„Hungarians are used to foreign rule. The Mongols, the Turks, the Habsburgs, the Nazis and the Soviet Union have all left their mark. Sometimes the locals help the occupiers, sometimes they get in their way. Usually it’s a bit of both.
These time-honoured tactics have proved less successful under Hungary’s latest overlords: the European Union, especially as the country joined the club voluntarily. Today the European Commission launched legal action against Hungary over three issues: a new central-bank law, which it says opens the door to political control; judicial reforms that will see hundreds of judges forced to take early retirement; and concerns over the independence of the new data ombudsman. Hungary has a month to modify the laws. If it does not do so, it faces being hauled in front of the European Court of Justice.
Today's ruling is a serious setback for the right-wing Fidesz government. The groundswell of concern in Brussels and other western capitals about Fidesz’s relentless centralisation of power is steadily growing.”
It also comes as Hungary is seeking financial assistance from the IMF and the EU. Tamás Fellegi, the government’s chief negotiator, is making the diplomatic rounds but so far has nothing to show for it. Christine Lagarde, head of the IMF, made it clear last week that Hungary will have to play ball with the EU before it can receive a penny.
So what next for Viktor Orbán, the Hungarian prime minister? In most countries enduring a fraying economy and a non-stop diplomatic barrage the ruling party would be cracking as potential rivals readied themselves for power. Not in Hungary. The faithful Fidesz flock stick to the party line as happily as their Communist predecessors.
A compromise looks likely to be found on the central bank and data protection. The question of the judges may be more difficult. Assuming the commission sticks to its guns and forces concessions from Mr Orbán, he will be politically weakened. His popularity is already sagging—one poll gives Gordon Bajnai, his technocrat predecessor, a popularity rating of 28%, one percentage point ahead of the prime minister.
Should Mr Orbán refuse to make concessions then the prospect of an IMF deal will evaporate, the forint will plunge further, bond yields will climb yet higher and the prospect of default later in the year will loom ever larger.
Supporters of the government argue that the commission's action is an outrageous attack on Hungarian sovereignty. Fidesz won a landslide two-thirds majority in a free and fair election less than two years ago, they say, giving it an overwhelming mandate for change. Brussels should mind its own business.
It’s a fair point, but as pressure grows on Budapest the focus will likely shift to the lack of a proper mechanism within the EU to bring wayward members into line. Infringement proceedings are serious but can drag on for years. The EU has the Copenhagen criteria to ensure aspiring countries meet membership requirements, but little to ensure that they stick to them once inside.
The markets' reaction to today's development has been muted. Hungary sold three-month T-bills worth €55 billion forints ($226m), 10 billion more than the target and at slightly lower yields.
But Société Générale is already advising investors to sell forints, predicting that the currency may slide to as low as 325 against the euro. (It briefly hit 324 earlier this month.) Recent reassuring comments towards the EU and the IMF from the government may be nothing more than “yet another tactic to calm markets down”, the bank said. (The Economist)