The fragile ambitions of Magyar capitalism

Viktor Orbán’s second reign has been marked by a desire to break with the ideology that has dominated Hungary since the fall of the communist regime. Everything he says and everything he does is oriented towards this goal. The key idea of the last 20 years was “modernisation,” while “sovereignty,” was only a backdrop or even a mirage.

The goal of the second Orbán government — the first lasted from 1988 to 2002 — is thus to restore sovereign power which has disintegrated over the last eight years [under socialist-liberal governments].

This is a project that will involve the creation of a Hungarian capitalism. The apparently nonsensical policy adopted by the Minister of National Economic Affairs is in fact designed to provide him with ammunition to destroy the networks that continues to hold sway over the economy.

The other aspect of the Orbán project is quite simple: Hungarian capitalism cannot exist without Hungarian capital, and that notably means financial capital.

But how do we know if money, which by definition is odorless, is “Hungarian” or not? To what extent can a bank, which has a large clientele in the country and employs several thousand Hungarians, be considered “foreign”?

“Local” players have a significant advantage

Simple: according to the “Orbán system,” any capital that is willing to participate in the creation of Hungarian capitalism, even if the exact meaning of what this entails remains fuzzy, can be considered Hungarian.

To create this capitalism, we will therefore need financial institutions — banks and insurers — with the capacity “to invade” the markets. These can be created either by direct state investment in new banks, or by the state’s purchase of a share in existing banks. Once these organisations have lined up in readiness for battle, we can set about sweet talking the other market players.

The financial institutions recently created by the state are all under the command of trusted associates of the Prime Minister. And if Austrian and German banks can purchase Hungarian ones, nowhere is it said that the reverse cannot also apply.

By the same token, “the rare financial institutions that remain in the hands of the state” can of course be recapitalised. As for the institutions that have independently developed in recent years, it will be easy - when the time comes - to ensure that these are legally purchased by the state. When you have two thirds of the seats in parliament, you can do almost anything.

Given that these institutions exist, we only have to find the necessary capital to proceed with the planned invasion. Nothing could be simpler: the state has the means to ensure that “local” players have a significant advantage when answering public calls for tender and it can also tweak tax legislation to push masses of borrowers into the arms of Hungarian banks.

For proof, look no further than the fines that the PSZÁF [financial services authority] has been inflicting on multinational organisations since the autumn, and the exceptional tax on financial institutions, which obliges banks that are not headquartered in Hungary to ensure that their Magyar subsidiaries have a net in-take of capital.

Survival strategy based on defeatism

But as it stands, many obstacles remain. First and foremost, Hungarian banks do not have sufficient liquidity to offer affordable loans in forints. And let’s be realistic: they will never have the capacity to replace their international competitors in the field of loans to industry.

If on the other hand the project succeeds, it will create a economic force that is favourable to Orbán that will make the country ungovernable for anyone else. Polticians in power will in fact have no other choice but to make concessions and reach compromise with this economic leviathan.

The new players of Magyar capitalism can only hope to enter the market with savings or capital stock increases. However, the population has nothing to save while the state has massive borrowings and companies are up to their necks in debt. In view of this situation, we will need foreign — or Hungarian investors — that can be convinced of the viability of Viktor Orbán’s project. But these subjects are not likely to have been on the agenda during his recent visits to Saudi Arabia and China.

On the contrary, are we witnessing the erosion and collapse of the ramparts that currently protect the owners of the Hungarian financial sector? It is too early to say. But the recent downgrade of the country’s sovereign debt rating is not a good sign. If other downgrades follow, state bond auctions will be suspended for some time to come, the euro will stabilise at well over 300 forints and the Swiss franc at 250 which will definitely close off that door, at a time when most Hungariains have debts in foreign currency.

For 20 years, the post-communist and neoliberal elites - which are all one now - have served the interests of international capital in exchange for moral and financial support from the West. In response to this survival strategy based on defeatism, the Orbán project presents a vision of the future that is a thousand times more in accord with the state of mind of Hungarians, who are tired of being submissive. The problem with this project is not to be found in the criticisms made against it by the business community (who are apolitical), nor from left or liberal analysts who tend to over-politicize everything. No: the real problem is that whether the Orbán project succeeds or fails, the result will be tragic.

Crisis

Budapest under pressure

On 21 December, Standard & Poors downgraded Hungary’s credit rating from BBB- to BB+, effectively placing it in a non-investment speculative grade category. Népszabadság explains that in justifying its decision, the ratings agency cited “the lack of predictability” in the country’s economic policy, in the context of doubts about the role of the central bank and a new constitution that comes into force on 1st January.

A reform that could threaten the independence of the Hungarian National Bank resulted in the suspension of negotiations between the Hungarian government and the IMF and the EU on 16 December. Nonetheless, the Hungarian government, which had insisted that aid was unnecessary and detrimental to the independence of the country before demanding a bailout at the end of November, is hoping that discussions will resume in January — in particular to address the situation of the national currency, the forint, which has fallen in value against the euro.