Number 62

Winter 2015.
Favorable and uncertaine factors in Central Europe

CONTENTS
Main Articles

 


Csaba Lentner: Uncertainty Factors in National Economy Planning – International Effects and Hungary’s Outlook Up to 2050 9
Olga Gyárfášová: Democratic Rights as Perceived by the Public 27
Grigorij Mesežnikov: Slovakia’s Path of Transition: Integration Conditionality, Democracy and Reforms 50
György Szapáry: The Turn in Hungarian Economic Policy after the Global Crisis 62
Csaba Varga: On Setting Standards – Or the Right to Judge the Past 72
Péter Krisztián Zachar: The Role of Chambers of Industry and Commerce in Hungary after the Transition of 1989/1990 94
Csaba Cservák: The Constitutional Court after the Regime Change in Europe and in Hungary 109

R e p o r t s a n d C o n f e r e n c e s
Twenty-five Years in Freedom in Central Europe 14-15 of November, 2015 123
Migrants and Refugees across Europe April 27-29, 2016 Rome, Italy, 130
European Network Remembrance and Solidarity May 24-26, 2016, Budapest 134

B o o k R e v i e w s
Lia Pop: On President in Democracy by Mariana Kofler 135


Csaba Lentner:

Uncertainty Factors in National Economy Planning –

International Effects and Hungary’s Outlook Up to 2050

In medias res – Hectic Jerks in Forecasts on the National Economy

In our days, national economy planning and forecasting can be decreasingly built on a basis approach and on basis data. In an emerging economy governed by external fundamentals, the medium-term position of the national economy may be planned with a zero or 100 per cent probability of materialisation, in other words, essentially “anything can happen”. Over a longer time horizon, say 15 or 35 years, the margin of error is also enormous, nearly amounting to complete uncertainty. The interval of, scope of data from and good condition seen in the period taken as a basis has a decreasing impact on the planning and outcome of a predicted event.

In other words, the estimation of the way the fate of a country or a region may change on the basis of its results or failures achieved so far has become completely uncertain, if we try to follow the dynamics of changes merely on the basis of past data. Recent events, like the dragging of the 2007-2008 crisis in Europe, the African and Asian refugees pouring on Europe in the aftermath of the Arab Spring, or the “victories” of the monetary and fiscal policy of the United States, and the extraction of shale oil and shale gas available in nearly unlimited quantities in North America have resulted in the strengthening of the United States and in the refashioning of the global economic balance of power. And this is not to the benefit of Europe or Hungary. Such exemplary events arbitrarily taken out of context and yet significant could hardly be predicted 5 or 10 years ago. What is more, the contrary was forecast.

In the collection of studies entitled Hungary 2025, published in 2010, the economic perspectives held out for a period of fifteen years included a negative and a positive scenario. The differences between them seem to be significant, as five years later, in 2015, Hungary is positioned somewhere in the band between the favourable and unfavourable outlooks. This means that the country’s outlooks have neither improved nor deteriorated and will neither improve nor deteriorate one inch. Thus in the 10 years ahead of us we will neither sink further nor converge to the 15 most developed countries of the European Union. True, the EU-15, considered as an aim for us, are not inching up either. Theoretically, for all that, the value of our fall-behind index could even drop. It is also true that after 2010, significant changes were made in Hungarian economic policy, approach and understanding, however, for the time being, their sustainability remains uncertain. Even with knowledge of the favourable achievements of the period behind us (the past 3-4 years), we are not in the position to presume continuation, i.e. the sustainability, of the favourable data with a 100 per cent certainty.

According to the pessimistic expert forecast published in 2010, in the absence of significant economic changes, Hungary will sink back among the three most backward countries of the European Union. Instead of monetary stability, the country will be characterised by “jerking”. The obsolete structure of the import of raw materials, energy and parts will become set, and permanent deficit, high inflation and unemployment can be expected. Our dependence on and indebtedness to the international capital will continue. In order to retain foreign capital in Hungary, further allowances will be granted to international investors.

