Look, the rabbit wears no hat! - notes on exceptionalism III

For years Hungary was treated as the sick man of ECE, a country in wich the necessary political courage for thorough reforms, following the models of Slovakia, Romania, late Poland or the Czech republic do not exist. The result was - at least for the critiques - evidently the weak economic performance and they usually tried to drive the country's elite to refomrs pointing out the perceived successes Slovakia. Even in the Slovak public opinion prevailed the view that their country is the new model for economic reforms while Hungary is nothing else than the horrific example for the results of recklessness and fear from the publics reaction for hardships due to the necessary changes. This assumption was so widespread that it is almost exclusively accepted by analysts, economists etc.

But the ideas of exceptionalism and national pride was able to twist even this very simple and straightforward view in the case of Robert Fico, Slovakia's prime minister. Fico, how is allegedly a leftist politician governs in a coaltion with the former premier Vladimir Meciar, a populist and autocratic politician and Jan Slota and his extrem nationalist Slovak National Party. Slota'S favourite passion is making invectives against Hungary and Hungarians in Slovakia. Fico himself is not free form such emotions and he has rightful share in the deterioration of the relatioship of the countries as well.

This time Fico simply turned upside down the typical assessment of the economic performance of the two countries (more precisely the factors behind them) when he, while attending a conference organized by the Slovak foreign ministry, attacked the allegedly neoliberal politics of his predecessors and as examples for the afilure of neoliberalism he used not only the Baltic states or Ireland, but even Hungary. "Look, very attentively, how the teachers of our predecessors, in Ireland have fallen, or how who admired together the neoliberal economic practices, in the Baltic states or in Hungary have fallen. It is not a coincidence that these countries have a significantly worse situation than Slovakia." (Well, Fico's populism was clear from the following remarks epxressing his opinion that the crisis, even if he is not adherent of conspiarcy theories, offers an extraordinary possibility for redistribution of wealth, as it happened in the privatisation process of the '90's, but it is not tightly connected to this post.) Anyway, as we can see, Hungary has no chance to escape its fate and being treated as the source and exapmle of all sins. The country is denounced eithr as too reluctant, its elite too coward, or too neoliberal. Ironically, Hungarian politicians and intellectuals very eagerly use Slovakia as an example of outstanding reforms to follow. Our country became similar to the rabbit in the joke, who after fulfilling every demand of the to villains, the fox and the wolf, was beaten up becasue he wore no hat.

Shame, fear and pride - notes on exceptionalism II.

The story of IMF loan for Romania rolls on slowly, it is business as usual. The former premier and leader of the opposition National Liberal Party (PNL) attacked the government as faint-hearted people, who will cause a recession with the IMF loan. More precisely with the conditions imposed by the Monetary Fund. Although it is rather a political manoeuver (this year is an electoral one, and Mr. Tariceanu seeks the president's office for himself, although there is a quite difficult path lying in front of him with a popular President in the race), it is maybe effective but not a very sophisticated one. Anyway recession seems inevitable and it is comfortable to find the responsibles in advance. More interetsting is a passage left out from the english version of the news, once again stating that the EU would be ready to act in favor of Romania without the IMF and the last part of the sentence stresses, that the IMF has nothing to do with EU members, as this orgainisation is well known to assist only countries of the third world. Once again national pride prevailing over rational argumentation.
Not that he would be alone with such line of resonong, the prime minsiter and his government is supposedly under pressure from the IMF to raise taxes or abandon the flat-tax system. Theodor Stolojan, a former prime minister and a jolly joker of the Romanian politics never to be used (it is an interesting story but it has nothing to do with the crisis) announced that the flat-tax can be maintened only in case of a widening of the basis of the taxation. But his assessment of the situation was a bit too dependent on if-s and when-s... Anyway, Emil Boc, the head of government immediately take the posture of the heroic defender of the flat tax (there is a shorter English version again..), using the typical argumenttation (so popular in the Baltics regarding the currency peg), that it is an issue of national honor... Although I'm not really convinced that his assertion regarding the falt tax - it was the main driving force of growth in the years preceding the crisis - are true, but at least comprehensible. But treating it as a problem of national pride and accepting unconditionally that the same will be true after the crisis seems a bit unaware, at least for me. (Not to speak of the fact, that in a country where only 0,79 person contribute to the pension of 1 pensioner it is hard to imagine long term political sustainability of a tax system not yielidng benefits for the bulk of the electorate. It can be irresponsible from the perspective of economists, but democracy tends to work this way...)
Once again I'm hardly in a position to decide whether currency peg or flat tax is advantegeous in real terms or at least it has important psychological effects contributing to investment decisions, for example. I even wouldn't dare to say that it is not comprehensible emotionally that in some of the ECE countries such notions and concepts exist. But this kind of argumentation is not leading anywhere in the middle term and sticking to institutions becoming obsolete, only because of some kind of national pride, is a dangerous development, even though it can be understand from a different perspective.

