Carpathian warriors in campaign mode

Bust-up between the new Hungarian government and Slovakia on citizenship issue

IT TOOK only a few weeks for the freshly elected (and not yet incumbent) Hungarian government to further erode the country’s troublesome relations with Slovakia, its northern neighbour. Fidesz’s leader Viktor Orbán’s right-wing (still sort of a shadow-)cabinet has announced an imminent law which would allow some 3 million Hungarians living in neighbouring countries to get the Hungarian citizenship on an individual basis. As a parliamentary initiative of right-wing Fidesz group, the bill could be submitted for vote before the new government takes office next Friday.

The issue of granting citizenship to Hungarians living across the Hungarian borders is a historical debt of honour, Fidesz says, referring to the 2004 referendum which failed to put the matter on the parliamentary agenda due to low rate of participation. Under the new regulation, those of Hungarian ethnicity could apply for citizenship without being residents of the country - a possibility already granted to Hungarian non-citizens who do not come from the neighbouring countries. As the new cabinet’s foreign affairs minister János Martonyi outlined, citizenship could be obtained on individual claim and would not automatically entitle to vote in Hungary.

The announcement has sparked virulent opposition in Slovakia the government of which swaggered against the plan, threatening to give a ‘very severe response’ should the Hungarian parliament adopt the law. Amid full-swing election campaign Slovak Prime Minister Robert Fico has summoned the country’s Security Committee and sought the keep the incident in the limelight. While urging Mr Orbán to negotiate, Mr Fico has indicated that Slovakia considered its ethnic Hungarians’ double-citizenship a security risk. As a result, he said, the Slovak parliament may amend the constitution in a way that Slovaks obtaining Hungarian citizenship would lose their Slovak passport. Upon recalling its ambassador from Budapest, the Slovak government also voiced its intention to address international organisations such as the OSCE, saying the Hungarian step is in conflict with international law as well as with the basic treaty signed by the two countries 15 years ago.

Mr Orbán retorted that no negotiations should take place until his government was inaugurated and the new Slovak cabinet was in office.

Although Slovak law recognises the principle of double citizenship, Slovakia has the right to adopt a law to denationalize it’s citizens who are granted citizenship by other countries. This would follow a pattern shared by the Czech and Ukrainian law that (in principle) exclude double citizenship. However, the European practice tends to the opposite direction, with Austria, Romania and Germany giving ethnicity-based citizenship to their fellow nationals living across their borders (Croatia and Serbia also recognise this legal institution).

Furthermore, as a reputed political analyst, Martin Kugla argued in Slovakia’s Hospodárské Noviny newspaper, ethnic Hungarians living in Slovakia would constitute no threat to Slovakia’s sovereignty nor to it’s national security.

Just alike many others, this latest episode of the Hungarian-Slovak political wrestling (albeit being fought on the barricades of national interest) was born from domestic political interests of the respective parties.

Hungary’s new government has seized the opportunity to reaffirm its patriotic image in the face of Jobbik, an extreme-right party ringing chauvinistic bells (now in the Parliament) over Hungarians’ putative role in the region. A sonorous, patriotic upbeat may also help Fidesz divert attention from its grandiose economic plans which shall gradually get in tune with a bitter reality that offers little room for tax cuts.

On the other side of the Danube, Mr Fico must also feel somewhat relieved.

Slovakia’s PM (who has earned an ill fame in Europe by reaffirming the notorious ‘Benes-decrees’ and by enacting an anti-Hungarian linguistic regulation) was offered another chance to parade in the guise of a charismatic leader. Instead of dissecting his cabinets’ failures, the media now turns to the old theme of national interest, which is seemingly at odds with the feelings of ethnic-Hungarian fellow citizens. Mr Fico is apparently seeking to make up to voters with inclination to chauvinism in an effort to spare another four years in coalition with the extreme-right Slovak National Party. Extremist voters appear utterly important indeed: even the more moderate Chrsitian Democratic Union Party (Fico’s main rival) has joined the rally for them while dragging the dispute to the European Parliament.

After several years of arrogant, anti-Hungarian rhetoric, Mr Fico is now distressed to see his new Hungarian counterpart who doesn’t lag him when it comes to teeth, and whose response seems just as wise as Bratislava’s recent wrangling. Leaders of Hungarian minority parties in Slovakia have been warning Fidesz not to weaken their positions by awakening Slovak nationalist sentiments during the campaign - to no avail. Again, a special session of the Hungarian Parliament commemorating the Treaties of Trianon (which marked the grave of the Austro-Hungarian Monarchy and the birth of Czechoslovakia) on the 4^th of June may further weaken Hungarian parties in Slovakia, where elections are due on the 12^th.

