Books on Hungary
% of GDP
Update No: 112 - (26/09/06)
The honest liar snatching defeat from the jaws
Budapest has been shaken by riots after the leak of a secret speech by Prime
Minister Ferenc Gyurcsany delivered to his Socialist caucus in May, shortly
after they had won re-election in April. The recording was leaked to several
media, including online news portals and the national radio on September 18th,
when he was meeting Putin in Sochi, perhaps not so insignificant a concurrence
of events, as we shall see.
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."
It immediately led to a huge uproar, with demonstrators denouncing him and
demanding his resignation, while besieging parliament and the main TV station.
This carried on for several days and nights.
In reaction, Hungary's credit rating and currency have plummeted. While
thousands have staged mainly peaceful protests demanding the prime minister
resign, rough elements have engaged in occasional violence, a boon to the
government, which is ascribing the demonstrations to right wing extremists and
football hooligans. At the very least, however, Gyurcsany is in for some tough
He was quick to react and published the transcript of his entire speech on his
Internet blog. He said he does not mind that the recording, with him being
decidedly foulmouthed, is now available for the public. He also said he is not
ashamed of his phrases he used and that he is even proud of the passion with
which he formulated his words. The "lyrics" of this song, however, are
far less important than the "music", which the PM is to face either
from the opposition or the voters who put him back to power.
The Socialist Party (MSZP) and the liberal Free Democrats (SZDSZ) were voted
back to power in April this year, beating centre-right Fidesz and the
conservative Hungarian Democratic Forum (MDF).
While in their election campaign the MSZP and the SZDSZ promised tax cuts,
besides a number of other favourable measures, the government announced a fiscal
adjustment package already in June. The austerity measures e.g. tax and
contribution hikes, price increases, etc. are needed for Hungary to slash its
bloated budget gap - en route to hit 10.1% of GDP this year - to 2.9% by 2009, a
target set out in its revised euro convergence plan submitted to the EU on 1
"We have not much choice. Because we have screwed it up. Not just a bit,
(but) big time. No country in Europe has ever done anything so imprudent 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," Gyurcsany said at
a faction meeting of the Socialist Party in late May in Balatonoszod.
"... the real question in Hungarian politics is not anymore who lied and
when, but who is the one that can put a stop to this," the PM said in the
foreword of his blog note.
"Who is it that dares to face - honestly, sometimes passionately and with a
loose tongue - the lies and half truths of the past 16 years? We did it,"
he added. He also criticised the right wing (Fidesz) for lacking this courage,
adding, however, that these lies were to be blamed equally on the right and
Gyurcsany pledged that he "would not back down," quite the contrary,
he will represent what he believes in "even more passionately."
Public anger mounts
One can assert with confidence that any premier talking like this in a
Western country would find himself out on his ear in no time. But Hungary is not
a wholly Western country yet.
Of course it is an irony that nobody doubts the truth of his speech. He is a
serial liar and opposition leader, Viktor Orban, whose centre-right FIDESZ party
lost in the elections, demanded the prime minister's resignation, describing him
as "a sick, lying dilettante."
Is this going to be the moment of truth, which sees another colour revolution?
Somebody perhaps had that idea in releasing the tape when he was in Ukraine
after all, the country of the Orange Revolution in 2004. It could be called
"The Pest Revolution," since it is on the Pest side of the Danube that
political life of the country is conducted, for instance in parliament. Any
perusal of his speech would convince most people that he is a pest all right;
see excerpts at the end.
He is known to have made his millions in a shady way a la Russe, exploiting his
leadership of the Young Communist League to pick up government properties for a
song in the last years of communism, which he turned into hotels.
Protesters accused the governing coalition of lying to win the April elections,
but people also were upset over tax increases and other economic austerity
measures that Gyurcsany has ordered over the last three months.
But Gyurcsany said he intended to weather the storm. "I'm staying and I'm
doing my job. I'm extremely committed to fulfilling my programme, fiscal
adjustments and reforms," he told The Associated Press. "I know it's
very difficult for the people, but it's the only direction for Hungary."