Update 1: Here is a nice collection of the different opinions and reasonings, unfortunately in Romanian...

The Roaring Mouse*

The Hungarian minsiter of defense, visiting the USA demonstrated that he is a good son of the Hungarian nation and proficient in ECE politics. According to the news he reprimanded Barack Obama because of his remark on Hungary's and Ukraine's problems. As Obama and Gordon Brown met simoultaneously with our very Hungarian coup, in Hungary nobody cared about the real text, and the very benevolent sentence, not sepcifically aimed at any country, was interpreted as the sign of anxiety and discontent in the White House especially because of Hungary. (For many it also was a signal that the White House abandoned Gyurcsány, as if it would be a significant problem for the present adminsitration among the present circumstances who is the head of the Hungarian government...) Obviously, Mr. Szekeres was not among those few who took the burden and read the original text, nor was his staff capable to do it. Instead, he joined those who misinterpreted the remark and took the role of the nations defender against unfounded allegations. Moeover, just to reveal that he is a true ECE politician he expressed his affrontement because Ukraine was mentioned together with Hungary, although - contrary to Ukraine - the fundaments of the Hungarian economy are good. As if I were hearing Topolánek or Tusk two weeks ago...

*I knew that the novel and the movie has a different title, but as I admire Peter Sellers I felt that it would have been an insult to his memory to make him equal with Mr. Szekers, even if only indirectly...

Reflections on flat-tax

The flat-tax, paired with the low redistribution rate is considered to be the key of economic success, so-called miracles in many ECE countries. The Baltic states, Slovakia, Bulgaria, Romania used to be mentioned as obviuous examples. In Hungary, where a one-sided dabete on the problem ensues (economists and "economists", "experts" strongly argues in favor if its introduction, while the socialist party obstructs it, although without the necessary intellectual capacity) these countries are often used as textbook examples of fast growth that substituted the budget revenues lost with the abandonment of differentiated taxation and it is often percived as well, that these countries have, due to their tight fiscal policy, room for manoeuver in this crisis. To put it simply: they have the necessary reserves to loosen their budgets and stimulate consumption either with financial transfers or with invesments.

The present crisis offeres proofs for a very different interpretation as well. According to the latest news I would dare to say, that at least in ECE this mixture of tax-system and fiscal policy led to an ironically pro-cyclical model instead of the perceived anti-cyclical one. Let's collect some data and facts:

a, the Romanian budget collapsed in the last two months of 2009 due to the loss in VAT (the figure of budget deficit as ratio of the GDP dubbled in this period)and the revenues were well under the expectations in the first two months of 2009 as well

b, Latvia is struggling to controll its budget, the 5% deficit agreed with the IMF in last year seems at the moment highly impossible, even a reduction to 7% would need drastic cuts, for example 20% of wages in the public sector

c, Estonia - a country that run budget surplus for years and having large reserves - needs cuts (!) of budget expenses in order to achieve its goal, a 3% deficit in this year, not really allowing the governemnt to take stimulating measures

d, the most striking of all: Slovakia's budget revenues are lagging behind last years figures with 15% (the figure is even worse compared to this year's budget, as that was calculated with a 2,9% GDP growth) and the revenues from VAT are almost 50% lower than in the previous year.

