Chances for Early Elections in Hungary Diminished

Prognosis

 

Government stability

 

• Following the passage of the tax bill, the chances for early elections in Hungary have diminished. The current balance of power in Parliament makes the dissolution of the national assembly highly unlikely.
  • MSZP, the ruling party has nothing to gain from an early election, and its position was confirmed at the party’s conference held on July 4. Before the budget vote, expected to take place in November, there are no issues before Parliament with the potential to bring down the government. While the budget is most likely to pass, internal conflicts within MSZP and SZDSZ pose considerable risks.
  • The question of withdrawing support from the government did not come up at MSZP’s recent conference. The horse-trading leading up to the conference had more to do with the distribution of positions after 2010, i.e. which party faction will have a chance to rebuild the party likely to suffer a major defeat at the next election.
  • Even by the majority of its leading politicians, SZDSZ is considered all but dead, and this level of apathy makes the party’s future conduct unpredictable. The vote on the property tax demonstrated that the party and the faction have broken ranks, with the parliamentary caucus voting with the government, which means that even after the total disintegration of the Liberal party the government may continue to enjoy a parliamentary majority.

Government plans for the medium term

 

• With the passage of the tax bill, in some sense the Bajnai-government has been left in a vacuum; most of its one-year mandate is still ahead, while, for all practical purposes, it has implemented almost all components of a short-term crisis management program promised when the cabinet took office.
• In the remaining period the government has two options: (1) in the months remaining, as a quasi caretaker government it supervises implementation of the IMF agreement and measures taken so far. In this case it can hold on to its technocrat image, although in the future it will be remembered exclusively as the implementer of a shock therapy. (2) it tries to implement deeper reforms with benefits over the medium term. While in this case the government may gain political stature, the policy could lead to severe conflicts involving party politics and interest groups.
• Based on developments seen over the past few weeks, the Bajnai-government is likely to opt for a second scenario; Mr. Bajnai had declared himself that his mandate was limited in time and not in its scope. As things stand today, in the coming period public transportation and public safety will be the focal points of future reforms. The Prime Minister plans to save HUF 40 billion at MÁV (Hungarian railroad company) and HUF 120 billion at municipalities. Based on estimates by Political Capital, at MÁV around HUF 40 billion is lost annually through various corrupt schemes, generating additional losses to the tune of HUF 100 billion through the inefficient operation of the state-owned company.
• While all these may bring success for the government in the long term, they represent considerable risk in the immediate future: the reform may generate conflicts within MSZP and SZDSZ, putting parliamentary majority at risk (in the past MSZP has strongly resisted efforts to rein in MÁV) and it may also encourage Fidesz to become even more belligerent. While in some sense Fidesz could benefit from letting the Socialists take all the blame for unpopular measures, they may wish to implement medium-range reforms to their own liking.

Prospects for Jobbik

 

• Following the dissolution of the Hungarian Guard, the organization may get in the way as Jobbik tries to develop its medium-range strategy. As this weekend’s demonstration made it clear that the Guard acts autonomously in part, Jobbik has two options to choose from: (1) it continues to stand fully behind the illegal organization, in which case it runs the risk of losing some of its voters stolen form parliamentary parties, (2) it turns against a still popular Guard, or at least tries to push it into the background. In this case, it may lose its radical supporters and the Guard may strike out for complete independence.
• In all likelihood, the party will opt for the first solution, representing a major risk, however: in this case the incidence of violent street clashes could increase in the coming period and, if Jobbik manages to generate even more public support despite its anti-establishment posture, the party may be further radicalized.
• In the medium term Jobbik may find itself with a similar dilemma Fidesz had to face in the past, i.e., despite an increasingly threatening tone, it will fail to take effective action against government policies, disappointing its supporters.

 

Key points to watch

 

Economic events

 

 

Political events

 

 

 

Leading trends

 

Passing the tax legislation

 

At the end of its spring session Parliament passed the tax bill. The vote was crucial for the survival of the Bajnai-government as, in light of previous debates, the existence of a parliamentary majority was put at the severest test. However, the government easily overcame all the obstacles and, following preliminary consultations, Parliament passed its proposals without exception.