Whatever the outcome of the elections may be, ethic Hungarians in Slovakia will lose on the short run, just as all Hungarians and Slovaks who are craving solutions to slightly more substantial problems like energy dependency or unemployment.

A catharsis long overdue

Rather than pray to speculation, Greece is a victim of its own structural weaknesses masked by Eurozone membership

During recent debates on their country’s debt cirsis, Greek politicians suggested that investors’ (or rahter speculators’) greed was the principal cause of the country’s plight. However, CDS-trading (even the notorious ’naked’ one) requires an imminent default against wich one can spekulate. And the default has been there, for roughly twenty years now. Ironically, it was the country’s Eurozone-membership that lubricated the Greek glide towards chronic intebtedness.

From the early 80’s (after two decades of rapid economic growth and the Greek EU-Accession Treaty signed) the Hellens’ economic policy started to fly in the face of the EU’s aspirations related to liberalization and the Single Market. The cause was Greece’s new middle-class craving higher welfare at the end of a 20 year-long high-growth period. Following the second oil-shock (prompting Europe to restructure its economies to make them more effecitve) Greece’s PASOK governments set out to redistribute the wealth of a slowing economy, and nationalized ailinompanies upon trade unions’ calls. To no surprise, in 1993 the Greek economy was sailing near to the brink with an inflation rate of 20.4 pct, public deficit nearing 16 pct and external debt hovering around 120 pct of the GDP.

Despite short-term doldrums in Greek politics (moments of wide-range consensus between political parties and unions) that led to the country’s accession to the Eurozone in 2001, structural problems remained unsolved. Between 1980 and 2007, Greek social spending rose form 11.5 pct to nearly 25 pct of the GDP. Apart form the mass of the spending, the structure of the social system has also been worriesome: pensions and healthcare now absorb nearly 80% of the social transfers, while family support schemes and unemployment benefits account for only 3-3.5 pct of total social spending.

Social expenditure by Function 2006

In contrast to conventional wisdom, families with less than four children are far less patronised in Greece than in other Southern European countries, as in terms of maternal and parental leave the Greek social system is not generous at all. As a result, Greece is one of the countries with a very low natality rate, a fact that amplifies the woes of spendthrift pension schemes and of burdens they will entail in the future. If recent estimations (see chart) prove true, pension schemes alone will eat up at least 20% of the country’s GDP) by 2020.

Percentage of the elderly (65+ years of Age) to total population

Moreover, ill-set pensions are transferred to benefifcaries through an incredibly fragmented structure. A plethora of pension providers (numbering 190 today) and categories make the Greek pension system a vespiary of colliding interests and political bargaining. Thus, beyond its complexity and its costs, it is its reform-resistence that makes the pension system even more remarkable (see last decades’ reform-attempts here and here).

Health care is the other costly reform-braker. It accounts for 23 pct of the social expenditures even with private clinics mushrooming (their turnover amounts to some 40 pct of the total health care expenses of citizens). In the early 2000s, the Simitis-government made the latest grand effort to change it, but the reform fizzled out, as rationalization (aiming to introuce a system of regional heatlh centres) was thwarted by doctors’ strikes.

High social security commitments are topped by the heavy load to finance a mini-cold war with Turkey. Greek military spending added up to €8.7 bn between 1997 and 2003, and had been increasing until 2009. Currently it accounts for 2.8 pct of the GDP, a figure well over the NATO average (1.7 pct). Only the United States spends more on guns and warships in realtive terms. Still, a crisis is a crisis: in its Canossa-march towards budgetary health, the Greek government has generously cut military spanding by around 6.6 pct a year on, outlining a military budget spending ’only’ €6.6 bn in 2010.

Greece is an example of a country that fails due to festering structural problems despite its steady economic growth and its Eurozone membership.

Greece’s annual growth rate (4.2 pct) between 2000 and 2007 helped to offset the bounces in indebtedness of the public and the private sectors. Robust economic growth was completed by the country’s Eurozone-membership securing access to cheaper credit until 2008 (see chart and deatiled analysis here).

However, as a Eurozone coutry can not resort to currency-devaluation to improve its competitiveness and its balance of payments, Greek exports were largely exeeded by imports (the gap tripled within seven years to near 3 pct). High growth and consumption went along with inflation 1.2-1.5 pct higher then Eurozone’s 2.2 pct average, leading to low (or even negative) real interest rates, making loans cheaper to households and private ventures. The respective indebtedness of these segments climbed to 46 and 49 pct of GDP by 2007. As a result, Greece, in the last eight years has borrowed up to 10 pct of its GDP from capital markets every year. When the crisis set in, loans went scarce and the EU was set to see what may happen to a currency area without close economic governance.

