Thousands of Hungarians were out demonstrating in front of Parliament on the evening of October 16, calling for Prime Minister Ferenc Gyurcsány’s resignation. He had to go, the demonstrators said, because he admitted to lying about public finances in order to get re-elected last April.
That protest was one in a series since news broke on September 17 that the prime minister had admitted to fellow Socialist Party ministers that he had distorted economic information in order to retain office. The initial reaction to the news had provoked violence, and violence broke out again on October 23. In between, however, during what was an atypically balmy early autumn, the demonstrations took on a relaxed and even festive aspect. An encampment of hundreds of little tents formed. Hungarian flags of both modern and medieval design flew, and colorful balloons bobbed in abundance. Pretzel vendors worked the crowds. Young people drank red wine and flirted with each other. Most listened with attention to a series of speeches liberally interspaced with lively Hungarian folk music.
Perhaps my own sense of buoyancy on the rhapsodic evening of October 16 was due to the pitcher of sangria I had just consumed at a nearby Mexican restaurant. (Yes, there is a Mexican restaurant, called Iguana, in the heart of Budapest, and no, given the wonders of Hungarian cuisine, it isn’t easy to explain why anyone would go there to eat.) That concoction, together with the massive demonstration in whose midst I wandered, reminded me of similar events I had experienced in Ecuador, Panama and Honduras in the politically volatile 1980s. As I pondered the similarities and differences of these experiences, hundreds of club-wielding Hungarian police wearing plastic masks and carrying shields were pouring out of trucks and buses. Unlike their historical Latin American counterparts, however, they looked scared. Since the transition, no Hungarian police force or army had exercised this kind of muscle—an easy mark for the opposition media to distort and to link symbolically with fascism.
On evenings like that of October 16, when violence did not erupt, the police seemed determined to establish a boundary both symbolic and real, a posture common to political demonstrations in Latin America and elsewhere, too: This far, fine, but no further. But symbolism has transcended police behavior in Hungary. Indeed, the whole affair is drenched in symbolism, in the competitive uses of symbolism, and in the future of the symbols being fought over. The demonstrators claim to symbolize freedom, democracy and genuine regime change. They are demonstrating, they say, against high-level lying and immoral policies. It has been a heady season here along the Danube as we mark the 50th anniversary of the 1956 anti-Soviet revolution, and of course the demonstrators sought to claim those symbols as well. Many of Hungary’s protesters—even the football hooligans who caused most of the violence back in mid-September—view themselves as victims of past abuses. Having now been twice pummeled by “fascist” police in front of Parliament, they are martyrs seeking justice, just as their forebears in the glorious days of ’56 stood side-by-side with Imre Nagy and other heroes against the Soviets, as drums roll and banners fly amidst the noble blaring of trumpets…
Only it’s all in their heads. There are no fascist police, only a scared bunch of rag-tag recruits. There are no martyrs either, mostly just a bunch of young toughs who reportedly gave at least as good as they got from the cops. Martyrs in the cause against a politician lying? Please. Raise your hand if you are an elected leader and have never told a lie, especially about budget forecasts.
What has been going on along the Danube is in most respects a lot less than meets the eye. The demonstrators are overwhelmingly political partisans, members or supporters of the center-right Fidesz Party and its political allies. They claim that the ruling Socialists are still the Communists they used to be before 1989, and that real regime change in Hungary is still to come. This is balderdash many times over. First, today’s Hungarian Socialists are not unreconstructed Communists masquerading as typical European social democrats. The party really is reformed, really is social democratic. Its policies prove it. Second, Fidesz had a term in office in post-Communist Hungary under Prime Minister Viktor Orban. It was democratically elected, and it was democratically thrown out of office in a free and fair vote in 2002. To claim that Hungary still dwells in the darkness of pre-democratic times is vapid nonsense. In other words, Ferenc Gyurcsány isn’t the only lying politician in Hungary.
The Fidesz Party and its opposition affiliates compose a collection of rightist groups ranging from super-patriotic (read: ethno-racist) to merely nationalist that wants to re-nationalize industries, increase personal income and enterprise profit taxes on foreigners, and provide more subsidies to farmers. Not everyone here thinks these are good ideas. Not everyone appreciates rightists presumed to be associated with Fidesz spraying swastikas all over town, either, or the flying of the red-and-white striped banner of the medieval Arpad dynasty, which many associate with the fascist Arrow Cross Party of the 1940s.