In contrast to the pessimistic position, five years later, in 2015, and moreover, already for a couple of years, the problem in Hungary has not been inflation but deflation, similarly to numerous countries in Europe and all over the world. We managed to stop budgetary deficit increase and maintain it permanently below 3 per cent. Nearly 300,000 new jobs have been created since 2010, although most of them in the framework of public works projects. After 2010, increase in state debt also halted. Due to the failing sales market capacity of our main ally (the European Union), the policy of opening to the east was launched and may re-position products and services that have become unnecessary and unmarketable in western markets. Favourable Hungarian macroeconomic data are due to marked changes in the economic policy. This means that the basis has changed. Taxation has been made fair, and the Hungarian central bank has undertaken to support fiscal and governmental policy. Hungary has taken a sustainable growth trajectory.

Under the optimistic 2010 expert forecast, by 2025 Hungary will have converged to the average of the 15 most advanced countries of the European Union in respect of both the most important macroeconomic indicators and a modern economic structure. A long-term modernisation strategy will be formulated and the economic, political and social participants will cooperate in its implementation. The effects if modernisation will also appear on a microeconomic level, with appropriate incentives, small enterprises will also be able to use new tools in business and constant innovation.

The optimistic opinion is (subsequently) proven true by the fact that a new economic policy has been developed to allow the state actively influence the economy and increase its controlling and regulatory role. This may also be considered as a modernisation strategy, however, as suggested by the name, economic policies inherently and fairly heavily depend on politics. When a particular political power gains a position to perform a specific political or social assignment, it enforces the corresponding economic philosophy in its economic policy. However, the sustainability of the current economic policy may come up against difficulties, primarily due to external factors.

Evaluation of the changed between 2007 and 2015

By the autumn of 2008, the crisis that started in the Anglo-Saxon mortgage markets had also reached Europe. However, the crisis is not merely the manifestation of a widespread process that has grown to become a bank crisis, but also a systemic crisis of the Neoliberal financial regime practiced since the 1970s. It is a systemic crisis because the fundamental logic of the Neoliberal market economy has been undermined. In other words, as market participants, principally overlanding commercial banks, were subject to minimum state regulation, their unregulated and uncontrolled activities drove the bank sector to collapse, and since the money markets have been globalised, this phenomenon spread all over the world.

Bank sector collapse caused drop in production, problems in state, corporate and household liquidity, while on the basis of the Neoliberal market principles, its consolidation required help from the state, which had been thrust to the background for decades. In Hungary economic policy followed the Neoliberal ideas continuously from the 1970s and more abruptly after 1980. From Hungary’s perspectives, the applied Neoliberal model underwent a crisis and swept Hungary along, thus the country became unable to modernise and stabilise its economy as a result of numerous inconsistencies and contradictions in the change of regime. Collapse in Hungary’s economy may have taken place in the autumn of 2008, with USD 25 billion provided by IMF and the WB in assistance to the current economic policy. The failure of the Neoliberal period manifested in excessive indebtedness  on the one hand, and in the impossibility of the country’s governance and loss of confidence in the government.

Nevertheless, the period between 2007 and 2014 cannot be evaluated as a single period. Following the economic policy period closed in 2010, focus had to be put on the implementation of structural reforms, in other words, monetary stabilization to be followed by launching economic growth in order to make a progress or rather not to sink further. In terms of the history of structural reforms, it is important to emphasize that without reforms, sustainable GDP growth, a high level of employment and monetary balance have always been untenable, whether before or after 2010. Moreover, in the first few years, reforms always “take more than give”, and for this reason, funds may or rather must be raised for reforms

  • either from loans (ruled out as it leads to indebtedness as evidenced by Hungary’s example of the 1970s),

  • or by austerity programmes (which trigger resistance, as the economic policy measures taken in 1995 or the convergence correction package of 2006),

  • or by taxation to share the burdens (which triggers external resistance, as in the case of various crisis taxes in Hungary, e.g. the introduction of the bank tax after 2010).

Fiscal crisis management can be either conventional or unconventional. The traditional, orthodox approach of crisis management (see the Mediterranean region, IMF programme countries, including Hungary up to 2010, where measures are carried out according to the crisis management methodology “inspired” by the IMF, WB or EKB) targets structural reforms through austerity packages (namely, by increasing taxes and concurrently decreasing public expenses). However, austerity programmes usually cause domestic political instability, governments weaken and/or fall, and therefore structural reforms slow down and/or come to a halt. Under the unconventional crisis management scenario, structural reforms are institutionalised through fair taxation. By tax base broadening and taxing international companies, domestic political stability can be maintained and time is saved for governments to perform structural reforms, which in turn results in long-term financial balance. Domestic residents do not raise political objections against burden sharing, i.e. the taxing of international companies (no strikes are organised). Moreover, as an essential element in the Hungarian model, taxes are reduced  for domestic companies and on household incomes in the hope of improving their competitiveness and income gain.