PM Wants Opposition Talks
Gyurcsany has invited opposition leaders to hold talks on how to deal with
the wave of protests and violence. He has vowed that the government will not
tolerate any more trouble. The opposition has rejected the call. One spokesman
said it made no sense to talk to the government, but it would be prepared to
meet the president and the speaker of parliament.
Demonstrators outside the parliament are continuing their calls for his
resignation. The main opposition party is vowing to keep up the pressure on the
prime minister. It called off a rally in Budapest on September 23rd, however,
fearing a renewal of violence and biding its time until the results of municipal
elections on October 1st are known.
October is going to see the fiftieth anniversary of the Hungarian Uprising of
1956. History may be in the making again, with a successful revolution this
It is an irony that that event 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. " Quite.
The following are excerpts from Gyurcsany's end-May speech at the faction
meeting in Balatonoszod:-
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 Orban and the right and
that it should at last learn that it should compare itself not to them but to
"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 Gyurcsany) in Papa, 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."
Putin meets Gyurcsany in Sochi
The crisis-plagued government under Prime Minister Gyurcsany seems to have
embarked on a "third-path" course between the institutional West,
where Hungary belongs, and Russia toward which Gyurcsany and his closest
associates seem increasingly to gravitate. The concept of a "Third
Path" (Harmadik Ut) between the West and Russia has antecedents in
Hungary's right-populist and left-populist thought before and after World War
II; but it has lost its rationale and forfeited any legitimacy since Hungary
became a member of the European Union and NATO.
Hungary's choice between the EU's and Gazprom's rival grand projects -- the
Nabucco pipeline for Caspian gas or the South European Gas Pipeline for Russian
gas -- has become a touchstone of the Gyurcsany government's allegiances.
Although the EU has declared its project to be a high priority for European
energy security, Hungary's government is holding talks with both sides while
quietly signalling to Russia and Gazprom an actual preference for the latter
On September 18, Gyurcsany discussed this and other issues with Russian
President Vladimir Putin in Sochi. On the same day in Budapest, a political
crisis broke out when public television aired the recording of a secret
Gyurcsany speech to his Socialist party cadres, in which the prime minister
openly and repeatedly admitted to have "lied" to the country. The
government, he said, had concealed the gravity of the economic situation and
doctored statistics in order to win re-election.
In the concluding news conference with Putin in Sochi, Gyurcsany acted as a
sounding board on energy security. Implicitly and at times explicitly, he
distanced Hungary from the EU's evolving position on this and other issues.
Endorsing the idea of mutual dependence between the Russian state monopoly
Gazprom and European consumers, Gyurcsany obliquely cautioned Europe,
"Those who do not understand something here will sooner or later go bust.
We, Hungarians, do want to understand Russia" (NTV Mir, September 18).
Europe needs not just a common energy policy, Europe needs an open and
goodwill-based cooperation with Russia, and we are linked to one another for
long times to come. Russia offers a wonderful example of how to build these
relations." Hungary's bilateral deals with Russia on gas transport and
other energy projects, Gyurcsany went on, "Do not contradict, but rather
favour Europe's interests by making energy supplies more reliable and
predictable" (a remark contradicting the EU position on the high-priority
Alluding to critics back home, Gyurcsany assured Putin, "We are determined
to build relations with Russia for the long term ... for which we sometimes must
wage a fight in our own country" (Interfax, September 18). He also took
pride in his ability to "find instant understanding with the president of
Russia." Reporting the Sochi news conference, the independent daily
Kommersant described Gyurcsany's ingratiating behaviour toward Putin and
merriment over this in the audience (Kommersant, September 19).
No new understandings seem to have been reached in Sochi about building
Gazprom's South European Gas Pipeline (SEGP) from Turkey to Hungary. Bilateral
Russian-Hungarian discussions on this project began in February, intensified in
June and July (see EDM, June 30, July 3) and are ongoing, indicating the
Hungarian government's tilt in that direction, despite its having joined the EU-backed
Nabucco consortium for Caspian gas. Gazprom and Hungary's dominant energy
company Mol (a Nabucco member) have created a joint company to study the
feasibility of building transit and storage capacities in Hungary, targeting
countries farther to the West.