Obviously, there is no room for fiscal easing and stimulus, these countries rather needs harsh budget cuts (or tax hikes) in order to control their state houshold, what is quite the contrary to the proposals of an anti-cyclical policy, even if the flat-tax system was treated as an important factor of the impregnability of these economies.

Once again I have to admit that I'm not an economist, therefore my forthcoming observations are rather hypotetical, a kind of brainstorming, but I hope that not completely without substance. The main question is what caused this unexpected turn of events?

The above mentioned tax systems were made attractive with a relatively low flat-rate, between 10% (Bulgaria) and 24% (Estonia), mainly around 20%. Usually it was achieved with the abandonement of a progressive tax system with high rates for higher income. The restructuring also meant transfer of the focus of taxation to the consumption, especially as the effective lowering of taxes for individuals were meant as means to drive it. As the budget revenues reached their former level usually soon after the introduction of the new systems it was considered as a success. (Fiscal reserves were built by cutting expenses.)

Therefore it is not surprising that with the decline of personal consumption budget revenues are declining as well. But I would dare to say that situation is worsened by two factors, a general one and a specifically East-Central European. We can presume that wages are - at least in Europe - less flexible than consumption even in times of crisis, therefore taxation on income is more predisposed to withstand sudden changes and yield relatively more revenues than based on consumption. (Well on the long run changes are maybe the same, but we are struggling for months of survival until our export markets can restore their demand.) That could mean that taxation systems based on income has more reserves on a shorter horizon, giving a chance for stimulation. (Well, of course only in case of a relaxed state household.)

More interesting is the specifically Eastern-European phenomenon, the possible importance of the credit bubble for the states themselves. Although it sounds very nice that net wages were raised by 10-20-30% due to the new tax systems, as a source of consumption in an area of free trade like the EU it meant less than one would have expected. Avarage gross wages were between 500-800 EUR (630-100 USD) two or three years ago, now they are somewhere between the 600-1000 EUR range. With a very basic calculation we can assume that lowering the tax rate with 10% meant 50-80 EUR in a month, not a very substantial sum, I would dare to say, especially if someone was eager to buy more expensive goods and not only extend food consumption. This sum in itself was not really able to incite a consumption frenzy, but if it was multiplied by credit ... 100 EUR is the monthly payment for a decent sum. Add the effects of the housing bubble to it (mortgage based consumption credit meant in Hungary only a two thirds monthly payment compared to normal consumption credit, inflating the bubble considerably) and it is a very dire picture. I would conclude that the credit boom were necessary to stimulate consumption and through consumption raise budget revenues. It is possible that without this source of income states would have been forced to cut further public services and that way incite public discontent...

Anyhow, if my hypothesis has some basis, the collapse of budget income is more comprehendible. Consumers are saving money, as it is common in times of crisis, banks are not lending money as it is one of the main factors behind the crisis and even if workers are not laid off, the wages are taxed so moderately, that it won't bring too much for the state. Governments suddenly has to cut budget expenses instead of an expansion.

(There could be a counter-argument, that the effective tax-rate in Hungary, calculated as a ratio of the sum of the officially paid wages, is not higher than in these countries - at about20%. But there is at least one significant difference, as the minimal wage is taxed with a very low rate (2-3%) that means a significantly higher rate even in case of average wages. Those, who have higher salaries, and therefore arguably have a better position in their companies, not to be laid off so easily, pay the bulk of personal income taxes, while those with minimal wages are paying minimal taxes, therfore if they lose their jobs - and one can assume that they are laid off in the first phases as they are easily replacable - it is not a loss for the state houshold, even though a burden in the form of unemployment benefits. This tax system is not making individuals cheerful, but it could have suprising - well, relative - advantages.)