But the “lying” charge launched against the present Socialist government hit an exposed populist nerve that has resonated well. That is because the daily official lies of the centralized Communist Party propaganda machine were the hallmark of the police state in which Hungarians lived as recently as two decades ago. Since no one wants a return to such cynical, boring and pervasive official lying, and since the Socialists are the lineal if reformed descendents of those former liars, it doesn’t take much imagination to see the political advantages in making the charge.
The truth is that all the major parties lied about the economy during the last campaign, and for good reason: Hungary’s sorry fiscal condition is a jointly manufactured liability. Before 2002, Fidesz ran a program of wild spending, taxing and borrowing. In power since 2002, and with Gyurcsány as party leader since 2004, the Socialists worked those numbers down somewhat, but a good bit of the excess expenditures weighing down the economy took place in the run-up to earlier elections. In 2006 the Socialists were running even in the polls with a party that promised not to reform public finances. Since both parties had basically the same information about the economy, Gyurcsány knew that the Fidesz promise was absurd and irresponsible. He also knew he would lose the election if he told voters the truth: that more austerity in the form of cutting the size of the state, charging for health services, and outsourcing some services was required. So rather than allow a bunch of liars to win office, he lied too, thus turning his party into, alas, a bunch of liars.
An intelligent Hungarian voter can therefore be forgiven his frustration. There would be even more people demonstrating, probably, were it not for a general fatigue over such matters. Besides, why should Hungarians be surprised or particularly exercised over such things if governments in Italy and France can get away with wild forecasts of growth, increased revenues (via inflation) and reduced primary fiscal deficits on paper (before interest payments)? Isn’t this what European Union membership is all about?
Well, sort of. Hungarian fiscal data are regularly reported by the Central Bank and the Ministry of Finance to Eurostat, the fiscal statistics agency of the European Union, of which Hungary is, of course, a member. Budget figures are classified in standard GFS (UN Government Financial Statistics system) economic (for example, wages, subsidies, capital investment) and functional categories (for example, health, transport, defense). But there is wiggle room. The scope of any problems in revenues, expenditures, debts and deficits really depends on the definition of such terms as “budget” and “expenditure.” It’s a simple matter to define budgets narrowly and thus reduce the deficit. If the budget is conceived narrowly, excluding off-budget items and accruing certain revenues, deficits can magically disappear. Budget officials around the world all know these accounting games.
So it was that a reported Hungarian deficit for 2005 of around 4 percent of GDP (still over the 3 percent EU Stability Pact limit) was actually around 10 percent if “private” project road financing, state railroad “enterprise” subsidies and transfers and other off-budget “accrued” expenditures were included. Even under strict European System of Accounts (ESA) ’95 accounting rules, the 2005 “cash-flow” deficit was 7.4 percent of GDP. It was held down to that level by the addition of one-off revenues like an airport sale and “payments” from quasi-state units to the budget (for gas drilling rights and road project loans), and by the exclusion of many accrued items or future commitments. While this is normal public finance practice almost everywhere, to most normal people these methods constitute “lying.”
Worse still, the officially projected fiscal deficit for 2006 under these rules (ESA ’95) by the research arm of the Hungarian Central Statistics Office, or Ecostat, is 10.2 percent of GDP. More important, warnings as recent as February in the international and local press about these fiscal shenanigans were available to anyone who cared to read them. Hungary was ranked about last in the EU-25 in public finances (that is, state employment per capita, revenue effort and consolidated fiscal deficit). That’s why, when clueless foreigners ask how long it will be before Hungary gives up its forints and joins the eurozone, economically knowledgeable eyes tend to roll.
Despite its fiscal malfunctions, Hungary still feels prosperous because of continued high industrial production (up 12.2 percent) and strong foreign investment. By a reasonable measure of “economic freedom”, Hungary is ranked 20th by the Fraser Institute (next to the Latin American powerhouse Chile) because its institutions still support property rights, competition and personal choice. That’s why, despite lower GDP growth of 3.8 percent and increasing inflation of 3.5 percent over last year, few people seemed concerned about public finances before or after the April 2006 election—until the prime ministerial leak provided such irresistible political ammunition to the opposition.