Gazprom proposes to extend its Blue Stream pipeline -- which carries Russian gas
via the Black Sea to Turkey -- by building the SEGP through the same countries
that have joined the Nabucco project: Turkey, Bulgaria, Romania, and Hungary,
with a further extension to Italy. A choice of SEGP over Nabucco would institute
Hungary instead of Austria as the European hub for the planned pipeline.
According to most experts, Gazprom's project could kill the EU's Nabucco because
both projects target the same markets.
Moreover, Nabucco is racing against Gazprom to line up supply volumes and
markets. Hungary's separate negotiations with Russia tend to generate
uncertainty about Nabucco's viability and could discourage investment in that
project. Gazprom would characteristically impose such long-term arrangements
through SEGP that lock the consumer countries in and any competing suppliers
out. As part of its tactics, Gazprom even proposes to supply part of Nabucco's
gas volumes -- a move that would defeat the EU's goal to diversify the suppliers
to these countries. The Hungarian government's position directly and indirectly
facilitates Gazprom's tactics.
On some other European issues as well, the Hungarian government's official
discourse has acquired some nuances and emphases that tend to suggest a special
understanding of Russia's positions. In Sochi, Putin exploited this opening by
holding up Hungary as an example to other EU and NATO countries: "While a
member of NATO and the EU, Hungary finds the way to promote its national
interests through cooperation with others, including Russia …
Russian-Hungarian relations can serve as an example in this regard" (Interfax,
Gyurcsany, one of Hungary's wealthiest businessmen, has in recent years
established his control on the Socialist Party. By filling the foreign affairs
minister's post with a psychologist, Kinga Goencz, who lacks foreign-policy
experience, the prime minister essentially controls foreign policy as well.
Economics Minister Janos Koka, who runs the negotiations with Gazprom, is also a
business tycoon. He leads the Free Democrat Party, junior party in the coalition
government. The quality of leadership groups in both parties has deteriorated
markedly since the days when they shepherded Hungary's successful post-communist
transition in the 1990s.
Banking group Erste plans further acquisitions
Austrian banking group Erste Bank AG aims to expand its position in Central and
Eastern Europe (CEE) and plans further acquisitions, first in Croatia and
Hungary, and also in Slovenia, the Austrian Press Agency (APA) reported on
September 14th, citing a spokesman for the group. The spokesman noted, however,
that there are no negotiations on possible takeovers underway at the moment, New
He added that there is no need to fear any hostile takeovers, which would not be
suitable in the banking sector anyway. Erste Bank Hungary Nyrt is Hungary's
fifth biggest bank by total assets. It ended the first half of 2006 with IFRS
after-tax profit of 10.7 billion forints and total assets of 1.687 billion
forints. Profits rose 26.3 per cent from the same period a year earlier and
total assets rose 37.2 per cent from twelve months earlier.
The Hungarian unit became one of the major local banks after its parent
purchased Postabank Rt in a privatisation deal for 396 million Euro (101 billion
forints at the time) at the end of 2003 and merged it into its existing
Hungarian bank in the autumn of 2004.
OTP submits binding bid for Montenegrin bank
Hungary's OTP Bank recently submitted a binding bid for the purchase of a
majority, at least 80 per cent shareholding, in the Montenegrin Crnogorska
komercijalna banka AD (CKB) of Montenegro, a OTP statement revealed,
Currently, CKB is the most dominant player in the Montenegrin banking sector.
Its market share exceeds 43 per cent, in line with its total assets, which
reached 303.7m Euro at the end of 2005. "OTP Bank's binding bid contains
the price and the draft sale and purchase agreement, as well.