The Hungarian public finances model based on burden sharing forestalled growth in the general government deficit and indebtedness by raising additional revenues for the government and simultaneously increasing domestic solvent demand. In the spring of 2013, the National Bank of Hungary also started to contribute to the improvement of fiscal policy results, and has become the key factor in Hungarian economic policy through its Funding For Growth Scheme, base rate decreasing policy and self-financing programme.

The permanent economic growth, falling state debt, moderated inflation, increasing employment, positive balance of trade resulting from coordinated fiscal and monetary mechanisms clearly represent the best macro-economic positions. Five years ago only a fraction of the economic researchers foresaw the consolidation that had evolved by 2013 and was followed by an economic policy allowing permanent growth. Such a “constellation” of the required political and economical conditions and the international situation is a rarity. Thus the forecasting probability of this turning point to occur in the 2007-2009 period, when the research being done for the above-referenced book entitled Hungary in 2025, was either nil or 100 per cent, moreover, either one of the two extreme probabilities “Only” a few fancied that all this can come true. However, the Hungarian model that has been applied since 2010 is disapproved by the international companies and by the European Union, and so our country is not developing according to a modernisation programme in a European sense.

The increasing difficulty in forecasting the period ahead of us has become typical not only in the periods usually used for futurology (more than 10 years). National economy planning – which focuses on and also results, as its end-product, in the (draft) budget act, compiled by the government and approved by the National Assembly usually for a year – basically relies on the the expected/planned developments in economic growth, the consumer price index, productivity, the investment ratio, household consumption, community consumption, gross fixed capital formation, domestic utilization, the export and import of products and services, and the review of development in the balance of payments. These comprehensive macroeconomic factors provide the basis of planning the income and re-distributional functions and items of the state. However, since the 2007 crisis “ad hoc events” have also become more important in planning the Hungarian national economy. Including but not limited to the sacrifices undertaken in the interest of stabilization, and the achievements of the euro area and the United States as the world’s leading economic power in the field of crisis management. In the budgetary planning practice the future budgetary and growth outlooks of the EU as main federal partner, its free trade negotiations with the United States, its foreign market diversification opportunities, inputs, outputs and the actual course of conflicts around the area are appreciated. The actions taken by the central bank to support fiscal policy also increase in significance (and must be taken into account), and the central bank itself becomes more important not only as an institution fighting inflation but also as one that provides complex support to macro-economy.

The fact that in Hungary the next year’s (2016) budgetary processes can be planned with a higher probability does not contradict the main point of this study. According to the State Audit Office’s opinion report about the 2016 budget act, 84.4 per cent of the tax revenues are expected to be collected with full certainty, considerably up from to the planned and estimated 51.3 per cent in 2015. In consideration of the improving probability of tax revenue collection, 89.55 per cent of the total revenues included in the budget act can be collected with full certainty. So the short-term estimation based on the continuity of the base approach may work out. However, the same report of the State Audit Office also highlights that the scale of the expenses that are open-top and can be exceeded during the year may amount to 53.3 per cent of the total amount of expenses. During the assignment of probability to the expenditure , it is invariably necessary to emphasize that planning is performed on a basis approach and is predominated by an “as known” character.

Forecast – hopes and fears – to 2025 and 2050

Hungary’s future vision and national strategy is fundamentally based on the global growth trends and directions seen in Europe, the United States and Asia and affecting the global economy. For more than two decades the “myth” was held that the structure of resources in the global boom would develop in favour of China. This view envisaged a global population change with approximately 1 billion integrated population in each of the USA and Europe, and 2 billion in Asia by 2025. For nearly a decade the USA seemed to be able to maintain its global leading role in GDP generation and consumption until 2025, but it is already losing its first place in the global dynamics. While the European Union has suffered a significant loss of grounds compared to Asia and the USA (ever since the failure of the Lisbon Strategy), its role in global development will be irrelevant.

