Books on Hungary
% of GDP
Update No: 113 - (26/10/06)
Premier wins vote of confidence
There has been a huge political rumpus in Hungary about the revelation of a
secret speech made by Prime Minister Ferenc Gyurcsany, head of the Socialist
Party, to his party congress in May, which duly was spread abroad on September
18th. It was an extraordinary speech by any standards.
He was caught on tape saying he had lied to the public during the last general
election in April, the previous month, about promised tax cuts. But there was
much more besides.
For a victory speech, it was remarkable for its brutal candour and its theme:
essentially, "We Stink." The prime minister castigated his party and
himself for doing nothing in government for four years, lying to people about
public finances and the need for painful austerity and surviving only by virtue
of "Divine providence, the abundance of cash in the world economy, and
hundreds of tricks."
Some excerpts (translated by the BBC) seem destined for books of quotations:
"We have screwed up. Not a little; but a lot. No country in Europe has
screwed up as much as we have."
"We have obviously lied throughout the past 18 to 24 months. It was
perfectly clear that what we were saying was not true."
"I almost perished because I had to pretend for 18 months that we were
governing. Instead, we lied morning, noon and night."
There have been a series of demonstrations demanding his resignation and calls
also from opposition figures, such as former premier Viktor Orban of Fidesz, for
him to resign. Indeed, Gyurcsany's admission that his party lied in order to win
April's general election led President Laszlo Solyom to accuse him of
undermining democracy and to stand down.
Then came a massive series of reverses for the Socialist Party he leads in local
and municipal elections held on October 1st. Partial results from the polls
revealed the main opposition party, Fidesz, looked set to win 18 of 19 counties
being contested and 19 out of 23 cities. At 53 per cent, turnout was the highest
for local elections since the former communist country returned to democracy in
1990." Although I do not subscribe to the belief that these elections are a
kind of referendum, one must be aware that it strongly expresses the voters'
view on Hungarian politics," he said.
But Gyurcsany insisted he has the full backing of his governing coalition of
Socialists and Free Democrats. Indeed, the fate of his government rests with the
majority in parliament. The coalition in fact reinforced Gyurcsany's mandate in
a parliamentary vote of confidence on October 6th.
Everybody knows that democratic politicians lie all the time. There is a certain
respect for him in admitting as much in his own case. Moreover, the fact is that
the opposition may not really want him to go. If he did, some other member of
his government would take over with a fresh start; whereas he is now seriously
handicapped to lead the socialists at the next election. The opposition then
will be able to tear him apart, with the obvious refrain: "Why should we
believe a word you say?"
Moreover, the economy is in a mess, as he acknowledged in the secret speech.
There are sound reasons for the opposition to let him clear it up.
Nobody doubts that Gyurcsany is a very able man, with a good business brain and
financial acumen galore (he is one of the richest men in Hungary). On his own
admission above he is also a very tricky customer. He was head of the Young
Communists in the late 1980s; he made his millions buying up party properties
for a song after 1989 and turning them into hotels in Budapest, at Lake Balaton
and elsewhere. Perhaps he is the very person needed to turn the situation
Gyurcsany insists budget measures only way forward despite protests
Hungary's austerity package of tax rises and spending cuts was the only way
to ensure long-term economic growth, Gyurcsany said, speaking to reporters
during his visit to London on October 11th. He said Hungary 'needs these
reforms.' Some 10,000 demonstrators rallied in the capital Budapest to renew
demands for his resignation all the same.
After winning re-election on promises of tax cuts, Gyurcsany passed an austerity
package of tax rises, mass public sector layoffs and subsidy cuts in an effort
to rein in the deficit, expected to be 10.1 pct of gross domestic product this
Gyurcsany has pledged to slash the deficit to 3.2 pct of GDP by 2009 in an
effort to stabilize the economy and prepare it for euro zone membership. If he
does succeed here he might win re-election again after all in 2010. Four years
is a long time in politics.
The need to re-establish credit abroad
Gyurcsany admitted that Hungary had lost 'some of our macroeconomic
credibility' in the wake of the revelations, but the 'only way to restore it is
to fulfil' the budgetary programme. He said adjustment of the deficit along with
tax rises had to be implemented along with a programme of investment.
'This is the most complicated challenge,' he said.
EU finance ministers on October 10th gave Hungary until 2009 to cut the budget
deficit, warning it needed to take 'urgent, determined and sustained action' to
tackle the problem. Economic and Monetary Affairs Commissioner Joaquin Almunia
threatened to withdraw 23 bln euros of EU development funds if Hungary did not
The 50th anniversary of the Hungarian Uprising
October saw the fiftieth anniversary of the Hungarian Uprising of 1956, a
rather more serious event.
