Facing the limits - dead end for Latvia and the spending cuts approach, the new Hungarian finance minister abandons his ambitious plans

Although the psychosis of the crisis has been stilled a bit, the happy end is still far away and the everyday consequences of the steep contraction will be clear only afterwards. The usual hyteria - at least usual in Hungary in the recent weeks - is over, however it is not clear whether beacuse those actors how were very active in producing of this hysterical environment think that the new governemnt will realize the Reform Alliance program (tax and spending cuts at the same time)or it is just a natural relapse after weeks of intense and exhausting activity. (Exhausting even for simple citizens, it was not easy to hide away from the catastrophic visions put orward in the media almost every hour.)

Otherwise at least two events can be interpreted as a sign that the limits of the much advocated approach to the crisis management has been reached. The first one, certainly the more significant one, is that Latvia eclared: it is not capable to comply with the conditions set by the IMF last year in order to ensure the fiscal program, the precondition of the loan. One can suppose that this is just the usual wriggling between politicians and the Fund, but the data on the capabilities of Latvia to cut its budget, presented by the finace ministry, are truely schocking. The target is a 5% budget deficit for this year. According to the Latvian government if they cut the expenses by 20% they can reach 8,5%, if they make a 30% cut it will be at about 8% and with a 40% cut it will still be as high as 7,5%!!! I can't imagine any country that ould survive the elimniniation of 40% of its budget expneses, not to speak of to make almost the double to reach the target of 5%. Figuratively speaking: Latvia can shut down the state itself in order to comply with the IMF's terms. I don't think that it is a viable road, and if the Latvian's data is corract and the EU and the IMf is not ready to accept the realities we are facing serious trouble as Latvia can simply collapse, not abruptly, but gradually.

Somewhat similar is waht happend in Hungary, at least as it is also showing the limits of this bold, but amidst the present crisis not very ralistic aproach based on tax and sending cuts in order to achideve a balanced budget even as it is almost impossible. In the new Hungarian government one of the leading protagonists of the Reform Alliance ( a lobby group of the business interests, camouflaged as altruist group proposing a "scientific" solution for Hungary's every problem in one year) took over the post of the finance minister. Even a month ago the guy, Péter Oszkó was a frequent interviewee, always sharing with the public his conviction that the government should make brutal spending cuts in order to make huge tax cuts. As soon as he gave his first interview as minister his tone was softened and his program watered down completely. He will mange the earlier government program, the one he condemned not only as insufficient but principally wrong, and contrary to his earlier assumptions, that with a bold tax cut Hungary will have a 4-5% GDP growth in two years, now he is predicting the asme in a five years timespan. Moreovr, although a month ago he was quite confident that they have a very detiled program, that can be and only needs to be implemented in one or two months, now he answers for every question regarding the specific deatils of his "program", that they need more time to work out the details, that it is not so simple to prepare such important changes and that they based their program earlier on presumptions meanwhile became obsolete. Maybe he aslo began to feel his limits and will renounce on his omniscient pose.