Shame, fear and pride - notes on exceptionalism

The Romanian president, Traian Băsescu was very active this week, adressing the parliament with a speech on the state of Romania. (Although it was an event similar to the usual State of the Nation Adress, as Băsescu's prerogatives are very limited it was rather an act of substituting the premier, Emil Boc. It is quite interesting, how the president is acting as a substitute of the prime minister, the resons behind it, but not the story I would like to deal with here.) After one or two months of contradicting scraps of news, statements on the necessity of an eventual crdit from the IMF the president announced that Romania will receive support from the international financial institutions and the EU. In hard times it is far from being surprising and perhaps as an action to contain the spreding consequences of the crisis a wise one, or at least an inevitable one. But the long story of the credit once again reveals the importance of national pride, the will of being differentiated from "others", from neighbors considered as traditional enemies.

As it is well known, two of Romania's neighbours, Hungary and Ukraine have a running agreement with the IMF, those countries are receiving financial support in the form of credit. Although Romania was considered for a while as a possible next to the line of countries applying for IMF credit it was a very delicate issue in the country. Politicians, the governor of the Romanian National Bank were either denying any overture towards the Monetary Fund or downplayed it as a condition of the EU for its own support program. There were many contradicting announcments, even Băsescu was oscillating between denial of the necessity and the acceptance of compulsion. He once even spoke of the necessity to consult the people on the IMF loan. (As if it would be time enough to make such consultations in case of necessity.) Others were spreading fairy tales that the EU has no such condition (a member of the European parliament even told the press that the EU Commission is prohibiting Romania from an agreement with IMF!) and used the opportunity for attacking the government. Quite peculiarly the chairman of the coalitional partner of Băsescu's PDL, the social democrats, is opposing the idea even at the moment, arguing that Romania needs an own "anti-crisis plan". (The government, in wich Mircea Geoana's social democrats are sitting announced its budget in February as a complete anti-crisi plan...)

Although I personally have no real emotions over IMF loans and similar agreements, even if I'm not quite convinced of the usefulness of their recipes for the respective economies, such feelings are not completely incomprehensible. But in this case the reluctance is rather a sign of the traditional enmities than the expression of real ideological convictions. (The social democrats were so eager to be a governing party that they abandoned almost every points of their election program, even those that would be advantageous for the state budget and in line with the traditional leftist perception of social justice, like the progressive tax-system.) The relationship between Ukraine and Romania is far from being relaxed, a territorial dispute was settled by the International Court in The Hague, Băsescu mentioned some territorial reorganizations in favor of Moldavia and at the expense of Ukraine and the Ukrainian nationalism, having a strong official support in the last months caused problems for the Romanian minority in Northern Bukovina. The other neighbor, Hungary is one of the traditional "others" in the Romanian identity, an arch-rival. The ever graver political chaos and the steep economic contraction in the Ukraine and the very slow economic growth in Hungary in the last few years - while Romania was treated as a new economic miracle - certainly accentuated the self-esteem of Romanian politicians. It became even more emphasized when at the end of last year the IMF and the EU considered Romania as one of the few countries predicted to have growth in 2009. Against this background the necessity to ask for an IMF loan - and to admit, that Romania has to face a grave economic situation, first of all contraction, certainly was a shock for many politicians. The IMF loan is not only the loss of sovereignty (one of the most important elements in the consciousness of the Romanian political elite in the 20th century) but the loss of the favourable position compared to the arch-rivals - the missing of the chance of overtaking them. (Although regarding Hungary it was rather illusory in the short term even one year ago.) In this sense the crisis relegates Romania to its earlier position, threatens to lose its newly acquired "Wunderkind" status and to eliminate the perceived and precious differences between the country and ECE. The fact, that it is treated as a catastrophic result clearly shows the stance of the Romanian elite towards the idea of ECE. (Băsescu promised in his speech not only a fast recovery, but the chance to get loose from the region in case of hard work.)

