Books on Hungary
% of GDP
Update No: 114 - (28/11/06)
The honest liar and cheat
Ferenc Gyurcsány, who is 45, is the Prime Minister of Hungary. He was nominated
to take on that august office on August 25, 2004 by his party, the Hungarian
Socialist Party, after Péter Medgyessy resigned due to a conflict with its
Gyurcsány was elected to be Prime Minister on September 29, 2004 with a
parliamentary vote (197 yes votes, 12 no votes, and the greatest opposition
party in Parliament not voting). He led the coalition to victory in the
parliamentary elections in April 2006, securing him another term as Prime
But this was achieved in a highly controversial way. He admitted in a not so
secret speech to his party conference in May that he and the government had
"lied, morning, evening and night" to get re-elected. The whole speech
is remarkable for its candour about his own mendacity and chicanery with the
public. It is likely to become a classic.
There was predictably a public outcry when the speech was revealed and published
in September. Indeed demonstrations in Budapest lasted for weeks and the
opposition, and the president, demanded his resignation. But he refused to budge
and looks as if he will stay.
The economy is in a mess, with the budget deficit reaching a staggering 10% of
GDP. Let him clear it up, many must be thinking in the opposition. We can come
Committee set up to investigate street disorders
The government has convened a committee to investigate the street violence over
the past few weeks, which was perpetrated by some hooligans, but also the
police, who used rubber bullets and sabers, mounted on horseback.
That the heavy-handed methods of the police were responsible for the way in
which the events unfolded on October 23rd in particular, the 50th anniversary of
the 1956 Hungarian Uprising, seems incontrovertible. Many foreign observers,
including a television crew from the ZDF, a German station with past experience
in covering protests and civil unrest, admitted that the Hungarian police were
This aggressiveness could be seen in the aftermath of the violence: over 100
injured, the vast majority being peaceful protesters. Although the authorities
point out that there were no life-threatening injuries, this still doesn't mask
the brutality with which the Hungarian police put down the demonstrations.
A large number sustained injuries from rubber bullets, many of them with shots
to the head. One person was shot in the eye, and an opposition member of
parliament not only was shot in the head, but also had several ribs broken.
There were also injuries resulting from police on horseback using sabres, with
some people sustaining slash wounds to the head.
The committee to investigate these events will neither study secret documents,
nor accept assistance from any political party, committee chairman, Katalin
Gonczol, told a national daily on November 9th.
Gonczol, who is a criminologist by profession and served as Hungary's first
ombudsman after the democratic changes in 1989-1990, said the committee would
consider summary reports by civic organisations, including the Helsinki
Committee, the Hungarian Civic Liberties Union and Amnesty International,
analyse archived media reports, examine the related legal practices in Hungary
and elsewhere, and study the rulings of the Constitutional Court and the norms
of the Council of Europe.
The committee, however, will not deal with individual complaints which fall into
the competence of police and public prosecution. Interviewed by Magyar Hirlap,
Gonczol said the committee has access to several documents focussing on the
historical and mass psychological aspects of violence, but the major reports of
police and the prosecutor's office only became available on November 30th.
The committee is expected to compile a report within 60 days, that is by early
A senior member of Hungary's opposition explains why, 50 years after the
anti-Soviet uprising, Hungarians are back on the streets
György Schöpflin is a member of the European parliament for the Hungarian
50 years ago, Hungary's revolution brought it to the centre of world attention.
This September saw another crisis in the country, when the left-wing prime
minister, Ferenc Gyurcsány, was caught admitting to having lied to his country
for years in order to win re-election. On 17th September, a recording was
released of a closed-door meeting of Gyurcsány's MSZP party, dating from May,
in which he told his fellow members that they had only won the general election,
held a month earlier, by lying about the state of Hungary's economy.
Mass demonstrations and protests followed, some of which turned ugly and
violent. But on 23rd October, the 50th anniversary of the 1956 revolution, the
police dispersed a peaceful and legal commemoration with singular brutality. The
chief of police subsequently refused to answer questions put to him a by
parliamentary committee and blandly denied all charges of brutality, despite
photographic evidence and eyewitness accounts.
Gyurcsány is hanging to his office like grim death, and has successfully
persuaded his socialist colleagues in Europe to back him. They cheer him on,
thinking that he is the only one who can lead Hungary out of its appalling
economic mess, forgetting that he and his government got Hungary into the mess
in the first place. A four-year spending spree, coupled with lack of
transparency and accountability, hardly makes a convincing basis from which to
launch an austerity programme. The opposition Fidesz party in Hungary agrees,
and so do the majority of voters, who gave MSZP a thumping thumbs-down at the
local elections on 1st October.
