The Politics of CrisisThe Politics of CrisisBeyond OrthodoxyBeyond OrthodoxyGábor ScheiringVédegylet
What has happened?What has happened?2008 October: major drop in the
value of forint2009 March: another major drop
◦1 € = 317 HUF (a year before it was around 245)
◦Rumors that if it reaches 320 mass loan defaults will happen and the government is going to freeze bank accounts
Complete freeze at the market for government bonds - bankruptcy
5 year sovereign CDS 5 year sovereign CDS ((bps)bps)
Crisis management: Enter Crisis management: Enter IMFIMF25 billion loan
◦IMF: 15,7 billion $◦EU 8,1billion $◦WB 1,3 billion $
In return◦Constant monitoring from IMF◦Reducing wages of public servants by
7,5%◦Reducing pensions by 3%◦Keeping budget deficit below 2,5%
Political responsesPolitical responsesGovernment (Socialists)
◦Cuts in personal income tax and social security contributions to boost competitiveness
◦Raising VAT◦But – lack of confidence, lack of
parliamentary majority◦Gyurcsány resigns as he cannot get
through his proposal
Political responsesPolitical responsesReform Allience (HAS + leading capitalists)◦~ 1000 billion HUF, 3,3 billion € cut in
expenditures◦Tax and social security contributions cuts◦„Rationalizing schools”, cutting social spending
Free Democrats and Democraric Forum◦~ 2000 billion HUF, 7 billion cut in expenditures◦Far reaching tax cuts and restructuring of welfare
services, decreasing the number of local governments, closing universities, privatization of health care and the pension system
Bad macroeconomic Bad macroeconomic management?management?
Premature Welfare State?Premature Welfare State?
LessonsLessonsNo direct relationship between
crisis and budget deficitNo negative relationship bw.
economic development and redistribution
What then?
Semi-Peripheral Semi-Peripheral IntegrationIntegrationPrivatized and unregulated
banking sector◦Short term speculative money◦Early warnings: IMF, BIS◦Euro/Frank loans
Long term consumer loans financed through short tems cross border loans
Although international rates were dropping, Hungarian interest were on the raise
Continue to make substantial extraprofit
Semi-peripheral Semi-peripheral integrationintegrationDualistic economy
◦ FDI not able to solve employment problems if not networked well into the local economy
◦ Direct state subsidies and tax exemption disproportionally favor FDI at the expense of local economy
◦ Liberalized banking sector allocated money towards consumer loans Current account imbalances and risks Harder to get access to capital for local firms
◦ Reduced the policy space for local counter-cyclical demand management
Ways out beyond Ways out beyond orthodoxyorthodoxyBolstering state capacity
◦ Economic planning◦ Strenthening bureaucracy (higher wages, examinations,
identity)Re-regulating financial sector
◦ Internationally: peripheral countries interest◦ Reduce the possibility of short term speculative
investments Both at currency, capital and commodity markets
Strenghtening local economy◦ Slovenia, Czech Rep.
Self-financing Green New Deals: green collar jobs◦ Energy efficiency of public and privative buildings◦ Renewable energy◦ Sustainable agriculture
Political lessonsPolitical lessonsStrenghtening labor and civil
society◦Carriers of transformation
Strenghtening CEE cooperation◦Braking tax competition
Building capacity◦Breaking the resilience of neoliberalism
needs alternative knowldge Research Institutions
Also the interest of „Old Europe”