At a deeper level, however, the mood here has everything to do with being so close to the EU—formally within it, after all—and yet still so far away. The protesters and the population at large are decidedly against austerity and stabilization programs, which require one to sacrifice and defer gratification now for promised future benefits. In that regard the mood is quite similar to Latin America’s in the 1980s and to some countries of that region recently—Venezuela, for example. Like them, many Hungarians now seem to think they can create their own bubbly fiscal universes in which everyone prospers, while the state somehow continues to pay all the bills.
What accounts for this mood in a place like Hungary, which proved during the 1990s that it can stomach short-term austerity and prosper from the pain? The problem today for nearly all elected leaders in eastern and central Europe and other transitional countries is not that they’re bad at math. The problem is that the immediate post-Cold War era of fiscal discipline, austerity and self-denial is over. After almost twenty years of hearing a message emphasizing civil, human and democratic rights—most of which translate into fiscal entitlements to be paid by the state—Hungarians have now synthesized the old welfare mentality of Communist times with the welfare-state ethos of the European Union. “Come what may”, they say, “Brussels will bail us out.” How can Brussels penalize us for exceeding fiscal targets on debts or deficits, seeing as how all three of the major EU economies—France, Germany and Italy—are over the limit? Didn’t we suffer to achieve EU membership? Why should we continue to suffer now that we have it?
Given such a national state of mind, it is to his credit that Prime Minister Gyurcsány at least had the decency to level with his Socialist Party colleagues about the errors of past reform-avoidance. He reviewed negative fiscal trends and urged support for tax and budget reforms that he began pushing as soon as he was elected party leader in 2004. He understands the need to devise and implement responsible macroeconomic policies in order to get fiscal accounts under control. That means, among other things, cuts in gas subsidies, service fee increases, reduced state employment levels, and a stronger social safety net to cover the interim period until investment increases private sector jobs and economic growth, as it has in the Baltics and other Visegrad countries.
Is Gyurcsány still strong enough politically to do all this? He won a parliamentary vote of confidence on October 6, but his worries are not over. The opposition likes moralistic slogans and absolutist charges. Honest people know that all political leaders must responsibly hide some of their doubts from the public in order to govern confidently and effectively. That has always been the reality, in democratic politics as well as other kinds. And it is a fact that the lies of incumbents are invariably taken more seriously than those of opposition groups, whose fairy-tale fiscal proposals would impoverish generations of future Hungarians if they were enacted.
Illusion and denial take up a lot of space in the psychological parking lot of contemporary civilization. I work at a university here in Budapest, so I’m an expert on both. There’s an academic theory, called the “deliberative democracy” model of fiscal information, which holds that the citizens of a democracy should know all the facts, and if they do, they will bring pressure for the right policy choices to be adopted. This is an interesting theory, except that anyone who has ever developed a budget for a public organization knows how preposterous it is. Forming a consensus on economic policy, which almost by definition affects some people differently than others, is hard enough in mature democracies. It is well nigh impossible in high-conflict/low-understanding environments like Hungary.
For young democracies in need of economic reform, policymakers are wiser to act as trustees on behalf of the public weal. Austerity packages are rarely popular. One must take seriously Machiavelli’s advice to “commit all cruelties at once.” “Shock treatment” is an apt term for describing what successful fiscal reform packages look like, as many examples from Latin America and Asia attest. Fiscal stabilization programs must usually be implemented from the top, comprehensively and with severe but temporary hardship. The shock is often so intense that many publics lack the presence of mind to start demonstrating.
Here, precisely, is Prime Minister Gyurcsány’s problem. He seems to have gotten stuck between political floors: He knows what he has to do, but by letting his intentions out of his bag of political resources prematurely, he has undermined the useful power of shock. This is certainly a time, then, when one lying politician could use some support from a few of his brothers and sisters in the European Union and even from across the ocean in Washington. Anyone who thinks he’ll get it, please raise your hand. ?