Monday, December 12, 2011

Why not?

The crisis of Hungary and the drama of the EU – for a brief period separate from each other and the former even resolved at least in the imagery of the prime minister, Viktor Orbán – suddenly got bound to each other very firmly. Not only was the complete dependence of Hungary's economy on and from the European declared, but the unfolding crisis of the eurozone absorbed Hungary's fate last week, at the meeting of the European Council. The issue of whether the prime minister blundered diplomatically or not in Friday morning is significant only in a strictly Hungarian context as a possible demonstration of the governments rapidly diminishing capacity to handle politics and governance, not the first sign in this sense and hardly the last one. But the whole French-German plan bears utmost significance for the country as well and poses some questions concerning the governments confused reaction too.

The interpretations of the council's declaration pointed out at least four important aspects that should be considered from a Hungarian (and more broadly from an East Central European perspective). The proposed new fiscal stability rules can be seen as the end of (or even the outlawing of) Keynsianist economic policies. Furthermore, some argue that a fiscal union following the German blueprint of re-balancing through austerity can bring (or just aggravate) the present state of economics close to depression and bring about a serious challenge to democracy. The latter means that crisis stricken countries, among them Hungary, certainly have to reconsider their place and chances given the restrictive economic environment. But the plan is far from being unproblematic from a pro-European perspective too, it proposes an incomplete transfer union without proper governing bodies and democratic representation, reviving (or even enhancing) the never eliminated complaint of democratic deficit in the EU.

But with all of these issues that certainly should not be neglected or treated in an off hand manner, the Hungarian reaction was very curious. While the government portrays itself (and is selling this idea to its European partners at every occasion) as the champion of far reaching reforms, fiscal prudence and stability, hails itself as the only country that will achieve a budget deficit within the limits prescribed in the Maastricht Tretay, it still failed to sign to a new treaty that will only enshrine these self-proclaimed objects of national pried. Even if its boldly announced aim is to transform the country to the most (or most recently, from today one of the most) competitive countries in Europe , and one that can compete with China. Quite in line with what the Germans are blamed for, trying to make everyone German as a panacea for the crisis.

So, why the restraint? There is an obvious explanation, sovereignty. It means power and as the new fiscla riles and most notably the way they would be enforced would curtail the sovereignty of the parties to the new treaty, the government is not quite willing to hand its power to a European body or accept trusteeship of Germans and French. Especially if it still believes in its vision of a West in decline and an East on the rise. However, even if such considerations certainly played a role in the decision not to accept the new treaty (a position later softened to consulting the parliament on this issue) there is one valid point hidden in all of the verbal camouflage: is it possible to create a fiscal union on the proposed line without hampering or tacitly eliminating democracy? It is not only about the way the Greek and Italian premiers were replaced – seen by many as a plot of mysterious capitalists and foreign politicians –, but about the German plan's content: constitutional fiscal rules that could – in case of a suitable interpretation – ban fiscal stimulus and enforce the further dissolution of welfare institutions. Not that it would be too far from the Hungarian government's aim. It is frequently declaring the end of the welfare state, a new era of work-based society instead of one based on social benefits. But according to its interpretation this process is the result of the rise of the East, an industrious, demographically growing world, whose success can be followed only with its own measures, hence the insistence of gaining competitiveness vis-a-vis China.

But if one considers the process of how the welfare systems were rolled back, it is hard not to see other factors, intra-EU developments behind it. Most notably the insistence on market based investments in ECE after 1989 as opposed to institutional based ones. It meant a competition for investment even into social systems and as in every case investment could be attracted with the fastest and safest return on capital and with the fattest profit. The subsequent necessity to cut welfare systems as there was no need and way to finance them resulted not from the competition from the East but from the competition among new member (and accession) states.

From the above diagnosis one can conclude that some EU-wide measures would be beneficial for the members states in the sense of reducing the pressure on their present welfare systems and societies. Such as a harmonized tax base (part of the German proposal), that would reduce (or probably eliminate) tax competition in order to attract investment. With envisioning more significant reforms of the EU's architecture – in the longer term – there is the possibility to harmonize and connect – and later merge – certain welfare systems, such as health care,, unemployment benefits or pensions. It would alleviate a huge burden from some crisis stricken countries, like in Hungary's case 1-2 billion EUR would certainly reduce the dissipation of medical personnel. And as such changes would require a larger and more flexible EU budget it would make it possible to enact fiscal stimuli even if the member states adhere to the strict fiscal rules proposed. But it needs new political structure, with real political representation and responsibility, an enhanced role of EU instiutions in governing, not (only) intergovernmental action.

But as if such a situation wouldn't be complex enough, internal developments in Hungary makes the country's position even more complicated. Authoritarian tendencies transforming a functioning democracy into an illiberal one at best; a „visionary” economic policy, a mixture of classic nineteenth century capitalism, catholic social thinking from the thirties, neo-liberal dogmas like tax competition and flat-tax, and nationalist protectionism results in an unpredictable and growth restraining voluntarism; an overestimated potential of the country coupled with the belief in national peculiarity, all of these manifested in utterly misguided action and failure to recognize real constraints for the country, ultimately leading to a return to the earlier decried IMF as the only potential source of financing for the next years.

Manoeuvreing between political constraints abroad and a sense of omnipotency at home (given the governments 2/3 majority and its ability to change the constitution according to its will in days) was channeled into an attempt to completely rebuild the state. As a result next year Hungarians have to face not only the expected economic hardships (declining real wages, stagnating, probably even growing unemployment etc.), but the possible chaos brought about radical changes in the structure of the state. (Reducing local self-governments to a minimal role, building a centralized public instruction system, drastic reduction of higher education, centralization of pub,ic administration hitherto enacted by local self-governments etc.) The government during its eighteen months long tenure showed rather incapacity to carry out such sweeping changes, resulting in frequents delays compared to the previously announced deadlines, window dressing without real changes, frequent reversals of earlier measures (the most telling is the example of minor taxes, the government in an attempt to reduce red tape eliminated 10 of them, but in a year introduced another twelve). Nothing happened according to the plans outlined, everything was in a permanent delay and confusion and the deepest changes are still only in the phase of legislation. Not to speak of illusory ideas, like a restructuring of the disability pensions and benefits system, with a failed plan to reconsider the status of almost 400 000 people in six month. Meanwhile the lowest levels of state administration became highly politicized, party commissaries installed, essential systems are underfinanced (health care, education, administration) while the budget renounces significant potential revenues (progressive taxation, a progressive property tax etc.) But there is no EU-wide resolution of the problems on offer from Hungary, neither an attempt to fight for preserving what was left from social equality and cohesion. This fight is not for the greater good of the community – or only in a weird sense, for the greater good of a non-existing, imaginary organic nation –, but for the power of a government sliding into authoritarianism.

The irony of the situation is that the government – while deluding itself that so-called unorthodox measures (windfall taxes etc.) do not mean austerity – creates exactly the same self-generating and self-intensifying cycle of austerity that can be expected from the German plan too. Its followers – and its politicians – still think that it is just temporary, a kind of transition, with the rebuilding of the state finished amelioration of the situation is in sight from 2013. However, given its impact on economic growth and the proven inability of the government to provide effective governance the fight for sovereignty can easily end in a catastrophe. German style austerity carried out while the state simply dissolves. In the face of this prospect – and it is the irony – even a strict, closely monitored IMF-EU program can be favorable.  

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