Hungarian Government decides to use Economic Crisis as excuse for power grab

Cardinal Richelieu

Looking like the new loose cannon of the Eurozone.

EUobserver.com

The European Central Bank (ECB) on Thursday (22 December) lashed out at the Hungarian government over plans to seize control of its central bank, the latest in a series of power-grabs by the ruling party amid worsening economic conditions and downgrades to 'junk' territory by two major ratings agencies.
Enforcing the current draft law on the central bank (Magyar Nemzeti Bank) "could undermine [its] independence", the ECB said in a statement, focusing on a provision which would increase the number of deputy governors, effectively giving the government a say in the setting of interest rates.
Merging the central bank with the country's financial supervisory authority and creating a new institution, as envisaged in a second draft bill would also "affect the personal independence of the central bank's governor," the ECB warned.
The draft laws have already drawn criticism from the EU commission and the International Monetary Fund (IMF), whose negotiating team last week broke off talks on a "precautionary loan" in protest over the envisaged legislative changes.
The centre-right Fidesz party of Prime Minister Viktor Orban enjoys a super-majority in the parliament able to pass constitutional changes or any other legislative moves it wants.
Orban is at odds with the governor of the central bank, as the financial institution has boosted interest rates to record highs, reaching seven percent on Tuesday - the highest in the EU. This puts the squeeze both on the government and the private sector, where most of the mortgages have been taken out in euros and Swiss francs, while the forint is depreciating rapidly.
In addition, the Hungarian central bank on Thursday warned that the government is likely to miss its deficit target for 2012, estimating that the shortfall will be more like 3.7 percent of gross domestic product compared to the goal of 2.5 percent.
Last week, EU commission chief Jose Manuel Barroso sent a letter to Orban warning that the two bills are in breach of EU law and "strongly advised" him to withdraw them from parliament.
Since the IMF walk-out, the Hungarian government's repayment capacity was downgraded to "junk" by Standard and Poor's, after Moody's - another major ratings agency - did the the same in November. Both have projected a negative outlook for the country's economy, forecast to have the highest debt level and slowest economic growth among the EU's eastern members next year.
Informal discussions on an IMF loan will resume in January, an EU commission spokesman said Thursday.
In a separate row, EU justice and fundamental rights commissioner Viviane Reding has also sent a letter to Orban's cabinet regarding data protection issues and age discrimination, after the government changed the retirement age for judges.
Earlier this year, just as Hungary was taking over the rotating EU presidency, the Orban government made headlines with a so-called media-gagging law, fiercely criticised by the EU Parliament and commission.
Under Brussels pressure, the Hungarian government revised some of the most controversial provisions, but human rights watchdogs such as the Council of Europe say the changes were "cosmetic".

Scofflaw

Yup, the Nice land-grab comes back to bite us in the ass. Hungary, Georgia - the only real difference is that one of them got into the EU. Still, had to be done.

cordially,
Scofflaw

Scofflaw

Mind you, now I come to think about it, one could also describe what our government is up to - tampering with the independence of the judiciary, aiming to abolish the upper house - as a power grab under cover of the crisis.

cordially,
Scofflaw

johnnyskeleton

Scofflaw wrote: »

Mind you, now I come to think about it, one could also describe what our government is up to - tampering with the independence of the judiciary, aiming to abolish the upper house - as a power grab under cover of the crisis.

cordially,
Scofflaw

And don't forget that they are taking away the independence of lawyers:

http://www.irishtimes.com/newspaper/ireland/2011/1229/1224309591774.html

McDave

I don't think Hungary amounts to a hill of beans as far as EU integration is concerned. The bar for entry into the EU has proven to be relatively low when you take Romania, Bulgaria and latterly Greece into account.

Hungary's pattern of behaviour since the fall of the Iron Curtain has been questionable to say the least. It's recent actions really do call its democratic credentials into question. And with there being various intractable problems emerging from the Balkans, it seems we can now tag on Hungary.

