Friday, January 27, 2012

Hungarian Rhapsody... in blue

An atrocious article appeared on Real Clear World the other day that took me by complete surprise. I was shocked and appalled that a site which almost always maintains a compendium of insightful pieces on global issues had the audacity to carry what can only be called a testimony to shortsightedness. This particular piece by Alex Berezow sought to find the roots of Budapest's current troubles in the unfriendly disposition of the Hungarian people towards the outside world.

Never mind the fact that Europe as a whole has tilted increasingly right-wing since the financial crises, ignore the fact that Hungary's economic woes have been particularly hard on its people, forget historical lessons on how the public reacts to economic difficulties and place yourself in a vacuum - this is where Berezow begins his search for the origins of the Hungarian crisis.

Of course, I must admit that I have a soft spot for Hungary and its people - I visited the country as a child and went back to study abroad in Budapest and enjoyed my experiences there. I am certainly carrying a bias; however, Berezow's commentary blatantly ignores visible roots of the problem and dismisses the current conflict between Brussels and Budapest as a particularly Hungarian problem.

But why should people outside of Hungary and Europe care about this issue? For starters, it's an important case study of state driven economic nationalism that parallels increasing nationalist sentiments of the public - to categorize the current issue in Hungary as a unique case ignores how societies in general are susceptible to irrational behavior in times of economic hardship. It's not enough to point out these trends without delving deeper into the causes. If we gloss over these important issues when pertaining to others, how can we ever be critical of ourselves when similar problems arise in our society?

And if Hungary ends up seceding from (or thrown out of) the union, it will be a precedence for the future of the European project and a possible precursor to its dissolution, which will most definitely impact the international economy.

First the crisis itself:

The ongoing controversy surrounds Prime Minister Viktor Orban and his center-right Fidesz Party, which won two-thirds majority in the 2010 elections and thereby gained the mandate to amend the constitution without consent from the opposition. Fidesz received this overwhelming popular mandate because it promised to fix the economy, blaming much of the economic woes on the previous government under the Hungarian Socialist Party (MSZP). But promises are always easier made than carried through.

Claiming to be paving the path for economic recovery, Viktor Orban asserted the need to increase government control over Hungary's fiscal and monetary policies. Despite the fact that maintaining an independent central bank was a rule established by the European Union to ensure macroeconomic stability, Viktor Orban amended the structure of the Hungarian Central Bank to accommodate an additional vice governor who would be directly appointed by the government (recommended by the PM to the president, but a Fidesz president will never challenge a Fidesz PMs' recommendations).

In addition to the central bank, Fidesz has used its position in the parliament to increase government control over other previously autonomous institutions such as the media and the judiciary. Deterioration of the checks and balances, be it economic, political or judicial, establishes the ground works for extreme abuses of power. This is particularly disturbing because the far-right wing party Jobbik is lurking in the shadows and I shudder to think what would happen if its members were ever to join the ruling government as part of a coalition.

As the legislation on the central bank was brought before the Fidesz-controlled parliament to be rubber-stamped, the European Union Commission fiercely criticized the legislation as irresponsible and contrary to Hungary's treaty commitments with the European Union. As a serious breach of trust, it became a real possibility that Hungary may be chucked out the union. Budapest remained obstinate... meanwhile, the concerned IMF pulled the plug on the preliminary negotiations for financial assistance and forced Prime Minister Orban's hand.

Hungary chose a bad time to revolt. Orban's Thatcher moment was not to be. The Economist observed on November 26, 2011 that
When Hungary hit the rocks in 2008, the outside world was quick to help with a $20 billion package, fearing contagion to other wobbly ex-communist countries. Now the picture is different. With most ex-communist members of the European Union in better shape than old members in the south, the east European label is looking meaningless. Two of Hungary’s neighbours—Slovenia and Slovakia—are in the euro. Poland is the unquestioned diplomatic and economic heavyweight. Mr Orban looks like an oddball, and his country is now a lower priority, at a time when lenders have more urgent calls on their time and money.
Without assistance from abroad, the Hungarian economy faces downfall - and the world will hold out on assistance until Budapest repeals its recent laws. The Hungarian leadership has finally come to grips with the consequences of joining the European community: in return for increased economic contact with the continent, its political and financial decisions will be subject to review and scrutiny by other members of the community.

