Government continues to play for time

The government appears to preserve its delaying tactics with regard to negotiations over a credit line with international organizations. The ultimate aim of the cabinet is not necessarily to avoid reaching an agreement altogether, yet according to their anticipations, the later the deal is actually made, the more favorable the conditions thereof will be for the government. The government is playing a “double deceiver” strategy: firstly, it tells voters that it only deceives the European Commission and the IMF when saying that it fulfills all the requirements set out by them, secondly, it tells international organizations that it only deceives Hungarian voters when saying that the requirements will not be fulfilled. The truth lies in between, but the delaying tactics may prove costly to the government both in terms of money and credibility.

• In early June, both the IMF and the European Central Bank made it clear that the modifications planned to the Central Bank Act were insufficient for launching the negotiations on a credit line. The government, intimidated by the reaction of the markets to these statements, postponed the vote on the modifications to the Central Bank Act scheduled for Monday (4th June). Hence, five-party negotiations – between the Hungarian Central Bank, the European Central Bank, the European Commission, the IMF and the government – on the Act will resume: according to the cabinet, a final decision will be made in parliament ahead of the summer break, but the wait for the start of negotiations on a credit line grows yet longer.
• It is not the postponement of the parliamentary vote, but the calculated, conscious practice of the cabinet of introducing modifications that are clearly insufficient to the previously introduced requirements of international organizations that effectively points out the delaying tactics played by the government. After the unexpected go-ahead given by the European Commission in April, the only issue where the government should have shown some leniency was the Central Bank Act, yet failed to do so during the last few weeks. The aim of the Hungarian government is not to reach a credit agreement in the first place, but to maintain as much room for manoeuvre as possible. The reason for this is that the government expects better conditions to come by regarding a credit agreement as time goes by and the government accepts the budget based on the convergence plan. Besides, the government anticipates the entire “Hungary issue” to fade into less importance amid an escalating crisis in the eurozone, prompting international organizations to take a milder stance.
• The situation is further complicated by the fact that international organizations are not showing a united stance regarding Hungary: whereas earlier it was the European Commission that appeared to adopt more rigid stances regarding Hungary, today, the IMF is a much tougher negotiating partner than the European Commission.
• The significance of the public statement made by Orbán saying that the government is just playing with the European Commission last Friday should not be overestimated. We cannot say that the government wants to avoid reaching an agreement by all means, yet Orbán tries to find a political framework in which he can sell the fact that he has accepted some of the external constraints of the IMF and the EU, after two years of “freedom fight” rhetorics. And this framework is the story of the “smart guy” who makes an agreement while deceiving international organizations with his wise tactical steps.
• The strategy of the Hungarian government is considered highly risky for the following three reasons:
  1. The strategy may only prove successful if a genuinely troublesome scenario unfolds in the European Union, one that would urge international organizations not to take the risk of entering further conflicts. As a consequence of its high level of external indebtedness, Hungary still finds itself in the danger zone, potentially causing the country itself to fall victim of an escalating crisis in the eurozone: hence, the government relies on a scenario that is generally disadvantageous to the country.
  2. The uncertainty caused by the delaying tactics played by the cabinet results in severe additional costs to Hungary as financing the country’s debt is way more expensive without an international loan agreement in place.
  3. The chicanery used by the government with regard to the fulfillment of international requirements is continuously taking its toll on its credibility on the markets. The series of unblushingly inconsistent and unforeseeable turns in economic policy along with the continuous presence of double speech have increased the risk of the cabinet no longer being able to credibly take a genuine turn in economic policy, should this become no longer evitable.
• During the coming period, the government is most likely to keep playing its delaying tactics. Meanwhile, even the actual start of official negotiations between the government and international organizations should not be considered anything more than a part of the government’s stalling strategy. A genuine turn in economic policy is not to be expected in the long term either.
• However, should the crisis in Greece begin to substantially increase in intensity, the pressure on Hungary may grow to the extent where a rapid conclusion to the loan negotiations becomes pivotal. This would come as a severe blow to the government on the political level. What is more, such an escalation of the crisis would significantly rattle the cabinet in the second half of its term.

On the conference of the Századvég Foundation, Kálmán Széll Foundation and Heti válasz, Orbán was quoted as saying that Hungary should reject the crisis management offered by the European Union, yet this requires “a complicated series of tactical steps”: “Hungary has to walk its own path”, yet as a requirement of the logic of diplomacy, rejections should be phrased as if we were indeed trying to make friendly approaches