 

The balloting demonstrated again that one of the most crucial tests of the Bajnai-cabinet was the passage of the property tax, an item not essential for the budget. Immediately after its announcement, Fidesz was the first to make a symbolic issue of the property tax, promising to cancel it as soon as it took over. This would be an obvious break with the Bajnai-era, without risking the destabilisation of the budget. Fidesz’ position is strengthened as, based on evidence of the past few weeks and months, it appears that the property tax is the major cause of conflict within MSZP and SZDSZ: thanks to resistance from socialists, the adopted legislation is a watered-down version of the original proposal. The Liberal party split into two camps over the issue (half of the delegates did not vote for the bill), although in this case the conflict primarily involves the relationship between the party and the government.

 

Measures going into effect in 2009 July:

 

• Up to twice the minimum wage, employer’s contribution decreased from 32 to 27%.
• Up to twice the minimum wage, enterptreneur’s contribution decreased from 4 to 2.5%.
• The VAT increased from current 20 to 25%. Dairy products, baked goods and distant heating are exempted; these are charged a VAT of 18%.
• Excise tax on tobacco, alcohol and fuels was increased by 5%.
• The 13th-month pension was cancelled, replaced by a bonus system, tying extra pension benefits to economic growth.

SZDSZ – falling to pieces

 

At the recent European Parliamentary election the Liberal party suffered a historic defeat. Based on developments since the election, the outcome has only accelerated the amortization of SZDSZ; the party has been unable to close ranks under pressure. The current crisis has clearly overridden the Fodor-Kóka rivalry characterizing the period following the Kuncze era. Today party politicians are split along many more fault lines and, as a result, the organization has been left without a compelling leader. Currently debate within SZDSZ centres around support for the Bajnai-government: the party did not stand unified behind the prime minister even at his election, and in a time of crisis the differences have only escalated. With all that, the government’s stability is not necessarily endangered as there are enough loyal Liberal representatives in Parliament ready to guarantee a government majority, and presumably they would not vote for an early election even if the party were to take a decision to that effect.

 

Following the EP collection, party president Gábor Fodor handed in his resignation; SZDSZ is set to elect a new president on July 12. In an all but hopeless situation, none of the party’s prominent politicians show a desire to run for the position. A few days ago, referring to internal squabbling, Péter Gusztos (who earlier considered entering the race, provided certain conditions were met) also withdrew his candidacy. As it stands today, the election will have three candidates: Attila Retkes (representative from District II.) considered to be a protégé of Gábor Demszky; Szabolcs Badacsonyi (representative from District III.) and the mayor of Zugló, Leonard Weinek.

 

MSZP - strategic indecision and fighting for positions

 

The outcome of the European Parliamentary election has brought to the surface even more conflicts within MSZP. A once cohesive MSZP has only postponed debates, personnel, policy and ideological issues only for the time being. In the run-up to the July 4 party conference jockeying for positions started within the party, interpreted by the media and socialist politicians alike primarily as a generational conflict concerning the revival of MSZP. The tensions have been caused by the fact that at the next general election MSZP is expected to win substantially fewer parliamentary seats than it has today, and this raises the stakes for parliamentary positions. The conference did not address these issues; its only message was the continued support for the government. Real change could come at the party election postponed until the autumn, when the party’s next prime ministerial candidate will also be named. With this, MSZP tries to gain 4 to 5 months to go beyond the slogans of ‘renewal’ and ‘rejuvenation’, and come up with real responses to the challenges facing the party.

 

In themselves personal changes and potentially new faces are unlikely to lead to substantive changes in MSZP’s current situation. While with new faces the party may receive more attention from the electorate, this would only improve popular support for socialists if a new leadership also manages to present a distinct political agenda. However, ‘rejuvenation’ also has its limits: on the one hand, a number of the party’s young politicians had filled government positions in the past few years, i.e. they are closely tied to an era rejected by the electorate. On the other hand, so far young socialist politicians have failed to present the public an alternative political direction that could serve as a breakthrough for MSZP. Moreover, thanks for their performance in the party’s defunct youth organization or in ministries, a number of ‘young socialist’ politicians can be indirectly linked to and thereby discredited by the Zuschlag-case (a trend already seen in the right-wing media), which, in turn, could lead to the renewal of corruption charges.