However, the signs of a Chinese crisis have been clearly seen since the summer of 2015, an immense hidden indebtedness, not generated in the center of public finances, which originates from the low use value of investments implemented from loans and allocated to local councils, and concurrently from problem of loan repayment. Chinese capitalism mingled the ideas of Chinese state Socialism with the Anglo-Saxon banking system’s management techniques based on overlanding, and its negative effect appeared only subsequently in the Far East. And in the meantime, the economic dynamism of the United States has already well exceeded the pre-crisis levels, as a result of a successful quantitative easing policy. Meanwhile in China, endeavoring to become a leader in the global economy, only the August 2015 stock exchange losses were six times the entire debt of Greece. The Chinese economy basically operates with foreign capital, using foreign management techniques. Production is cheap because of low wages and the absence of social support. Growth is based on the depreciation of the renminbi, cheap exports and poor investment standards. The financial crisis went around the world, has arrived to the Far East, and has been embedded in Europe. The ultimate “equilibrium” in the US economy and in the leading emerging markets can only be achieved through the consensus of all leading participants of the world economy. The United States needs the cheap Chinese and Far Eastern production, and Europe needs Russia.

The fact that the EU has permanently weakened in the economic competition against the United States finishes all previous Hungarian national convergence strategies matched to the future outlook of the EU that suggests obligatory optimism once and for all. Americans keep purchasing European medium-sized companies surrounded by a feeble financial environment. The fiscal policy of the EU was unable to halt increase in Member State deficit and debt, and is struggling with record-high unemployment and millions of migrants.

The economic policy adopted by the central bank of the EU on the basis of quantitative easing is well overdue. Moreover, after the Fed stopped its extremely loose monetary policy in the autumn of 2014, and soon after the “backing out” causing great market turbulences, the American interest rate increasing period to start shortly will rearrange financial markets: credit will become more expensive, and the emerging countries will find it more difficult and expensive to raise funds. The “awkward” steps taken by the ECB in the summer of 2014 in an attempt to keep pace with the Fed’s successful crisis management suggest that the negative central bank deposit interest rate applied by the ECB since last summer has considerably deteriorated the weight of the euro within the global central bank reserves. As a combined result of the successful and timely US measures and the awkward and overdue European Central Bank actions, the weight of the dollar increased and will continue to do so if the Fed starts to increase the interest rate within a short time. The negative deposit interest rate is very painful, because in the global central bank reserves of a well-known composition the weight of the euro has fallen below 21 per cent, the lowest level in 13 years. See Figure 3. This also means return to the lowest ratio ever since the physical introduction of the euro.  The US dollar has strengthened both as a currency used for international payments and as a reserve currency, while the euro has further lost from its role. Just to add one more idea: with the closure of the free-trade negotiations first between the USA and Canada and then between the USA and the EU, the American companies and farms can profit more as they are in a more favorable position in terms of the economies of scale.

In the past five years the Hungarian economy has performed well. But the end of Fed’s QE policy and the imminent interest increasing cycle foreshadow difficulties in finding cheap funding for Hungary’s state debt.  However, the sustainability of the Hungarian model that has been built in five years also comes up against other problems. Namely, the method applied is in conflict with the internal law of the European Union at several points, in other words, the facts that the Hungarian State intervenes in economic processes and has an increasing influence on the economy fail to meet the requirement of “freedom of competition” as understood by the European Union. In the European Union state aid is regulated in the framework of competition policy. One of the main drivers in the establishment and development of the European integration was the removal of obstacles to free competition at the level of the entire community, to be followed by the creation of a single market. The basis of the European Union’s regulation of state aids granted to market participants is the principle that aid provides a financial and economic advantage for the beneficiary, and therefore biases free market competition. Aid allows the putting off of the required structural changes and does not result in the improvement of the supported organisation’s competitiveness. Both (Article 107) of the Treaty on the Functioning of the European Union and (Article 87, Section 1) of the Treaty of Rome prohibit state aid, and Member States that violate this prohibition may face infringement proceedings. Thus, on a systemic level the Hungarian government may not use state aids and assistance in large numbers.

Pursuant to the Treaty on the functioning of the European Union, “state aid” is a benefit secured by national authorities to one or more businesses in a selective manner. This means that the measures that apply to all businesses are not considered as state aids. However, the Hungarian government operates within fiscal limits and cannot afford this, and moreover, aid to every single market participant is both unjustified and uninterpretable.