It is an irony that the upheaval was also set off by the revelation of another
secret speech, Khrushchev's to the assembled throng of party faithful in Moscow
earlier that year, detailing the horrors of Stalin's regime. Marx said of
Hegel's dictum that all great historical events occur twice: "He forgot to
add, the first time as tragedy; the second as farce."
The following are excerpts from Gyurcsany's end-May speech at the faction
meeting in Balatonoszöd:-
Secrets kept secret
"What we could do in the past month, we did it. What we could do in the
preceding months covertly so that no documents would appear in the last weeks of
the election campaign that would have showed what we were up to, we did. We were
hiding this secret knowing that if we won, we would have to get it going,
(because) we never had such a problem."
We have screwed up big time
"We have not much choice. (We have not) because we have screwed it up.
Not just a bit, (but) big time. No country in Europe has ever done anything so
impudent that we did. [...] We have obviously lied over the past one and a half,
two years. It was absolutely clear that what we were saying was not true."
Haven't done anything...
"And all this time we haven't done anything for four years. Nothing.
You cannot mention a single major government measure that we could be proud of,
apart from pulling the government out of this shit by the end. [...] If we have
to square up with the country on what we have done for four years, what will we
"For the immediate term we have no choice. (Finance Minister) Veres is
right. You can play around for a bit longer, but not for too long. The moment of
truth will come swiftly. It was divine providence, the abundance of cash in the
world economy and hundreds of tricks; you obviously don't need to know about,
which helped us survive so far. This is it. We could obviously ponder for very
long and make a f...ing lot of analyses [...] but we don't have weeks for
analysing some more, we don't. We need to tell on the first day what we need to
do in order to have adjustment already this year (and to) have certain laws
entered into force on 1 September."
Property tax no good
"Let's levy property tax on everyone. [...] Do you know how much we
would collect from property tax if we tax every single property that is worth
more than 5 million forints? The balance of the whole thing is less than 20
billion forints. [...]"
Reform or fall
"[...] Reform or fall. There is no other choice. And when I say fall, I
mean Hungary, I mean the left side and I tell you frankly I also mean
It's great to lead a f...ing country
"It is a fantastic thing, doing politics. It's amazing. It is
sensational to lead a country. I managed to go through with the past one and a
half years because I was driven by one thing: to give back the left the faith
that it can do it, it can win. That it doesn't have to bow its head in this f...ing
country. That it doesn't have to shit itself from Viktor Orbán and the right
and that it should at last learn that it should compare itself not to them but
to the world."
"This gave me the faith why it's worth doing this. It was grand. I
loved it. It was the best part of my life. The one (driving me) now is that I'm
making history. And not for the history books, I don't give a shit about them. I
couldn't care less if we're going to be in them, or if I'm going to be in them.
(The question is) whether we will do something big. [...] it's worth being a
politician here in the early 21st century so that we create another world."
Hard to lie
"I almost died when I had to pretend for one and a half years as if we
were governing. Instead we lied in the morning, we lied in the evening. I am
through with this. We either do it and then you've got your man, or you pick
You change! No, you change!
"It is no reform that I tell the others to change. It is no reform how
we stand out in front the people and keep telling them a mantra. The reform is
that we are also willing to rethink what we have thought and done so far.
Compared to this, the task of the first months, the task of the adjustment is a
pure must, I confess. But you're wrong to think you have a choice. You don't and
I don't either. The only choice today is whether we try to influence what is
happening or it will all come down on us."
Get together! Right now! Oh, yeah!
"I believe it can be done. I think there will be conflicts, yes. There
will be rallies, yes. They can go ahead and rally in front of the Parliament.
Sooner or later they'll get bored with it and go home. The only way to see this
through is if you believe in the essence and there is agreement on the essence.
If you sidestep conflicts within (the party), if you get scared of hurting
interests, we must not start (the reforms)."
"Of course, healthcare is complicated. But if you go to a healthcare
institution you see it is built on heaps of lies. [...] Since they know my
mother's name (Katus Gyurcsány) in Pápa, she receives better service, damn it!
She did not understand what was happening. Has the healthcare system been
mended, my son? I tell her: Bullshit, Mom! The truth is that now your family
name rings a bell. That's scandalous. In comparison, the visitation fee is
nothing in social sense. That is no scandal, only cumbersome politically and
uncomfortable to pay...because it can have grave implications politically."