In Slovakia, before the gravity of the economic situation and the budget deficit was revealed, the leading newspaper, the liberal (in European sense) SME publsihd sarcastic commentaries on Hungary's premier and economic situation, while at the same time pointing out the hypocrisy of Robert Fico, the Slovak prime minister. Th surprising fact was not the negative opinion on Gyurcsány, but the scornful tone indicating a self-assured belief in the superiority in the Slovak economic reforms. Those were implied not as a possible and contradictory way of managing problems, but as the only, and self-evidently superior model, something to be followed obligatorily and at the same time conveying supriority to those who are pioneers of its case.

What about Hungary? Well, this country obviously does not belong to the region. The ridiculous story of the forint coming lose of the other ECE currencies continued to be spread, it was even mentioned as reality in the press at Wednesday. I'm not an ardent lover of the idea of national characteristic but there are obviously some people who are not happy without having the feeling that they are living in a doomed country. Moreover, the "analysts" of Raiffeisen Bank Hungary took it granted in their analysis published this week. I would say, that the usual distortion of time was somewhat reversed, and not complete history created based on ten or fifteen minutes, but ten minutes streched into a week or more, maybe into eternity. We are now living forever in that ten minutes last Wednesday....

A very Hungarian coup?

Personally I'm not adherent of conspiracy theories, especially as they were extensively used in the 20th century to adress very complex social processes in a very simplified way. The results are well known, unfortunately and fortunately. But as historian I have to admit that conspiracies exist.

Maybe we have witnessed one this week in Hungary? A series of events following each other and pointing to the same object raises the question even for me. What exactly happened? The trigger was the EU summit last weekend, obviously not bringing any immediate relief for the countries in ECE. Some suspicion would have been justified at that very moment, as those politicians eagerly seeking the ground for a common standpoint during the preparatory phase of the summit, surprisingly declared that there is no need to treat the region as a whole. The German press next day fired a salvo on Gyurcsány Ferenc, praising the wise politics of the German chancellor and describing the events as a complete failure and serious setback for her Hungarian colleague, whose every proposal were rejected. Although more nuanced opinions existed (check the link in the psotscript of my previous post), this point of view soon became dominant in the Hungarian press and Gyurcsány was portrayed as a ballast, an outcast of Europe. Political analysts, economic "experts" suggested in a barely veiled way that he was a burden.

After two days of hammering, on Wednesday came a sudden event - a declaration of supervisory authorities from ECE about the unjust opinions on the vulnerability of the banking system of those countries, once again emphasizing the differences between the individual cases, signed by five authorities, the Hungarian one lacking. Either because of this event, or only simply as a parallel process, the excahnge rate of the forint against the euro suddenly fell to a new lowest ever level. This was immediately presented in the media as the edge of the abyss, the begining of the inevitable, because, as the titles were phrased, the forint was dissociated from the region, the markets gave right to those, who declared that Hungary has its own poblems, not to be compared to and bound together with the other ECE countries, with more sound fundamentals. Next day even the largest and most prestigeous daily newspaper appeared with an article on its cover bearing the title: "The markets want reforms, the stock exchange and the forint 'came lose' from the region, The chair of the MDF [Hungarian Democratic Forum, centre-right party] proposes extraordinary parliamentary session" (The online edition titled an article on the previos day as "How important is the Gyurcsány-factor in the thrashing of the forint?".) Once again experts argued on behalf of an abdication of Gyurcsány, new informations (?) surfaced - from informators unwilling to disclose their names - about a pathetic preformance of the prime minister in London at Tuesday, where he discussed the government's proposals and the story of dissociation continued even on Friday. That day Sándor Csányi, the boss of Hungary's largest bank, OTP mentioned the early elections as a possible solution. (Later he disclaimed it, alleging that it was only one of his aides.)