The prioritised companies granted state aid (beneficiaries) gain advantage over their competitors. To avoid this, Article 107 of the Treaty on the Functioning of the European Union stipulates a general prohibition on using state aid. Nonetheless, under certain conditions, state intervention is required to secure the efficient and balanced operation of the economy, and in order to achieve specific objectives or political intentions, the European Union may deem certain state aid measures as being in harmony with the Treaty on the Functioning of the European Union. The Treaty of Rome defines state aid and prohibits, as a rule of thumb, the granting of such aids. Article 87(1) of the Treaty of Rome states that, “save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market”.

Summary

The prediction of future economic developments has been made considerably more difficult by the stochastic, unexpected and unpredictable political, social and economic events, primarily taking place outside Hungary’s borders. Over the planning horizons, the time length, i.e. whether outlooks are sought up to 2025 or 2050, over the medium or a longer term, or a short one-year period in the national economy, has lost its significance, as it is increasingly difficult to “find the range of” the influencing events because ad hoc international events are ever more frequent, and any further forecast of the future is increasingly complex on the established basis.

The favourable achievements of the Hungarian economy between 2010 and 2015 can also be hardly used as a basis for a 10- or 35-year forecasting period, since the sustainability of the “positive yield” meets external difficulties. This is determined by three factors: ad 1/ the launching of an interest hiking period in the US, which will make state debt financing and commercial lending more expensive all over the world; ad 2/ increase in the number of infringement proceedings in the European Union against the Hungarian model; ad 3/ the effects of the free trade negotiations between the European Union and the US, and the conclusion of the relevant agreement, which will entail the prohibition of direct governmental intervention in the economy, and simultaneously remove the method used by the Hungarian model, which has been successful so far. If the European Union’s expectations remain unchanged, the Hungarian model cannot be sustained, but if the European Union’s power of enforcement lets up, there is a chance to carry on with the unconventional Hungarian method. The free-trade agreement between the European Union and the US may nevertheless cap this method, as similarly to all Member States of the European Union, Hungary will also be mandatorily subject to it.

To round it up with thoughts from André Gide: debris also raise the ground we tread, and if a spire seems to be lower than before, the reason may be that the rubble we tread lifts us higher. In other words, even if the achievements we have made collapse and can no longer be carried on, we still have made progress in building the world, our environment and our society.

Epilogue: At its meeting held on 16-17 September 2015, the Federal Open Market Committee did not raise the base rate, although they emphasised that cheap credit alone is insufficient to solve the weaknesses of the global economy. In the Fed’s position, the US economy is on the right track, both household consumption and the business sector are expanding, but the US decision-makers are concerned about the feeble economies of the in China and the European Union, and the unexpected rise in US wages. If the base rate had been increased at this moment, the financing tensions that would have evolved in the emerging markets would have had an impact on the economy of the United States. Thus in September 2015, no interest hike was made, but in observance of the American market reactions and expectations, one can briefly put it this way: next time. However, the expected date and % of the interest hike is capped by the fact that by the end of 2015, the US federal debt will have amounted to 350 per cent of GDP. Per capita US government debt exceeds USD 180 thousand. While the per capita consumption loan was USD 9300 in 1980, it is USD 65,200 in 2015, representing a 700 per cent growth in 35 years. Currently, the population of the United States officially owes USD 21 thousand billion in the form of mortgage, credit card debt, student debt and other liabilities, while the average household income has been constantly decreasing for seven years in the United States, and the number of apartment and house owners has reduced to the fragment of the earlier records, which were already low.

Currently, the US car loan portfolio exceeds one thousand billion dollars, 40 per cent up since 2010. This might be the reason (among others) for the Fed’s reluctance to raise the base rate, as the US government debt portfolio not only does not decrease but continues to increase. Increased interest on government debt and household loans would be unbearable for the budget and the households, production would become more expensive, and domestic consumption as well as exports would drop. An interest hike would, however, burst a few bubbles, like student loans, which represent more than USD 1160 billion at the moment.

When all is said and done, the Fed has two choices: either it raises the interest rate and runs the risk of weakening the US financial system or it does not raise the rate and triggers a grave confidence crisis with the postponement of the previously announced interest hike to an uncertain date. From the perspectives of Hungary, and the other emerging market economies, all these arguments enhance the uncertainty factors in planning the national economy.

