Economy & Trade, Europe, Headlines

HUNGARY: Reform Drive Hits a Wall

Zoltán Dujisin

BUDAPEST, Jan 11 2008 (IPS) - The introduction of some of the most wide-ranging austerity measures in the recent history of Central-Eastern Europe is forcing Hungarians to endure a period of hardships, but an opposition-initiated referendum and the resistance of the middle classes are endangering the socialist government’s plans.

Some say the reforms are unavoidable, many completely oppose them, while others have suggested the government should have opted for a more gradual approach.

“Whether we like it or not we have become a part of the capitalist system, and more than carrying out reforms, Hungary is streamlining its system and subsystems to EU standards,” sociologist Janos Ladanyi told IPS.

Hungary’s socialist-liberal governing coalition, led by contested Prime Minister Ferenc Gyurcsany, wants a complete overhaul of the state administration and particularly of the health and education sectors.

The right-wing opposition, led by former prime minister Viktor Orban’s Fidesz (Hungarian Civic Alliance) claims that what the government calls reforms is nothing but tax collection to retrieve what the socialists spent irresponsibly over the past six years.

Violent protesters ravaged Budapest in 2006 after Gyurcsany’s admission he had lied on the state of the economy to secure his re-election. Fidesz says his victory was thus illegitimate, and a referendum on his policies is necessary.

The decision to hold a referendum some time in spring was approved by the country’s constitutional court after prolonged disputes over its legality and appropriateness, though opinion polls indicate most Hungarians are in favour of it.

Hungarians are expected to oppose measures such as the introduction of health care and tuition fees in the referendum questions.

Fidesz also claims that the measures, which lessen state redistribution, will intensify inequalities, whereas the government argues the reforms will improve the situation of the neediest and make the education and health care systems more equal.

“The reforms are aimed at making the richer pay for extra services so that assistance can be given to the poorer,” says Ladanyi. “There is a deep gap between the poor and the very poor, and they need a special service or they will die in the streets.”

But the sociologist, who is critical of certain sectors of the right pretending that reforms can be completely avoided, also warns of a danger that structural changes will not happen, and that certain interests and lobbies might push for governmental measures that favour them.

“The goals of the health reform are good, but there are many terrible steps that we have to be critical about,” says Ladanyi. “And in the case of the education reform even the goals are wrong: how will the closure of schools in small villages support the poorer?”

The consequences of voters rejecting the government’s steps in the referendum remain an object of speculation: while not legally binding, Fidesz says it will force the government to resign and bring early elections.

Gyurcsány denies this, but admits his position is conditional on the success of the reforms. Still, a defeat in the referendum will give further strength to both internal and external voices suggesting his departure.

To boost his legitimacy Gyurcsány is planning a simultaneous counter-referendum on a set of anti-corruption measures.

This comes at a moment of great weakness for the coalition parties: Socialist voter intentions have sunk to numbers below 20 percent, whereas the liberals would probably not make it into parliament for the first time since 1990. While there have been disagreements between the two, especially regarding the liberal’s flagship idea of introducing a multi-insurer scheme in the health sector, both have realised that an early election would be catastrophic.

Yet independent analysts warn that the opportunity presented to Fidesz by the crisis of pro-governmental parties has not been fully seized, with most disillusioned voters remaining undecided.

Orban’s difficulties were underlined by a poll last year that showed Hungarians found Gyurcsány to be more fit as a prime minister than Orban, in spite of the latter’s party comfortably leading in opinion polls.

The opposition leader, while continuing to be adamant on the government’s full responsibility for the current state of affairs, seems to be adopting a less confrontational style aimed at conquering undecided centrist voters, who have in the past determined election results against him.

The government, which is already facing strikes, has promised that sacrifices will be temporary, but so far Hungarians have only experienced a drop in real wages, with rising prices.

But if voters were to feel an improvement in their socio-economic situation by the general elections to be held in 2010, the socialists could still hope for a victory that would mean a third consecutive term in opposition for Fidesz and an enormous blow to Orban.

The government has presented Fidesz as a force incapable of governing, with its inability to put forward any policy alternatives. As a response Fidesz recently announced a new and heavily social-democratic policy platform titled Strong Hungary.

The programme signals a turn to the socio-economic left by Fidesz, which frequently accuses the socialists of abandoning left-wing values by pursuing neo-liberal policies.

Fidesz politicians argue that high taxes are impairing the country’s competitiveness, and instead favour targeted tax cuts and strengthening small and medium sized companies.

In a country with some of the highest taxes in the region, the finance ministry estimates the black economy accounts for 20 percent of the Gross National Product.

Yet the government has announced that tax revenues were higher than expected, governmental costs have been cut, and the budget deficit has been reduced by three points, standing at six percent presently. Hungary wants to lower this number to three percent to meet Brussels’ criteria for introduction of the EU’s common currency, the euro.

Opposition and media favourable to it have insisted Hungary has become the worst economic performer of Europe, calling it the “laggard” of the central European region where the 10-million country used to be a frontrunner.

The Czech Republic is undergoing less comprehensive reforms and Poland’s new liberal cabinet might be getting ready for the same, but their macro-economic indicators are currently more positive than the Hungarian ones.

 
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