The political consequences of the red sludge catastrophe in Hungary

Background

On October 4, a waste reservoir at a western Hungarian aluminum plant burst its banks, unleashing some 700,000 cubic meters of red sludge on the towns of Kolontár and Devecser below. At least eight people were killed and 120 injured by the toxic sludge, a by-product of aluminum production. Kolontár’s residents were evacuated and Devecser’s are prepared for removal.

Hungary’s Parliament October 11 passed a bill authorizing the state to temporarily take over the company behind the deadly spill, Magyar Alumínium Zrt. (commonly known as MAL) and freeze its assets. Speaking in Parliament, Prime Minister Viktor Orbán emphasized that state control will enable authorities to punish the people responsible for the catastrophe and ensure that MAL pays for the damage. The premier also announced that police had detained MAL CEO Zoltán Bakonyi in connection with “public endangerment resulting in multiple deaths,” as well as environmental damage.

The state takeover will also protect jobs, Orbán said. MAL, Hungary’s only aluminum refiner, employs 1,100 people, according to its website. It exports 70-75% of its products to Western Europe, accounting for 12% of the European aluminum market and 4% of the global market.

The new legislation is technically an amendment to an older law on national defense and the Army (Law CV, 2004). It authorizes the government to seize control of private companies in disaster situations and to assume management responsibilities in exceptional cases.  The Orbán administration has therefore frozen MAL’s assets and appointed György Bakondi, head of Hungary’s disaster-relief services, to supervise the company.

Orbán spokesman Péter Szijjártó said Bakondi will be responsible for the following tasks:

• to prepare the resumption of operations at the site so as to protect jobs;
• to determine liability;
• to launch the process of compensation;
• to guarantee that further accidents are avoided.

Political Consequences of the Disaster

• The government has responded to the crisis in the most popular way possible. While many people question the legitimacy of the new state-takeover law, such concerns are swept aside by the public desire to hold MAL’s leadership to account.  
• There is no political opposition. The state-takeover law was passed with the support of the two biggest opposition parties, the Hungarian Socialist Party (MSZP) and the far-right Jobbik. Socialist Former Prime Minister Ferenc Gyurcsány criticized the bill, and left the plenary session before the vote took place. The small left-green party Politics Can Be Different (LMP) party abstained; the sole “no” vote was cast by an MP from the Christian Democratic People’s Party (KDNP) – and that was by accident. 
• Gyurcsány emerges. MAL is owned by Árpád Bakonyi, one of Gyurcsány’s former business partners. MAL is also on the list of “suspicious” companies prepared by Ferenc Papcsák, the Fidesz official charged with bringing Socialist-era corruption to light. Gyurcsány cannot be held legally liable for the spill, but will be exposed to political attacks.
• There is no “capitalist” or free-market force in Parliament. Western European-style conservatism does not have any representation in Hungarian politics. Most Hungarians support the expansion of state power and centralization, and no opposition force dares to go against the public mood. 

The consequences of the takeover law

• The Constitutional Court might strike down the bill, but the chances of this are very slim. Even if the Court did quash the law, the Orbán administration could easily use its two-thirds majority in Parliament modify the Constitution, if necessary.
• Technically, the government’s policy is not nationalization. The government will not acquire MAL’s assets or ownership rights. However, the government’s representative can temporarily take away management’s decision-making privileges and operate the firm on his own. The law thus gives Fidesz a chance to completely reshape certain market sectors, allowing business groups close to the party to benefit.
• Fears of “total nationalization” are exaggerated. The new law authorizes the state to take over companies only under extreme circumstances (e.g. environmental disasters). Furthermore, should such "nationalizations" continue, foreign investors would strenuously object, especially if Fidesz were using this mechanism to support its business cronies. This would be highly damaging for the country.
• The privatizations of the 1990s will return to the center of the political debate. Political leaders will want to re-examine the state-asset sales infrastructure that took shape at the beginning of Hungary’s transition to democracy. They will pay particularly close attention to several controversial privatization contracts. This may implicate businessmen who enjoy chummy relations with the Socialists, further weakening the MSZP politically and wreaking havoc with its network of financiers.