Let's not dick around!
"We must be clear about what we're about to start. The first few years,
of course, will be terrible. It is of absolutely no interest that (only) 20
percent of the population will vote for us. Last summer Szonda said only 18 out
of 100 people supported us. And it was last summer, people! A year later we won.
What if our popularity would be lost because we touch some heavy social issues
and not because we dick around in the party? And it's no big deal if for some
time we lose support. We'll get it back. Because (eventually) they will
F...ing great books about the modern left
"I can only tell you that I won't be playing games this way or that. We
do our job. Until we can go forward at a fast pace, we go at a fast pace. If we
cannot and you explain me that "Yes, but..." I don't think I'm needed
for that. You need someone else for that. And then I'll write some f...ing great
books about the modern left."
OTP Bank receives Ukrainian OK to acquire Raiffeisenbank
Putting an end to market speculations, the Raiffeisenbank Ukraine (RBUA)
announced on October 9th that its Hungarian bidder OTP Bank - Hungary's largest
bank - has already received approval from the Ukrainian Central Bank to acquire
a 100 per cent shareholding, website wiadomosci.onet.pl reported.
"According to the resolution of the bank's Supervision Commission, as of
October 2nd, OTP has received permission to purchase 100 per cent of the
statutory capital of JSCB Raiffeisenbank Ukraine," a RBUA statement said.
OTP signed an agreement to acquire the Ukrainian bank from its Austrian owners
for 650 million Euro on June 1, 2006 and subsequently received the go-ahead from
Ukraine's anti-monopoly body on August 15th.
RBUA officials said earlier that the Ukrainian bank would be renamed OTP Bank
Ukraine. RBUA is the sixth largest bank in Ukraine in terms of assets, capital,
and loan portfolio. The bank services about 110,000 clients and has a network
comprising 16 branches, 25 banking outlets and 17 representative offices around
Ukraine. Furthermore, OTP said it would look to open 60-80 new branches a year
in the mid-term. With foreign subsidiaries in Bulgaria, Croatia, Montenegro,
Romania, Russia, Serbia, Slovakia and Ukraine, OTP Bank is one of the dominant
players on the CEE banking market, with a market capitalisation is around US$
nine billion. OTP Bank Group currently serves more than 11 million clients in
Hungarian market watchdog suspends approval on BorsodChem bid
Hungary's market watchdog PSZAF on October 2nd suspended an approval procedure
on First Chemical Holding's bid on the shares of chemicals producer BorsodChem,
website portfolio.hu reported.
First Chemical Holding Vagyonkezelo Kft (FCH) submitted to PSZAF on September
19th all relevant documents for approval of a public purchase offer for all
registered ordinary shares of chemicals producer BorsodChem(BC), at a price of
3,000 forints per share.
FCH had been appointed as bidder by members of the Kikkolux Group, which is
controlled by certain Permira Funds and the VCP group. Following the ruling, the
procedure was suspended until another administrative procedure, inspecting the
compliance with regulations on acquisition, is concluded. "The suspension
could delay the process by a few weeks the most," Barbara Janos of KBC
Securities commented on the issue.
"The likely reason behind the delay is that PSZAF was unable to finish the
testing in time, whether the deal matches with Hungarian takeover rules, or
not," she added.
According to the rules on the process, after receiving a request, PSZAF has 15
days to make a decision. PSZAF can extend this by 10 days only in case of
missing documents. However, this was not the case this time, so PSZAF had to
suspend the deal until it finishes the testing. Janos said it could take few
more weeks the most.
Fitch cuts country's outlook to negative
The international rating agency, Fitch, recently changed its outlook on
Hungary's rating to negative from stable, saying that "recent developments
have increased the chances that the government's much-needed reform program,
spearheaded by the prime minister, will be diluted," news agency
The agency indicated that progress with reform was necessary to revert back to a
The foreign currency and local currency IDRs were affirmed at BBB+ and A-,
respectively. The large agencies, recently Fitch, had first downgraded Hungary
as early as the end of 2005.
Meanwhile S&P also said recently that the change in composition of the
government or continued violence could result in them lowering their ratings.
Another renowned rating agency, Moody's, kept Hungary's rating unaltered since
2002, when the agency upgraded on the basis of the forthcoming EU accession,
just after the government introduced serious spending increases.
The move, among other things, included a surge in government employees' wages by
50 per cent. However, Moody's changed its outlook to negative in February this
year, but the actual rating was still retained at A1, three notches above
S&P and Fitch.