OTP bank sees surge in profits after expansion
The National Savings and Commercial Bank of Hungary, OTP, reaped the fruits of
its regional expansion recently as it announced an almost 23 per cent jump in
profits over the same period last year, New Europe reported.
A statement from the Budapest-based bank said that after-tax profits in the
second quarter of this year had surged to 46.7bn forints, an increase of 22.7
per cent over 38.1 billion forints at the same point in 2005. The bank has
embarked on an expansionist strategy, targeting acquisitions in its regional
neighbours such as Ukraine and Serbia, and has spent billions of dollars over
the last five years. The final profit target for this year is 185 billion
forints, but the bank aims to push this much higher in years to come. The bank
said that it would raise its profit target for 2010 to 345 billion forints from
318 billion, despite the fact that it expects to lose money in the coming years
due to tax increases brought in by the government in an attempt to lower
Hungary's budget deficit. OTP said it expected to lose nine billion forints in
2007 due to the government package, but that it expected new acquisitions to add
over 20 billion to profits.
OTP Bank issues 300 million Euro bond
Hungary's OTP Bank announced on September 13th that it had updated its one
billion Euro foreign currency denominated EMTN Programme (European Medium Term
Note Program) to three billion Euro, New Europe reported.
Under the EMTN Program, OTP Bank issued fixed rated subordinated bonds in a
total nominal value of 300 million Euro to finance the current acquisitions of
the bank on September 13th. The lead managers of the successful bond issue
(which attracted more than 40 per cent over-subscription of the accepted amount)
were Calyon and Citigroup. The 300 million Euro nominal value bonds were issued
at 100 percent of the face value with September 19 as the payment date, and
September 19th, 2016 as the maturity date. The bond bears a coupon of 5.27 per
cent, with annual interest payments. The bonds were pending introduction at the
Luxembourg Stock Exchange.
S&P'S warns economic risk over growing forex loans
A boom in foreign currency lending is a growing risk to banks and economies in
Central and Southeast Europe, according to a report by Standard & Poor's
(S&P's) credit rating agency, website Euro2day.gr reported.
A recent report from S&P's recently sternly cautioned Hungary on its
combination of high forex lending - particularly to unhedged consumers and small
businesses - high exchange rate volatility and a looming economic slowdown.
S&P's also issued a general warning for the "banks and economies in
Central and Southeast Europe" for the surge in foreign currency lending,
which it termed as "a growing risk." The agency said no ratings
downgrades were imminent for any of the region's banks due to their foreign
currency loan exposure.
But, the report warned that any strong currency depreciation or an economic
recession, "both of which appear possible in Hungary," could bring
about a more severe scenario. "The magnitude of a financial crisis in
Hungary, whether linked to fundamental or speculative/volatile moves from the
financial markets, would be amplified by the direct impact of currency
devaluations on individuals with forex mortgage loans," the report said.
Hungary's forint has dropped about 10 per cent thus far this year against the
Euro due to concerns over the country's budget deficit and jitters in global
emerging markets. The currency is considered the most vulnerable in the region
to further weakening. Hungary recently introduced a budget austerity programme
to restore fiscal order, but analysts had already issued warnings that such a
move might halve the country's economic growth to about two per cent next year.
In addition to Hungary, S&P's labelled Romania "high risk" for its
exposure to foreign currency lending. Croatia and Poland were ranked as the next
most vulnerable or "medium risk" in the report.
At the end of 2005, foreign currency loans totalled more than half of all
outstanding credits in Hungary, being counted at 51 per cent. It was only
surpassed by Romania (54 per cent), Bulgaria (52 per cent) and Croatia (78 per
cent). Adding to worries for Hungary, S&P's noted, forex loans given to
individuals saw a dramatic growth since the beginning of 2006. Retail forex
loans now total about a third of all forex loans in Hungary, according to the
report. "Individuals and small companies pose a greater risk than large
corporate borrowers because they generally lack revenues or reserves in foreign
currencies. They are, therefore, fully exposed to exchange rate
fluctuations," the report read. "Borrowers of foreign currency loans
must repay them in domestic currency, meaning monthly payments rise when the
local currency weakens," it explained.