Up to this point it is an ordinary story of incompetence and wishful thinking, as I will point it out later. But rumours were spread in the country since Wednesday as well, aimed to destabilize the financial system with a rush of clients for their savings. One of my friends was called from Geneva (!) just to be asked whether it is realistic that OTP will freeze savings accounts that day, another friend of mine was told that Gyurcsány would announce sovereign default in minutes. This latter piece of gossip was circulated even at Friday. On Friday the National Bank and the supervisory authority was forced to issue a declaration about the stable foundation of the banks in Hungary and the guarantees backing clients savings. The simultaneity of these events are not the only possible argument on behalf of a conspiracy theory. The story of disscotiation was clearly an invested one, without any real basis even on Wednesday, not to speak of Thursday or Friday, as it could have been clear for anyone checking the real time currency rate charts at any suitable website. The curve, showing the change in the exchange rate of Forint, Zloty and Czech koruna was almost identical on Wednesday, Thursday or Friday, the curve of the forint only moved upwards regarding the y-axis. It happened almost at once, only lasted for ten or twenty minutes, not longer, and from that point point the changes correlated with the changes in the rates of Zloty or Czech koruna. I'm not a well-paid broker, but it was quite clear even for my mediocre eyes.* (The story was changed a bit, as it was clearly not true. At the moment the dissociation is interpreted that forint stays at a historic low against euro, while the other two currencies - although moving simultaneously and parallel - not. But, pardoxically, it is not a supportive but a counterargument. As those currencies were considerably far from their historical low even at Wednesday, if they would have been attained this level since then, it would have meant a very different movement from that of the forint.)

One can of course believe or reject that a conspiracy to overthrow the government was underway last week and it is far from being proved by the facts I gathered here. I'm not sure either, although the density of the events seems to be a bit more than simple coincidents. And even though I have a terrible opinion on so-called "experts" and "analysts" in Hungary, and I would be glad to have proven that they are so stupid guys as not being able to interpret two charts besides each other, but the concerted efforts to create a panic, a sudden fall in the rate of the forint and the effort to portray it as a result of Gyurcsány's incompetence and status as the least accepted politician by his colleauges in Europe also can be explained as something deliberate as well.

I don't know what could have been the aim of such a move, who could have been behind such an action. Maybe it was just someone trying to take adavntage of surpise events. Maybe not only. (I advise everybody who would rather rely on facts not to move beyond this point, as the following are simple speculations, funny games of mind.) Passionate haters of the opposition leader, Viktor Orbán can create a narrative interpreting the events as his attamept to return to power. He met with every key foreign actor of the story before the EU summit (Merkel, Donald Tusk, who, although convoking a mini-summit of ECE leaders, at the EU event simply rejeted the idea of the necessity of a common approach, and Mirek Topolának, Czech premier and current president of the EU Council, who was another ECE politician arguing against the common treatment.) Orbán certainly has close connections to the Hungarian economic elite, who are willing to accept his political strategy: not to disclose any specific measure before he can achieve an electoral victory from fear of alienating the electorate. They clearly think that although Orbán won't campaign with the necessity of asuterity measures, rather with populist promises, he will realize their program, put forward as the so-called "Reformszövetség" (Reform Alliance) agenda. Orbán scheduled his usual "State of the Nation Adress" to this Friday and it was unusally uninteresting and without content, as if he would have been preparing for another situation, the announcement of victory over the enemy and his own return as the saviour. But there is the possibility of an attempted coup inside the ranks of the Socialist Party in the hope that with this debacle Gyurcsány can be eliminated not only from the government, but from the party itself. I suppose that the worst fear of many socialists is the possibility that the present premier could retain his position of party chairman even after the looming electoral defeat. And another possibility is an action organized by the economic elite to push forward their program, in many points opposed by the government and force the prime minister to accept it, instead of another. As their proposed measures would be very advantageous for the larger companies and those with the highest income in the country, while putting the burden on those with the lowest income it is an eminent material interest of theirs not to allow to implement other measures. As the prime minister at Friday announced that he would even like to propose more profound changes than the "Reformszövetség", maybe he was impressed by the events... (Although without any specific measure it could even mean cahnges to the contrary direction...)