For the average Hungarian, however, the worst is yet to come. The massive
overspending by the left, coupled with a bloated state bureaucracy and
overregulation, means severe belt-tightening, including for people who have
nothing to tighten. The budget deficit is likely to be over 10 per cent by the
end of the year. Real incomes may shrink by up to 10 per cent over the next few
months. Health and education services are being cut. Budapest is on the verge of
bankruptcy. The falling value of the forint against the euro will mean hardship
for the two fifths of homeowners whose housing loans are denominated in euros or
But if the economic crisis is shocking, the political crisis is worse. The
crowds which demonstrated outside parliament called for Gyurcsány's immediate
sacking, and Fidesz put itself at the head of this mass movement. This actually
gives popular anger a political focus; matters would be much worse if the
population acted wholly spontaneously. But Fidesz can only go on playing this
role if the left makes the minimum political concession of dumping Gyurcsány.
Of course, if they do get rid of him, the left will quite likely fall apart;
there is no credible successor. Even if someone is found, he or she will find it
very difficult to establish authority and rebuild the trust needed for the
economic reforms to succeed. And that means that the population will not wear
the austerity package. If, on the other hand, the left collapses and agrees to
new elections, it will be wiped out, and it knows it. Both the rock and the hard
place are battering the Hungarian left.
Compounding these problems is the fact that in power, the left has
systematically dismantled or marginalised the autonomous institutions that
ensure that government power is exercised legally and responsibly. The Hungarian
National Bank, the Chief Prosecutor's Office, the financial supervisory
authority and the Central Statistical Office all came under pressure of this
kind. Meanwhile, the pliant media, which has largely followed the government's
line that everything is fine, has made it even harder to prepare Hungarian
opinion for the hardships ahead.
The opposition's proposed solution is that for a one year, a government of
technocrat experts should take over. This interim government would have a
twofold task-to establish the real economic situation and to work out a reform
package. Gyurcsány's government has freely admitted to cooking the books. No
one doubts that severe economic restrictions are unavoidable, but the left's
complete loss of credibility means that its remaining in power is part the
problem, not the solution.
Audi suspends investment over austerity package
German auto manufacturer Audi on October 20 said that it would suspend further
investment in Hungary as economic conditions were worsening due to a government
Audi Hungaria spokeswoman, Monika Czechmeister, told online financial portal
portfolio.hu, cited by Deutsche Presse-Agentur (dpa), that the company would
pump no more money into its plant in the north-western city of Gyor, until a
deal could be brokered with the government. "We hope an agreement will be
reached soon," she said.
Audi reportedly was uneasy over a four per cent "solidarity tax" to be
levied on the firm, despite the government previously granting tax relief to the
"Hungary guaranteed Audi Hungaria a tax-free environment until 2011, but
the new solidarity tax will also touch us according to the government's current
standpoint," the company's Managing Director Thomas Faustmann told the
However, Faustmann said it wasn't about the tax itself but about whether or not
the company could trust the government. "It is not the size (of the tax),
but whether one can take an economic framework agreement made with the Hungarian
government seriously," he said.
The manufacturer was yet to quantify the size of the suspension, but speculation
in daily Nepszabadsag put the figure at 160 billion forints (US$611 million).
Audi employs more than 5,000 people at its plant in Hungary and has invested
billions of Euro since it set up in 1993. Faustmann said that the average annual
investment in recent times amounted to 250 million Euro (US$315 million.) Last
year, the plant produced 1.69 million engines.
The government earlier this year introduced a wide range of new taxes and
increases to existing taxes as part of an austerity package. The austerity
package, which has been approved by the EU, aims to cut the nation's budget
deficit from 10.1 percent this year to around three percent in 2009 with a view
to adopting the Euro.
However, Hungary has consistently missed targets and moved the goalposts in the
past, and many analysts have raised questions over the package. The main concern
is that it focuses too heavily on tax increases, and not enough on cutting back
on a bloated state.
Fears of a slide in the economic plans have also been stoked by protests sparked
by Prime Minister Ferenc Gyurcsany's admission he had lied about the state of
the economy before April's general elections. Gyurcsany managed to ease concerns
by winning a vote of confidence, but protests are continuing and the main
opposition party has vowed to cease all cooperation with the government.
Hochtief set to buy Budapest Airport
German construction group Hochtief AG on October 20th confirmed earlier rumours
announcing plans to acquire a majority stake in Hungary's Budapest Airport from
BAA as part of a consortium. Financial details were not disclosed. BAA, which
was recently bought by Spain's Ferrovial, owns a stake of 75 per cent minus one
share in Budapest Airport, New Europe reported.