With its credit rating meandering in junk status, Hungary returned to the negotiating table where the IMF recommended not only reestablishing an independent central bank, but also repealing the draconian measure that forced judges into early retirement. The Hungarian side has agreed to reconsider the central bank issue, but rejected the suggestion of changing its judicial rules to satisfy the IMF and the European Union.

The political entity in power seems split on what it envisions for Hungary's future - a European Hungary or a sovereign nation that does not answer to an extra-national body.

So what is the cause of this crisis?

Only a lazy observer will trivialize the problem by merely citing attitude as the key problem.

And yet for our commentator, Alex Berezow, the heart of the problem is the Hungarian people themselves, their supposed unfriendliness and pervasive xenophobia. Berezow cites three personal examples to support this assertion - a girl's refusal to take a picture of him and his wife in front of the Hungarian parliament, a story he heard from an Irish woman about a Hungarian telling her wrong directions on purpose and a child singing what he thought to be an anti-American song. After providing these wildly random examples, he points to the rise of the ultra-nationalist party Jobbik with its racist policy proposals as a wider symptom of the same problem his fragile self experienced while visiting Budapest. He is apparently bent on trying to justify his experience in a wider context beyond a mere misunderstanding and a series of bad experiences.

He does bring attention to important issues such as the attack on the freedom of the press and abuses on the Hungarian Roma population. He even goes as far to note that the problems became more acute when Fidesz took power in 2010, but does not delve into the socio-economic conditions behind Viktor Orban's landslide victory. How did a party gain such an overwhelming level of support in a democratic society? Why was there a sudden show of support for Jobbik by a sizeable portion of the public? Have Magyars suddenly become less friendly since the 2006 elections?

Economic difficulties tend to produce mass social dissatisfaction - Note that support for the ultra-nationalist Jobbik party during the 2010 elections came largely from eastern Hungary, a historically poorer part of the country where the recent economic crises have impacted people the hardest. Hungary is not alone here, the worsening economic conditions have given ultra-nationalists throughout Europe an opportunity to promote themselves by blaming the country's problems on outsiders. "If only foreigners left, there would be more jobs and less crime..." it's a rhetoric heard often enough around the world.

We have seen the public turn towards radical choices throughout history - the most extreme example being the meteoric rise of the Nazis in Germany during the Great Depression. In fact, it is the experience of hyperinflation during the Weimar Republic (1918-1933) that has led the Federal Republic of Germany to be extremely cautious about letting other members of the European Union ride the dragon of inflationary policies because Berlin sees it as a precursor to populist demagoguery and fascism (This American Life had a really good podcast episode on the rise and fall of the Euro and the role Germany plays in the currency).

But the neo-fascists are not in power (yet) - in 2010, the Jobbik party did not manage to control a single constituency. It entered parliament for the first time based on Hungary's political system which allows proportional representation. And it's hard to imagine the people of Budapest turn to Jobbik for guidance on economic issues - but if the issue comes to asserting Hungary's political status, who knows where the votes will go.

For now, Viktor Orban's targets are internal as much as they are external - placing Fidesz loyalists or those with personal connections to the ruling party in key positions ensure long term influence in state policymaking, even if Orban leads the party to defeat in 2014.

It's too soon to really believe that Hungary has gone down the path of extremism and will be soon ruled by Jobbik. However, I forward the notion that as long as systemic economic problems plague the European Union (and therefore Hungary), Hungarians will be increasingly tempted by radical establishments. To assert that it's only Hungarians who needs to learn to "play nicely" ignores the inherent pressures facing Budapest - Europe, and in particular Germany, needs to appreciate the needs of smaller and weaker member states.

Berlin has forgotten that it was not hyperinflation that pushed people towards Nazism during the Weimar period, but rather it was the resulting economic instability and shame of defeat that made Hitler so attractive to the disgruntled and dissatisfied German public.

Yes, there is the flip side of the coin - Greeks appear unwilling to make real reforms, Italy is hopelessly in debt and Hungarians are blatantly disregarding its political obligations; however, if Europe cannot resolve these matters together without coercion and through multilateralism, then the grand vision of a united Europe was not to be.

Of course, I am not on the ground in Hungary and cannot comment with certainty on how the Hungarian people perceive themselves. So why did I write so much on this? Probably because it pissed me off that some dude got paid to run a shitty article where he complains about a bad travel experience and turns it into a wider political commentary. What a jerk.

I should have left Bugs Bunny to explain the interrelations between the member state of the European Union...

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