In a wider context, the Greek issue boils down to the old question of the Eurozone of how to coordinate 16 or more budgetary policies in a way that everyone prospers. Assimetrical shocks (currency areas’ biggest enemies) can only be averted if member states don’t (and can’t) hide their hazardous fiscal policies behind the common European varnish. In the latter case Greek politicians may also be relieved: ’speculators’ will temper their greed when lending to a boringly sound Greek economy.

Elections' aftermath - a time for Math

After a landslide victory in the Hungarian elections, Fidesz may face the kickbacks of messianic rhetoric

TONY BLAIR once said in a TV show: “You campaign in poetry, but you govern in prose.” This (somewhat worn out) wisdom holds for the current Hungarian reality where centre-right Fidesz seeks to show its readiness for moderate, short-term changes, which however, will not satisfy most of its voters.

For many, Fidesz’s overwhelming (2/3) majority in the country’s parliament is the harbinger for Hungary’s transition to become a happier place for good. The electorate wants a cure for deep-seated syndromes (poverty, poor state services, ailing health care and pension scheme) as well as short-term remedies for rising unemployment and economic depression.

They have good reason to crave action: the country is in plight. In the backyard of the still drowsy Eurozone-economies, Hungary’s GDP fell by 6.3 pct in 2009 and is expected to stagnate this year as well. Exports contracted by 9.1 pct last year, a figure which seems even more distressing in light of the country’s growing dependence on export markets’ recovery due to overall domestic demand shrinking by 5.7 pct. Last year Hungarians saw a 150.000 loss in jobs, and unemployment hit 10.5 pct on the eve of the elections.

Against this backdrop, Fidesz seems to concentrate on the short-term re-launch of domestic demand and job creation, while keeping an eye on households’ debts denominated in foreign currency.

Although a nuanced program has not yet been published by the party (hence any speculation on the reforms seems chancy) the new government will probably undertake reasonable tax cuts in its budget law in September. More detailed plans suggest a near HUF 200 bn (EUR 0,8 bn) extra spending on health care without major structural changes. To undermine the social legitimation of the far-right’s black-booted, marching brigades in the eastern countryside, Fidesz looks at reinforcing the police’s staff and reputation at a cost of HUF 22 bn (EUR 82 million). Major changes may emerge from corporate tax decreases and the re-establishment of the former (rather generous) system of family and childcare allowances trimmed by the former cabinet. Pledges to shore up domestic housing and construction industry (which have been in the red in the 6^th consecutive year) adumbrate costly infrastructural investments like a programme to construct new council tower blocks for those in need.

On the medium-term agenda, there are many other measures lacking clear budgetary calculus: a programme to increase energy efficiency, a plan for external independence in terms of energy supply (a daunting financial and political task), as well as extended communal work schemes involving EU-funding.

On the top of ideas with hard budgetary consequences there are many regulatory ones as well, including slimmer state bureaucracy, simplified tax rules (‘tax return thin as a beer mat’) and tighter deadlines for paying to suppliers’ in everyday business. These proposals sound wise and are likely to incur popularity for Fidesz. When fixing its muscles, however, the next government may encounter objections by the European Commission when striving to put Hungarian firms on the velvet through public procurements.

In its early stage, a home-grown economic miracle will manifest in higher-than-expected budgetary shortfalls, with expenses occurring immediately and desired effects (higher demand and employment) following with a delay. Therefore, Fidesz will seek to renegotiate Hungary’s stand-by credit agreement with the IMF along softer terms. Fidesz says, the 3.8 pct deficit cap cannot be respected, as the previous government (led by Gordon Bajnai) ‘disguised’ some major state expenses including ministries’ unpaid bills earlier this year. Even if this claim held some truth, puffer sums (some HUF 70 bn) built into the current budget would offset weaker government revenues. However, Fidesz eyes a deficit nearing 6 pct this year, and will push for a renewed IMF-deal that suits this objective. Conversely, Mr Orbán has to bear in mind the consequences this stance might have on recently hectic exchange rates and the debt burdens they entail for 900 thousand indebted households.

Good poets often feel at odds with prosaic self-discipline. Mr Orbán, who is inclined to heroic visions and grand projects will hopefully rely on those ordinary, relentlessly math-minded aids around.