The agency said in mid-August that it was waiting for Hungary to implement
measures aimed at cutting state spending, probably after October's municipal
elections, in order to review the country's ratings.
Before the spring election the government insisted it would meet its 2006 budget
deficit target of 6.1 per cent of GDP (despite the cash-flow deficit reaching 50
per cent of the year-end target by the end of the first quarter) and insisted
that the economy was in excellent shape and the 2010 Euro target was realistic.
MOL buys out Russian partner in Siberian exploration
Hungarian fuels group MOL on October 9th announced the signing of an agreement
with its Russian joint venture, North-West Oil Group (NWOG), to buy 100 per cent
of the company, website portfolio.hu reported.
MOL paid US$15.5 million for NWOG, which owns the exploration licence in the
Surgut-7 exploration block in Western Siberia. Analysts mostly supported the
move and said they were expecting a positive outcome.
MOL may join Blue Stream project
The Hungarian company MOL could join the Blue Stream project as an investor and
consumer of gas, Bogdam Budzukyak, a member of the Gazprom board and the head of
Gazprom's department for transportation, underground storage and use of natural
gas, told reporters in Irkutsk on September 21st. He said the Blue Stream-2
project would increase the capacity of the pipeline from 16 billion cubic metres
to 24 billion cubic metres, news reports said. The new pipeline is expected to
go across Turkey. On September 14th this year Gazprom CEO, Alexei Miller told
Russian president Vladimir Putin that Gazprom was considering the possibility of
building the Blue Stream-2 pipeline. The Russian gas monopoly has allied with
Hungary's MOL to work on the project, and the technical and economic feasibility
study would be prepared by the end of the year. The Blue Stream-2 pipeline will
pump Russian gas to Greece, Italy and Israel.
FOOD & DRINK
Catelli to launch 100 mln Euro project in Hungary
Amidon Kft, the Hungarian subsidiary of Italy's leading food processing company
Catelli Holding SpA, recently unveiled its plans to build a 100 million Euro
facility in Miskolc (northeast Hungary) that would create some 5,000 jobs,
website portfolio.hu reported.
According to a report by business daily Napi Gazdasag, Amidon would be building
five facilities in Miskolc, including an apple jelly plant, a unit producing raw
materials for drugs, a bioethanol unit and a logistics centre. The facilities
are expected to directly create 2,000 jobs and another 3,000 via suppliers.
Chinese vice premier hails bilateral cooperation
Visiting Chinese Vice Premier, Zeng Peiyan, exchanged views on September 20th
with Hungarian Minister of Economy and Transport, Koka Janos, on expanding and
deepening bilateral economic and technological cooperation, website
At the meeting with Koka, Zeng hailed the smooth and fast economic and
technological cooperation between the two countries in recent years, and said
that Hungary has become an important economic and trading partner of China in
Central and Eastern Europe. He also expressed China's willingness to further
expand the fields of cooperation and lift the levels of cooperation with Hungary
to promote an all-round cooperation between the two countries.
Siemens wins 109m Euro order for driverless metro in Budapest
Siemens AG, Germany's largest maker of trains, recently announced the winning of
a tender to install the latest control and safety equipment for driverless
operation on Line 4 of the Budapest metro, which is currently under construction
in the Hungarian capital, website railway-market.pl reported.
On completion, this will make the new route the first fully automated metro line
in Hungary. The order, worth about 109 million Euro was placed with Munich-based
Siemens Transportation Systems by the Budapest Transport Company (BKV). Fully
automatic operation of the new Line 4 would enable a maximum speed of 80
kilometres per hour and headways of 90 seconds, a Siemens statement explained on
October 9th. "It will also make it possible to adapt the number of vehicles
in service to changes in the number of passengers much more quickly and
flexibly," it added. Budapest's new metro route passes underneath the River
Danube and connects the municipal districts of Kelenfold (South Buda) and
Rakospalota (East Pest).
With a total of ten stops, the line runs entirely below ground and its first
section is 7.4 kilometres long. The scope of supply also includes a fully
automatic depot. This is located above ground in the vicinity of Kelenfoldi
station and, when completed, will be used for servicing and maintenance of the
metro vehicles. The new line is to be opened in May 2010. The order may help
Siemens restore its image in Hungary, following the temporary withdrawal of some
Budapest trams from service in July to fix problems, such as irregular power
supply or faulty doors that appeared a couple of weeks after the vehicles