BUDAPEST LETTER:A focus on growth over austerity is set to give Fidesz an emphatic election victory – but tougher times lie ahead, writes DANIEL McLAUGHLIN
AS ITS neighbours suffer a spasm of strikes, protest marches and ministerial resignations, Hungary seems to be an oasis of calm in turbulent central Europe.
Spending cuts aimed at slashing state budget deficits and debt have triggered industrial action and demonstrations across the region. But while the unrest rocks governments all around it, Hungary’s ruling Fidesz party is riding into this weekend’s local elections on a wave of popularity.
Polls suggest Fidesz is backed by 66 per cent of those who have already decided who to vote for on Sunday, when the centre-right party is expected to enjoy the kind of crushing victory that it secured in April’s general election.
Fidesz won a two-thirds majority in parliament in that ballot, giving it the strongest mandate of any Hungarian government since communism collapsed 20 years ago, and the second-placed Socialists and third-placed Jobbik ultra-nationalists have made little headway since spring.
With the Socialists in disarray and Jobbik emerging from the political margins, Fidesz had little real competition in the general election, but since then it has stuck to its promise of trying to grow the economy out of the doldrums rather than slashing spending and imposing austerity.
Prime Minister Viktor Orban has also pursued what he calls a drive to restore Hungary’s “economic sovereignty”, but with mixed results.
Funding talks with the International Monetary Fund (IMF) collapsed when Fidesz refused to commit to deep spending cuts and insisted on imposing a controversially large tax on financial institutions, leaving Hungary without a mid-term safety net should its economy continue to struggle and the price of borrowing rise on the financial markets.
Though the forint currency has weakened and bond yields have risen since Fidesz took power, both have stabilised in recent months after the world outlook improved, appetite for emerging market risk returned and the government quietly agreed to EU demands to cut the budget deficit to below 3 per cent of gross domestic product next year.
While Hungary can borrow money at affordable rates, Orban will be able to portray himself as the man who restored national pride by sending the IMF packing.
But if the markets turn against him, his gamble will leave Hungary in an injurious financial position, and facing the added insult of having to ask the EU and IMF to bail the country out.
Acting tough with international institutions plays well in Hungary, where many people blame their country’s woes on meddling foreigners and local lackeys, so Fidesz will undoubtedly dominate the local elections.
Only after the ballot will Orban present a 2011 budget that must add detail to the glowing, but incomplete, picture that he paints of a relatively painless economic recovery.
A glance at Hungary’s neighbours will not ease his reticence, however.
Romania has been rocked by a series of thousands-strong protests in the capital Bucharest, including an unauthorised one late last week by the city’s police officers.
That march prompted the resignation of interior minister Vasile Blaga, who said he had been dishonoured by an action that also caused the president and prime minister to dismiss their police escorts.
As part of a €20 billion loan deal with the EU and IMF, Romania agreed to slash civil servants’ wages by 25 per cent and raise the retirement age to 65, moves that ravaged the popularity of the centre-right Liberal Democrats and leave them facing a tricky confidence vote in parliament.
Tens of thousands of Czech state workers, including firemen and policemen, rallied last week in Prague to protest against wage cuts while about 5,000 Poles demonstrated against a salary freeze. Moreover, Slovak unions plan demonstrations against proposed tax increases.
Some 80,000 Slovenian civil servants, or half the public sector workforce of the tiny state, launched a protest this week against plans to ban wage increases.
Though many are still at their workplaces, they are only carrying out essential tasks.
“It’s an experience from all over Europe that austerity measures, which very often include budget cuts, are leading to similar demonstrations,” Czech prime minister Petr Necas said as about 40,000 Czechs marched against his government’s drive to reduce the country’s budget deficit.
The moves “are quite naturally unpopular”, he admitted, while insisting that there was “no way” he would scrap moves to reduce the wage burden on the national budget.
Orban will no doubt be celebrating after Sunday’s vote, but tougher times lie ahead.
Only when he bites the bullet and presents his budget for next year will the markets be able to judge whether Hungary is a good credit risk, and whether it is really wise to subject the nation to his “growth not austerity” high-wire act without the safety net offered by the EU and IMF.