It acquired the rights to operate the airport for 464.5 billion (1.8 billion
Euro) in December 2005. BAA's new strategy, developed upon the purchase by
Ferrovial, focuses attention on developing BAA's UK airports, rather than on
BAA's international businesses. BAA was reportedly considering parting with its
Ferihegy stake and other international airport interests, as part of a broader
asset disposal strategy. Hochtief, which holds nearly 50 per cent of the shares
in the consortium interested in buying the Hungarian facility, said the other
members were Caisse de Depot et Placement du Quebec from Montreal and Germany's
state-owned bank KfW.
Earlier, Hungarian Finance Minister, Janos Veres, made clear that any potential
buyer of BAA's stake in Budapest Airport would be bound by the privatisation
agreement commitments to investment, development, growth and employee rights
that BAA had signed in December 2005. Hochtief was runner-up in Budapest
Airport's December sell-off and filed a lawsuit late last year against Hungary's
State Privatisation Holding (APV) after losing to BAA, only to later withdrew
the legal action.
Four bidders in for debt-ridden airline Malev
Four bidders have submitted offers for the debt-ridden Hungarian state airline,
Malev, Hungary's State Privatisation and Holding Company (APV) announced on
November 3, New Europe reported.
AirBridge, which is controlled by Boris Abramovich, the owner of Russian airline
KrasAir, a group of Lithuanian investors, Sky Alliance, a company set up by
Malev pilots, and an independent businessman backed by Irish investors, all
submitted bids for the 99.5 per cent stake by the November 3rd deadline. This is
the seventh attempt to sell off Malev, which is over 30 billion forints
(US$146.9 million) in debt, despite substantial state aid. The airline has not
posted a profit for over a decade. APV has said Malev's new owner should have
enough capital to ensure the airline's operates at a profit, to preserve its
role as Hungary's national airline and continue the process of joining the
Oneworld alliance of airlines. The last attempt to sell Malev was called off
when the government failed to reach an agreement with Airbridge, which had
reportedly been prepared to lash out over 40 billion forints for the firm,
including taking on its debt.
MOL to unite with Romgaz in gas deal
Romanian gas company Romgaz would be teaming up with Hungarian oil and gas group
MOL outside Romania's borders to expand its natural gas exploration activity,
Romanian daily Ziarul Financial reported on October 19th citing anonymous
The paper said Romgaz and MOL started talks after the Romanian gas distributor
won a supply tender of MOL. Negotiations were still underway. Romgaz intends to
increase its storage capacity by 2008 via building new containers and expanding
the existing ones that would enable the company to store up to four million
cubic metres of gas. The output of Romgaz is 6.5 billion cubic metres a year,
which satisfies about half of the country's needs.
FOOD & DRINK
Tesco creates new jobs in food retail market
Tesco-Global stores recently announced it would create more than 700 new jobs in
Hungary as part of an expansion in the food retail market, despite what it
described as "a difficult market." These jobs would come in addition
to 1,500 new jobs already created by Tesco's this year, of which ten per cent
are management positions. As part of a larger expansion within the market Tesco
plans to increase it's workforce to 19,000 by the end of 2006, New Europe
"Our store opening program is on track, so far this year we have opened 10
new stores and 11 new petrol filling stations, bringing even better prices and
choice to our customers," said James McCann, CEO of Tesco-Global stores,
Hungary, in a statement. Tesco's interim results 2006/7 revealed that consumer
confidence and sales had fallen as a result of increases in tax and VAT leaving
shoppers with less to spend. By offering low prices Tesco claims to have made
overall sales progress despite the difficult climate.
Ukrainian president comes to visit, talk in Budapest
Ukrainian President, Victor Yushchenko, on October 24th met with Hungarian
President, Laszlo Solyom, for talks in Budapest. He praised the dynamics of
economic and parliamentary cooperation between Ukraine and Hungary, thanking
Hungarian MPs for unanimously passing a resolution to recognise the Holodomor as
genocide, the president press office said, New Europe reported.
President Yushchenko and President Solyom spoke about Euro-Atlantic integration.
The Hungarian leader said he wanted relations between Ukraine and the EU to be
more active than stipulated by the Ukraine-EU Action Plan. Discussing border
cooperation, Solyom reportedly commended Ukraine for helping deal with floods in
the border zone. They also spoke about energy issues. Victor Yushchenko
reiterated it was important for Ukraine to integrate into Europe's energy
network. The two leaders also discussed ways to ensure the observance of
national minority rights. Yushchenko described Ukrainian-Hungarian cooperation
in this area as "perfect in the region of Central-Eastern Europe."