Csaba Lentner:

Uncertainty Factors in National Economy Planning – International Effects and Hungary’s Outlook Up to 2050

Summary

As a result of the global economic and social phenomena seen after the 2007 and 2008 crisis, national economy planning built on a basis approach has been gradually waning, especially in market economies that are dependent on external capital. The number of unexpected, mainly external, events that cannot be planned is on the increase and the uncertainty factors affecting the entire national economy are more and more frequent. The perspectives of planning the Hungarian economy, which has achieved significant economic stability between 2010 and 2015 among the post-planned economy regimes considered as an emerging market, have been facing a significant challenge, especially due to the constantly changing and often unpredictable international factors. The author proposes that through enhancing the independence of economic policy and of endogenous factors, and increasing the self-supporting capacity, a sustainable budgetary and social trajectory should be developed.

Dr Csaba Lentner, professor, Head of the Public Finances Department of the National Public Service University, Member of the Future Research Committee of the Hungarian Academy of Sciences, Lentner.Csaba@uni-nke.hu

This study analyses the posterior period of managing the 2007-2008 global economic crisis, with special focus on the effects of the monetary policy of the United States, oil price fluctuations and the flood of migrants on Hungary.

The term “governed by external fundamentals” means that FDI and external financing have a predominant role in its operation. For more on this, see Lentner, Csaba: Rendszerváltás és pénzügypolitika (Change of Regime and Financial Policy), 2005, Akadémiai Kiadó

By the autumn of 2014, the economy of the US had been stabilised to a great extent: the unemployment rate is about 5 per cent, representing practically full employment. The USA has cut the unemployment rate by more than 3 per cent, while the EU has seen it increase by minimum the same per centage. Meanwhile the role of the US dollar as an international currency has strengthened again. And its competitors (China and the EU) are struggling with a crisis. The US foreign trade deficit was USD 842 billion in 2006, pressed down to USD 517 and USD 730 billion in 2010 and 2014, respectively, which means that the US was able to moderate and considerably curb it, while doubling the export of agricultural products between 2007 and 2011 and its exports to China between 2005 and 2011.

It is a classic assumption that the US and other advanced countries obtain the hydrocarbon derivatives required for production from the Middle East, the USA is declining while China is “on the rise”. On the other hand, hardly anybody (in the EU or among Hungarian economic organisations) expected refugees to flood Europe. Nevertheless, within but a very short time, these factors became predominant in the development of Hungary and the EU.

Hungary 2025, GSzT, Hungarian Academy of Sciences, Budapest, Nováky, Erzsébet editor, 2010

This is already at odds with the fact that in the summer of 2015, the world market price of crude oil fell to one third on a year earlier, despite the facts that there is an economic embargo against Russia, the US has started to export shale oil, and simultaneously the traditional crude oil acquisition points and transport routes have depreciated, while in the south-eastern region of the Mediterranean Sea (Syria and Turkey) struggle for regional leadership has started. As the USA is capable of exporting shale oil, and there is an embargo in place against Russia, the EU-28, which depend on external energy for 53 per cent of their consumption, must either purchase increasing amounts from the US or (alternatively) secure the transport routes from the Middle East instead of the US army (as this region has begun to depreciate for the US), which would cost enormous amounts.

Since 2013, when inflation stopped as a result of price regulation adopted in fiscal policy and halting growth in budget deficit, prices have been falling.

It is a classic theorem in public finances that high, and even more, increasing budget deficit generates inflationary effects.

See Figure 1.

True, (under US pressure) the EU has introduced an embargo against Russia. What is more, since 2015 the monetary sector in China (the flagship of our eastern opening policy) has also been showing signs of instability.

Over the longer term, for the time being it is not, due to the embargo, and China’s weakening is also unfavourable. The success of opening to the east may be overshadowed by the fact that by 2015 both China and Russia has shown declining economic performance, with reducing roles in the global market and waning sales market potentials.

Nonetheless, this modernisation strategy is not identical with the one followed by Hungary’s leaders for several decades. In their opinion (i.e. the opinion of the Neoliberalist intelligence), this is not the road to Europe, it rather leads out of Europe.

Hungary had adopted and followed the Neoliberal recipes recommended by IMF and WB ever since the start of its dependence on external credit, essentially the beginning of its indebtedness. However, in 2010, we yanked the IMF out – as György Matolcsy put it.

Lentner, Csaba: On social market economy and economic independence. Obituary of Dénes Csengey. In. Credit, Vol. 28 No. 3. pp. 101-109.

http://www.hitelfolyoirat.hu/sites/default/files/pdf/08-lentner_0.pdf

The “current economic policy” followed the Neoliberal principles under the economic governance of Ferenc Gyurcsány and then Gordon Bajnai.