Messer to make big investment in Hungary
Industrial gas firm Messer group has decided to make investment of forint 10
billion in Hungary over three years, New Europe reported.
Chief Executive of the Hungarian unit, Messer Hungarogaz, Johann Ringhofer said
that the company is planning to spend 10 billion forint in the next three years
and also wants to invest another 43 billion forint in this part of Europe so
that it can supervise the projects from the Hungarian office. Messer group is an
oldest name in field of industrial gases with a market share of over 40 per
cent. It is one of the strongest players on the Hungarian market. In 2005 the
company had posted forint 10.5 billion revenues, up 7.1 per cent from the
The name Messer has been associated with expertise in industrial gases for more
than 100 years. Messer Group manufacture and supply oxygen, nitrogen, argon,
carbon dioxide, hydrogen, helium, inert welding gases, special gases, gases for
medicinal use and a wide variety of gas mixtures. The Hungarian unit, with a
market share of over 40 per cent, is one of the strongest players on the
domestic market. The company posted 10.5 billion forint revenues in 2005, up 7.1
per cent from a year earlier. It also had investments in the volume of Ft 1
billion and run with a staff of nearly 260 people.
Building up bilateral cooperation with Ukraine
A recent visit to Ukraine by the Hungarian Parliamentary Speaker, Katalin Szili,
proved worthwhile in cementing ties between the countries as the two spoke about
boosting business relations. Ukrainian President, Viktor Yushchenko, called for
the creation of a free trade zone between his country and Hungary, Interfax News
"We need to set out a policy for a swift transition to a free trade
regime," Yushchenko was quoted as saying at a meeting with Szili on
September 13th, where they discussed bilateral relations in the context of
Ukraine's aspirations to European integration.
Ukraine has been seeking EU membership since Yushchenko came to power following
a popular uprising in 2004. The country is now implementing a three-year action
plan to bring its standards closer to European norms, the president said.
Simultaneously, the country is working to establish a free trade zone with the
EU and sign an associated membership agreement as early as in 2007, which will
later allow it to seek permanent membership in the union.
"We understand this is not an easy road, and we need partners here,"
the presidential press office quoted Yushchenko as saying. Szili said Hungary,
which joined the EU in 2004, would back the signing of a new agreement between
the EU and Ukraine in 2007, which will confer associate membership in the
25-nation union on the former Soviet republic.
Moreover, the two countries have been cooperating on border issues, such as
controlling contraband. Contraband cigarettes worth more than 38.5 million
forints (US$177,478) had been seized on the Hungary-Ukraine border in four
separate operations recently, a border guard spokeswoman announced on September
13, news reports said. The operations were carried out in Szabolcs-Szatmar
County near the Ukrainian border over the past four days, Judit Jaszai said.
In the largest raid, border guards confiscated 50,000 packs of cigarettes worth
23 million forints (US$105,959) from a Hungarian truck at the Tur River dam, she
said. In a Ukrainian registered car, 14,000 packs of untaxed Ukrainian
cigarettes worth 6.4 million forints (US$29,408) were seized at Nagyecsed, she
added. At the village of Beregsurany, border guards seized 10,000 packs worth
4.5 million forints (US$20,660) from three Hungarian nationals, and a similar
amount was confiscated from a Hungarian driver during a road inspection at
Kocsord, Jaszai was cited by local media as saying.
Magyar Telekom parts with Cardnet stake
Magyar Telekom, Hungary's leading telecom service provider, recently announced
that it had sold its 72 per cent stake in Cardnet Zrt for a purchase price of
above 300 million forints plus the proportionate dividend for 2006, news agency
Cardnet's main activity is the sale and maintenance of point of sale terminals.
In 2005, the company reported revenues of 331 million forints and an EBITDA of
32 million forints. "The disposal of this stake is in line with Magyar
Telekom's efforts to focus on its core businesses," MTel said in a
statement on the website of the Budapest Stock Exchange (BSE).