulating financial sector
◦ Internationally: peripheral countries interest
◦ Reduce the possibility of short term speculative investments
 Both at currency, capital and commodity markets

Strenghtening local economy
◦ Slovenia, Czech Rep.

Self-financing Green New Deals: green collar jobs
◦ Energy efficiency of public and privative buildings
◦ Renewable energy
◦ Sustainable agriculture
Political lessons

Strenghtening labor and civil society
◦ Carriers of transformation

Strenghtening CEE cooperation
◦ Braking tax competition

Building capacity
◦ Breaking the resilience of neoliberalism needs
alternative knowldge
 Research
 Institutions

Also the interest of „Old Europe”