I see the following particular ramifications for the EU in the unravelling of a western-style politics in Hungary:

1. The Eurozone is confirmed as the de facto 'gold standard' (sorry about pun) for 'ever closer union'.

2. With the evolution of the Eurozone core, a progressively lower status will accrue the EU (i.e. that of a functional single market and ante chamber into the Eurozone core).

3. Any negative impacts of countries like Bulgaria, Greece, Hungary and Romania on the EU decision-making process will demonstrate the limits of the European integration process and put the brakes on further accessions to the east and south east (especially Turkey and Ukraine).

* * *

It might be too much to ascribe a particularly historic status to the EU's 'Cameron' summit last December, but I think it could well have marked the de facto end of the bias towards widening EU membership to a focus on deepening co-operation and policies among a western European core. Western Europe is re-emerging (with its borders further eastwards to the border with Ukraine, and stagnating south-eastwards at Austria-Slovenia, and possibly Croatia).

The 'Roman Empire' splits in two again!

jonniebgood1

This is hardly surprising given the backdrop of democratically elected leaders being replaced by technocrats in Greece and Italy.

So in Hungary the government takes over the bankers. In Italy & Greece the bankers take over the government!

bnt

Today the "yield" (interest rate) on Hungarian Treasury Bonds almost hit 10%, and they weren't able to raise as much as they wanted to. The credit default swap (debt insurance) rates hit a record high i.e. there are a lot of vultures investors hoping for a payout if Hungary defaults on its debts.

Not good. One bit of that story that caught my eye was the way a lot of Hungarians have mortgages issued in foreign currencies, mostly Euro and Swiss Franc. Maybe I'm missing something, but how the hell did anyone think that was a good idea? It sounds like a variable rate mortgage on steroids, only beneficial if your currency is guaranteed to be stronger than the issuing currency over the entire mortgage period.

So mortgage payments have spiked, but one thing not mentioned in that story is: the Hungarian govt. has stepped in and forced Hungarian banks to accept mortgage payments from customers at below market rates, and take the losses themselves. So the banks themselves are in serious trouble. Here comes the IMF ...

Twiki

bnt wrote: »

One bit of that story that caught my eye was the way a lot of Hungarians have mortgages issued in foreign currencies, mostly Euro and Swiss Franc. Maybe I'm missing something, but how the hell did anyone think that was a good idea?

Those mortgages were taken out in foreign currencies because the interest rates attached to the loans were significantly lower than in the local currency. This was a feature in several Eastern European countries, Iceland too. It doesn't make it a good idea though.

bnt

Twiki wrote: »

Those mortgages were taken out in foreign currencies because the interest rates attached to the loans were significantly lower than in the local currency. This was a feature in several Eastern European countries, Iceland too. It doesn't make it a good idea though.

I used to ask questions such as "yes, but will the interest rate remain lower for the whole term of the mortgage?" That was before I learned about short-term interest-only mortgages, and how "property investors" don't think about the whole term of the mortgage. In a few years they can re-mortgage - right? - or even flip the property and walk away with a profit. Hey, it's so easy, everyone's doing it! :rolleyes:

http://www.viennareview.net/story/02388-hungary-corruption-continues

Organized crime and corruption still dominate life in Hungary, undiminished since the turf battles of the 1990s and early 2000s. Instead, groups and individuals have consolidated their strength, through connections to Hungarian leaders in government and business, to such an extent that many experts question the ability of the justice system to make any difference.

Have any of you ever been in Hungary? I remember being there during the tail end of a European tour, hungover and broken-spirited. As I sat in a fancy McDonalds on their version of Grafton St., I looked up and noticed a lovely plaque on the wall across from me, dedicated to a bomb that had been set off there during the "war between organised crime and the state" during the mid nineties.

It isn't a western culture. Prostitutes spend all day walking up and down their most prestigious streets looking for wealthy tourists. We went out one night and it wasn't uncommon to see lads with a bottle of vodka in their hand all night to swig from. An incredibly macho culture.

As scofflaw says, this is a direct result of the speed of our the European land grab - But in saying that, we're no angels either.