Two more observtions on this topic. Firstly, it is far from being certain that we have seen a conspiratory action, but if it would be true it is extremely irresponsible, as the tactics was to bring the country to the edge of default, where it is far from being sure that the worst can be impeded. Secondly, there is many legitimate reason to argue in favor of Gyurcsány's resignation, especially as he is far fom having a clear and coherent concept about the necessary steps, he is not able to separate the handling of the crisis (contorlling the budget deficit at any cost, with ad hoc measures) and the setting of a new direction for the country, not regardless of the experiences and conclusions of the crisis, that way sometimes just allowing the confusion and insecurity to grow. But if the most prestigeous newspaper would like to side with those, who calls for this move from Gyurcsány it would be more honest and maybe even more effective to write and publish an article with a cover title" "Gyurcsány has to take his hat" and not to mingle with dubious actions with dubious means threatening to move the country towards the catastrophe. (Well, this last sentence was very emphasizedly preceded by a huge "IF".)

*It is nothing to do with possible events at next week, I'm not an oracle to foretell the future. But even the story of dissociation was not a story of futue events, but story of what allegedly happened.
P.S, For those who are familiar with Hungarian here is a transcript of a TV program with a good economist, who apparently do not share the stupid approach of the "experts" and analysts. I'm proud of myself. :)

Business as usual and the distortion of time

Three days has passed since the informal EU summit at Sunday, an event in a series of meetings aiming to find solutions for the effects of the crisis. ECE is "dead again" or more precisely its leaders once again proved that they are not aware of the similarities in the region (or prefer to emphasize the differences) and ready to seek shelter at the expense of the others. (Irony was not missing once again, at least retrospectively. The Estonian premier was egaer to point out in how good conditions his country is, while two days later the Statistiocal Office published an almost 27% year on year drop of the industrial output.) Surprisingly the German chancellor shared their view as well, dismissing any idea of a common rescue package.

Although there were voices disappointed with the outcome of the summit, the news in Hungary soon became a means of hammering the prime minister, as it was considered as a heavy defeat for him, who earlier championed the idea of a 180 billion euro aid action before the meeting. As a result Hungary again was portrayed as the "sick man", "analysts" suddenly started to spread rumours on negative expectations and even the usual "misunderstanding" happaned again today. Some time ago the prestigeous Bloomberg translated a sentence of the prime minister incorrectly causing panic among "investors". Today the Hungarian agency for overseeing the financial markets misteriously was left out from a common statement of such authorities in ECE, pointing out the negative effects of unfounded allegations regarding the situation of banks in the region and emphasizing the differences in the situation of the countries. It was soon interpreted as a gesture of dissociation from Hungary, as if its situation would be the only problem in the region. Hungarian forint suddenly fell while other currencies in the region became stronger against euro. A choir of "experts" and "analysts" in Hungary were ready to hail the idea of dissociation, portraying Hungary as a country not able to grasp the severity of the situation and prophesizing that Europe will leave this state alone as it is not ready to bring about the necessary changes. The opposite trend of the ECE currencies while during trade hours today was immediately interpreted as a turn in the events, the markets at last realizing that only Hungary has problems and that only thi country is not willing to adapt itself to the needs of the moment. One "expert" (well, he is a model figure, general director of local investment funds of a multinational company, whose funds performed rather mediocry last year even though this genius - who two weeks after the fall of the Lehman Brothers issued a statement, that we were over the worst, the markets would calm down and 2009 would be a year of moderate growth - is in charge), this expert even interpreted Obama's remark consisting the names of Hungary and Ukraine as a diplomatic message to Hungary, expressing the opinion that Hungary flawed its economic policy.

