(This article contains extracts from an interview with the conservative economist and former director of the Hungarian Central Statistical Office Tamás Mellár published by left-liberal weekly Hetek this month. The interview predates the second austerity package announced a week after the EU rejected the first as being inadequate to bring the deficit down to three per cent of GDP.)
Last August you wrote in the daily Magyar Nemzet that the economic policy of National Economy Minister György Matolcsy had failed. Yet Mr. Matolcsy in still in his post and, in the words of the prime minister, fighting his freedom fight day in, day out.
I didn’t speak about this economic policy not being maintainable but about it not fulfilling the high expectations of it, in other words not bringing about any positive results. The fact is that last November the government was forced to go cap in hand to the International Monetary Fund, which it had earlier sent packing. Since then we have stumbled from one austerity package to the next. The most recent was announced by György Matolcsy this month. Even the government is anticipating that the economy will shrink this year, so unfortunately I have been proven right overall. A course of yo-yoing is naturally permissible but the question is whether it makes sense. Hungary is increasingly lagging behind the other Visegrád countries when it should be catching up with them. We are speaking about a policy that is plagued with failure. However, if society tolerates that, then it can continue for a long time.
For how long?
There are many examples from history that we know of. There have been societies that lived not just for decades but for centuries without there being any development. Such societies subsist at a low level.
Is it not the case that the country is not going bankrupt, because it keeps taking out new loans, but is stuck in the current paralysis?
Bankruptcy is not always necessary. Consumption can be reduced to an extremely low level. If the people are patient a country can operate like that for a long time. Just think of China, which before its current growth stagnated for centuries at an extremely low level. I should note, however, that this is a social and political rather than an economic question.
From the outside the government seems still to be self-confident and has maintained its policy in its essentials.
It has every reason to be self-confident: its own voters continue to support it. In other words they accept the government’s interpretation that the global economic crisis and foreign capital are to blame for our problems. The opposition, being poorly organised and divided, can do little to counter that. Orbán and his government can rightly assume that they will win the next elections. It can be clearly seen that the government makes certain corrections to its policy at times of serious problems, but when the problems have been alleviated it returns to its previous path. What we are observing is a course of yo-yoing without any professional concept. The recently announced HUF 400 billion (EUR 1.42 billion) package ties in with that.
This is at least the government’s fifth austerity package, although since coming to power it has not tired of stressing that any kind of austerity policy is alien to it. There has been a first action plan, a second action plan, a Széll Kálmán Plan 1, a Széll Kálmán Plan 2 and so on.
The PR work of the current government reminds me strongly of the Kádár period. Older people may well remember how it functioned. First, for example, the rumour was put about that the prices of 50 key products would rise by 40 to 50 per cent. Later it turned out that only 20 products were affected and the price rise was only 20 per cent, and everyone was happy. Orbán and his government first spread word of the demands made by the IMF, such as the lowering of pensions, more tax increases and cuts, while later it turned out that there is no list of demands. Then the rumour was put out that the National Economy Ministry would put together an austerity package of some HUF 1,100 billion (EUR 3.91 billion). Now it turns out that the package is only to the tune of HUF 400 billion and the people are happy. [In the meantime further austerity measures of more than HUF 350 billion (EUR 1.24 billion) have been announced under pressure from the EU – ed.]