- 6 Sep 2012 9:00 AM
The talk about negotiations with the Azeri government over the purchase of 2-3 billion euros’ worth of Hungarian government bonds turned out to be true. After all, the Turkish bank that was supposed to issue the bonds confirmed it. However, on September 3, the State Oil Fund of the Republic of Azerbaijan issued this statement: “Regarding the news about the purchase of Hungarian debt obligations, the State Oil Fund of the Republic of Azerbaijan publicly reveals that SOFAZ is not considering any investment into debt obligations or other financial tools in Hungary.”
Since then we learned that SOFAZ, even if it had wanted to, couldn’t have bought junk bonds in such quantities. Because, let’s not forget, about two years ago Hungarian government bonds were downgraded to junk status. According to Portfolio.hu, SOFAZ’s official investment strategy specifies that only 5% of the fund can be invested in highly speculative assets.
I’m sure that we will never know what was promised. Something had to be, because I can’t believe that Viktor Orbán would be so naive as to let loose a much coveted “national hero” simply as a favor. Just yesterday I heard an interview with Orbán’s old roommate and political ally Gábor Fodor, who knows him well. According to Fodor, to Orbán the notion of making a gesture is a totally unfamiliar concept. He doesn’t even make a secret of the fact. In fact, he boasts about it.
So, I am still going on the assumption that Orbán one way or the other was expecting big bucks from Azerbaijan, the prospect of which now appears to be fading by the hour. Thus it seems that Viktor Orbán is ready to change course yet again. Most likely because he cannot do anything else.
The last time I wrote about the stalled IMF/EU negotiations the prospects for an early agreement seemed grim. The IMF spokesman announced at the very end of August that there was no date fixed for the renewal of the talks that had been interrupted at the end of July. The sticking point was apparently the transaction tax on the Hungarian National Bank, on which Viktor Orbán was insisting. Analysts excluded the possibility of an agreement in the fall and predicted a possible conclusion of the talks sometime next year. Portfolio.hu was even more pessimistic. The economic journalists working for this financial paper were certain that the aid talks will not continue at all. Details of the state of the negotiations a week ago can be found in my August 31 post.
So, great was my surprise when I read in the September 3 issue of Magyar Nemzet that the office of Mihály Varga had informed them that negotiations will continue in September. This morning Viktor Orbán himself talked about the resumption of negotiations and expressed his firm belief that a favorable conclusion to the negotiations is just around the corner. It will occur sometime during the fall. He added that, although there are still outstanding issues that must be ironed out, the negotiations are proceeding well.
“The ball is now in Hungary’s court,” he added. As for the transaction tax on the Hungarian National Bank, Orbán indicated that “there is intention on both sides to find a middle ground.” A few minutes later Mihály Varga, the chief Hungarian negotiator, decided to chime in and emphasized that Hungary cannot afford not to have an agreement. Actually, he used the expression “nem úszható meg az IMF-hitel.”
Why this sudden eagerness to talk with the IMF? One reason might be the possibly empty promises of the Azeri government. However, there is another piece of news that most likely reached the Hungarian government sometime in the last twenty-four hours. Bruxinfo.hu reported from Brussels today that the paper had received news from reliable sources that the European Commission may launch an infringement procedure against Hungary on September 27 over the financial transaction tax Hungary plans to introduce in 2013.
European Union sources confirmed that, in addition to the European Central Bank, the European Commission also has very strong doubts that this planned transaction tax is in line with EU regulations. As soon as this news hit, the Hungarian forint began to fall. At 2:30 p.m. the euro/forint cross was trading at 284, an hour later at 286.
It is quite possible that Viktor Orbán is becoming desperate. He tried to get money from China, Saudi Arabia, and Azerbaijan and came up empty-handed. He also tried to get out of the obligations that bind Hungary to the European Union. It doesn’t matter how often he tells his followers that Hungary’s economic war of independence against the European Union has been successful, the fact is that without EU assistance Hungary would immediately collapse. Almost everything that’s being built in Hungary is being done with European funds. If these funds were to disappear, Hungary would end up high and dry.
The potential loss of revenue from the transaction tax is a problem by itself. Without Orbán’s cherished transaction tax on the Hungarian National Bank there will be an even larger hole in the 2013 budget. As it is, the budget is more than shaky because it is based on overly optimistic economic growth numbers.
Orbán got rid of the Budgetary Council that was supposed to be the watchdog over the government’s handling of the budget because he feared that they would look too hard at the government’s figures. So instead of an office with a staff of forty he appointed three men to oversee the budget. Surely, he thought that these men would not disturb much water. Well, he was wrong. Árpád Kovács, the head of the new Budgetary Council, is demanding reliable data from the Ministry of National Economy; he refuses to accept the figures offered by the ministry. Right now the ministry and the budgetary council are at loggerheads.
According to analysts, as it now stands the proposed budget is short by about 500-600 billion forints. Without changing course it is unlikely that the country can survive economically. It seems that Orbán might have to give up some of his “unorthodox” policies. For example, the flat tax. Moreover, he seems ready to turn his ship from its eastward course back toward the old, decrepit, tired Europe that is incapable of handling its own problems but ponies up a lot of money for Hungary.
Of course, there are still people who are skeptical about Orbán’s real intentions. Péter Oszkó, finance minister in the Bajnai government, is one of these. In an interview this morning he expressed his belief that because of the forint’s fall this afternoon Orbán and Varga came out with these optimistic stories about the negotiations in order to calm the nerves of the markets. Nothing will come of the negotiations.
I’m a little less skeptical. Mostly because I heard this afternoon that Viktor Orbán will be paying an official visit to Berlin in October where he is going to meet Chancellor Angela Merkel. They will be talking about bilateral diplomatic relations and the further strengthening of economic ties. These forthcoming negotiations were prepared by Péter Szijjártó in Berlin where he met Christoph Heusgen, foreign adviser to Merkel and a member of the staff of the chancellery; Cornelia Pieper of the foreign ministry; and Peter Hintze of the economic ministry.
Szijjártó told his negotiating partners that Hungary agrees with Germany on the necessity of a strong Europe and Hungary will support all German efforts in this direction. According to Szijjártó, there was agreement that “after the crisis is over the European Union’s economic engine will be cooperation between Germany and Central Europe.”
So, is Orbán getting desperate or is this just another one of his typical games? We will see.
Source: Hungarian Spectrum
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