See the rise in government debt: Figure 1 The concomitant principal and interest payment liabilities drained the country’s resources and capacities, and disproportionately reduced Hungary’s independence. Let us add: from USD 20 billion recorded at the beginning of the change of regime, the Hungarian government debt had increased to USD 140 billion by 2010, and the debt of households had increased by additional USD 40 billion.

See the extremely poor confidence in the government in 2009: Figure 2

transformation always causes losses. To give an example: the systemic transformation that took place during the 1980s and 1990s was described by János Kornai as a transformation crisis. But if there is a transformation crisis, there is a transformation loss. Let me add: the change of regime in Hungary, which was built on Neoliberal principles, was a systemic crisis itself. The past three decades left sizeable losses. For more details, see Lentner: Is the Hungarian market economy a genuinely higher-level economic model than the planned economy system modified by market elements? (2009), In: Farkas Heller Booklets, Péter Pázmány Catholic University, Faculty of Law, Vol. 8, No. 1-2. pp. 10-17. http://lentnercsaba.com/doc/publications_07.pdf

The central bank’s crisis management can be based on conventional means (monetary basis regulation, combatting inflation) or may adopt unconventional methods (Funding For Lending, low base rate, QE, self-financing programmes).

The example of Greece is an apt illustration that an economic policy based on the conventional method (IMF, previously the ECB) is not only inefficient in managing crises but causes them.

Reducing the personal income tax rate from 36 to 16, and then to 15 per cent and the moderation of the profit tax payable by companies with a maximum HUF 500 million net sales revenue (typically Hungarian companies) by 50 per cent.

Extending Fiodor M. Dostoevsky’s „moment of mercy”, the period after the spring of 2013 can be characterized as the continuity of several moments of mercy. These words are written at the end of 2015.

In addition to the political mandate granted by two thirds of the voters, the Hungarian unconventional public finances policy also benefited from the abundance of liquidity in the international financial markets (QE). There is/was an abundance of funds in the world.

These override the decades-long budget planning practices and habits. For example, we invest depending on the way our relationship with the EU develops (aid blocking, infringement proceedings, Hungary’s share in the common EU budget, our net positions). Whether the Mediterranean region of the EU is sinking or not, whether oil prices will rocket (120 USD/barrel) or remain at USD 55. Will Russia and the Ukraine come to an agreement in their territorial and gas debate? Serial ad hoc events once become systematic. Disturbing factors evolve into a system interfering with budgetary processes, and require systemic, institutional responses in the course of planning.

Solution for the consolidation of the budgetary sector, companies and households.

As it has achieved its purpose. See the 5 per cent unemployment rate, which practically means full employment, the expanding economy, the financial balance and the strong ability to enforce one interests on the balance of powers in the world.

Started monetary easing, funding for growth measures, securities financing from central banking sources, and cutting the interest rate close to zero per cent. However, the capacity of these measures are not in line with the weight of this problem.

This prospect was held already in the spring of 2015, in a speech by Janet L. Yellen at the Brown University, and the announcement o the relevant specific decision is expected after the Fed’s September 16-17 board meeting that increased the interest rate.

Bad loans and securities representing nearly four thousand billion US dollars were purchased by Fed between 2008 and 2014.

In September 2015, the world focuses on the date of the Fed’s base rate and the per centage to which it is raised. I am fortunate enough to follow the events closely at the Fed’s Research and Statistics Division.

 The introduction of crisis taxes, including the bank tax, the consolidation of foreign-currency loans and municipalities, assistance from government funds to meat industrial corporations in national hands, the introduction of central price regulation etc.

This is not a literal quotation, rather the essence of the idea, as I can recall from my memories of secondary-school literature classes.

In 2015, the Fed FOMC will make two more interest decisions. In my opinion, within half a year the US central bank will set out on its way of interest increase, which will in turn trigger an “aggressive” central banking policy from other the central banks of the world.

Cf. e.g. USD 35,000 in France.

Dr Csaba Lentner, professor, Head of the Public Finances Department of the National Public Service University, Member of the Future Research Committee of the Hungarian Academy of Sciences, Lentner.Csaba@uni-nke.hu

This study analyses the posterior period of managing the 2007-2008 global economic crisis, with special focus on the effects of the monetary policy of the United States, oil price fluctuations and the flood of migrants on Hungary.