 

 

The “bandwagon-effect” did not materialise

 

Following the EP election, instead of Fidesz, Jobbik was the clear beneficiary of the “bandwagon” (following the winner) effect. In the weeks following the balloting, the party’s support increased by between 5 to 8% among the adult population. This also means that Jobbik voters’ tendency to hide its diminishing. At the same time, the 10% electoral base measured for Jobbik among committed voters fall short of the party’s performance at the EP election. This suggests that the party has additional reserves.

Following the EP election, public opinion tended to accept the argument that the Jobbik camp was reinforced primarily by former MSZP sympathizers. This is in line with Fidesz’ attempt to blame MSZP for the resurgence of Jobbik and present the far right party as a problem for socialists. However, June public opinion surveys suggest that the theory of mass migration of former Socialist voters to Jobbik must be viewed with strong scepticism. This is also indicated by the fact that the policies and leaders of the far right party enjoyed great popularity among Fidesz voters as well. According to a survey conducted by Medián, over one third of the largest opposition party’s supporters would prefer if their party looked at Jobbik as a potential ally. Századvég-Forsense’s latest research on the popularity of politicians shows that Gábor Vona and Krisztina Morvai are the most popular in the Fidesz camp, and the least popular among MSZP voters. In other words, a potential further strengthening of the far right would pose a problem primarily for Fidesz.

In respect to party preferences, the steep decline in support for MSZP has stopped for now, Fidesz is maintaining its lead against the socialists, Jobbik made large gains and support for MDF and SZDSZ has not changed significantly compared to the period preceding the EP election.

 

 

Jobbik: paradoxical integration on the extreme right

 

In the coming period, the largest challenge for Jobbik is to meet expectation generated by its success at the recent EP election. The party has unequivocally taken a seat at the table surrounded by the political elite and in the future it may become an active political force in a position to shape policies, instead of a party reacting to criticisms. However, this comes with risks: for one thing, more attention will be paid to the actions of the party than ever before, and each minor defect will be magnified.

Following the EP election, Gábor Vona convened a meeting of the leaders of radical organizations where they agreed that specific leaders and organizations will be given a place in Jobbik’s 2010 Parliamentary list. The timing was not an accident; following the party’s strong performance, Jobbik’s dominant role on the far right can no longer be questioned by anyone.

The Hungarian Guard’s illegal demonstration last weekend was clearly a surprise considering Jobbik’s past tactics. Up to this point the party tried to prove to the electorate that it was an organization respecting democratic rules, offering a viable alternative to everyone. However, the dissolution of the Guard has left Jobbik in a position where, instead of controlling, it simply follows events. The medium-term impact of confronting the establishment with a vehemence never seen before (clearly defying the court’s decision and the police) cannot be predicted at this point, and eventually it could either weaken or strengthen Jobbik. However, the latter outcome would be proof that a large percentage of the Hungarian population has turned against the system in place for the past 20 years.

 

At the same time, the weekend demonstration clearly shows that the Jobbik leadership is not in complete control of the Guard: essentially the organization called the demonstration on its own and in some respect Gábor Vona faced a fait accompli: he had to either lead the demonstration or lose credibility in the eyes of his followers. The complete independence of the Guard also presents considerable risks as the organization serving essentially political objectives in the past would become uncontrollable.

 

Peace and quiet on the markets

 

For the first time since the arrival of the crisis last October, the Hungarian economy experienced the calmest period in the past two weeks. The forint exchange rate stabilized at a much higher level than before and, in fact, compared to the currencies of the region it made relative gains. The market made a strong recovery and the CDS-premium, measuring countries default risk, decreased significantly. Recognizing the achievements of Hungary’s crisis management, IMF and the EU eased their own conditions. The relative calm is explained primarily with the improvement of international investor sentiment and, to a lesser extent, by the Bajnai-Government’s undeniably quick and effective crisis management policies stabilizing the budget.