It is not easy to retain even just a small fraction of composure in the light of those developments. I would admit that in the short run it could be a profitable tactics to portray every country in ECE as different ones, and buy yourself out from this mess at the expense of the others. (Although I'm henceforward inclined to think that any kind of failure in the region would eventually lead to the collapse of other countries, as "investor's" hands are shaky.) But even not to consider whether the crisis revealed more substantial factors behind the situatation than the simple malevolence of some obscure outer world full of bankers and speculants driven by thirst for profit and the bluntness of some millions of Americans making unbearable debts, that's something I would consider intellectual laziness. The more because it is a challenging problem, more challenging than posing as "experts" while only selling others ideas.

But another important problem, revealed by these events and opinions, regarding also the situation of ECE is the concept of economic and social time. (I mean the time necessary for profound transformations, long-run processes, evaluation of success or failure and time inherent in business and economic cycles etc.) As I mentioned in one of the earlier posts, in the transition period (not even finished today) one of the important issues was the time necessary for the catch up. It was always evaluated to be digestible (10-15 years), therefore no one was ready to admit that

a, he/she has no idea

or

b, it will last for many decades and many people (obviously voters at the next election) won't have a chance to experience it.

Economists, considered to be serious academics supported this assupmtion and began to evaluate definitive success of one country, and failure of the other in terms of economic preformance in one, two or three years at the best. They were even not ready to consider the possibility of changes in economic or social policy in this time span in the respective countries, not to speak of the horrifying perspective that growth is not necessarily self-sustaining, circumstances can be changed with the time and so on. Instead of making thorough analyses, using historical comparison based on data and facts they simply assumed that two or three good years are the sign of perennial economic success and two or three bad years prove that the respective country is doomed. The real time span of convergence - historically decades - were rejected, economic time was significantly distorted.

This fact in itself would have been enough to make a weird perception of economic time - either unrealistic or not in line with the peculiarities of economic history - dominant. But the situation was worsened by the emergence of brokers and "analysts" as "experts" and "economists". They were used to mesuring economic events and processes in days or in weeks at best and very often in hours. So-called economic websites and following their example others as well, began to provide news of the "fall" or "rise" of the currencies based on one or two trading hours. One can wake up with the news that forint collapsed or was "hit" and go to sleep with forint risen incredibly against euro or dollar. The same was true for the stock market as well. (For example as I'm writing this post forint regained today's losses completly and taking into account the primary cause of today's fall this is a similar performance to the other currencies today. I won't forecast that this trend will be continued or not as I'm not capable to do it, moreover, I think it is pointless, as the long run is more important. But if I were an "analyst", at the moment I would be completly justified to say that forint is moving in line with the regional trend.) As this is the dominant economic news, the perception of economic trends in general was transformed accordingly. Today every "expert" can forecast decades of economic develpoment from the events of the first few minutes at the markets.

How is this phenomenon connected to the problem of ECE? As I tried to outline earlier, ECE is perceived as a bunch of competing country's, front runners and laggers. But because of the distortion of economic (and historical) time, success is not estimated according to the necessary time span, but based on short term performance, not taking into account other factors. Therefore possible similarities, having their effects in the long run, are obscured by short term differences. Moreover, non-economic factors, like the necesity of a kind of social consensus expressed through the results of elections, possible changes in the demands of the electorate influencing economic policies are also erased from the model. This is not the perception of time necessary to operate democratic procedures, but the perception of time of enlightened absolutism, as democratic governments never will have enough time to act if they are judged based on one or two days movements on the markets.

Well, there is some hope. Obama, at the press conference cited above, made a remark, that he wouldn't adapt his action to the daily ups and downs of the stock exchange indices, rather he is willing to concentrate on long term objectives. He even made an analogy with the tracking polls in politics, expressing his opinion - ceratinly based on some experience - that the politician who acts according to daily movements in polls will lost the strategical objective. This part of the press conference obviosuly wasn't mentiond by our "expert".

P.S.: Something on today's events... and on similarities, differences.