Viktor Orbán now does not want to deal with the crisis, but to save the oligarchs, says Tamás Mellár in his book on economic policy for 2020. According to him, the fall was already in the years before the epidemic: when the GDP grew, the government it overheated the economy, and after such a situation, there are not enough opportunities to provide significant subsidies.

Viktor Orbán became a prisoner of the economic system that he himself had built; Tamás Mellár came to this conclusion. Although we have no idea how long the epidemic and the economic crisis will last, a politicized economics professor as a deputy for dialogue has written a book about the first experiences. The Great Hungarian Crisis Management – Quick Report on the economic policy of the Orbán government in 2020 analyzed the economic decisions of the government up to the steps announced at the beginning of the second wave.

Background to the crisis

The Hungarian economy was in a special situation when the crisis hit, says Mellár. Not only was the GDP growth rate high through the end of 2019, but the situation may have looked good based on almost all other macroeconomic indicators. However, digging a little deeper, it was already apparent that “there are serious problems below the nice surface.” The growth was generated artificially, using an external source, predominantly from the EU, equivalent to 4-5% of GDP.

Regardless of the epidemic, it would not have been possible to sustain this extensive growth for long because the resources that fueled the growth have stagnated, the book says. Economic forecasts at the time also show that policymakers were consciously prepared for the slowdown. More precisely, according to Mellár, only to accept the fact of the slowdown with the people “because they had no idea” of how to modernize the economy.

Tamás Mellár

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And when the crisis appeared, it was suspected that Hungary would be more affected by the crisis than many other states. Mellár deduces it for five reasons:

  • the competitiveness of our economy is very low,
  • there has been a lack of technical and technological renewal in recent years,
  • 80% of exports are produced by companies with majority foreign participation, mainly in sectors sensitive to companies
  • there are few highly skilled and skilled workers,
  • and the functioning of market institutions and state regulation is very weak in international comparison.

The first wave

It was already possible to see that something was wrong in March, but we had to wait until the first week of April not only to promise economic policy announcements to the government. At the time, the government created the HUF 663 billion Epidemic Protection Fund and the HUF 1.345 billion Economic Protection Fund, but a significant part was not new money in the economy, but pooled funds from elsewhere in the world. budget or taken from local governments and the business sector, he writes. . (We said the same thing when creating the funds: one third of the fund is a copy and has no hedging.) Added to this was the HUF 3 billion package from Magyar Nemzeti Bank.

There are several explanations for why only so much money was invested in crisis management, Mellár said, the reason may simply be that “the government underestimated the severity of the crisis and, consequently, the amount of additional resources needed for defense.” .

In this situation, the 2021 budget was approved in the summer, just as the first wave of the epidemic had subsided and it was suspected that very poor second-quarter GDP data could arrive. The government primarily wants to provide tax breaks, concessional loans and credit guarantees, not additional resources, Mellár assesses the situation. However, “when there is obviously a severe loss of income and a drop in demand, no matter how many loans there are, no matter how many loan guarantees there are, few companies will use them.”

Procyclical policies have failed, that is, while the economy has performed well, they have overheated it instead of saving, so that when the crisis hits, not so much support can be allocated. Mellár acknowledges that the crisis is not just the government’s fault: as a small, open economy, we are vulnerable when there is a global crisis. However, the government has provided few additional resources, and that too for bad purposes, he says.

Support for job protection, for example, was very low at the European level. The weight of the automotive industry in our economy is so great that German companies had to provide significant support instead of Hungarian businessmen. The decline in consumer spending has not been offset, while much of the unnecessary but minimal deferred spending has been funded with money spent on managing the epidemic.

So the second wave

Mellár reviewed the situation in 2020 until the end of September, but given that, with the exception of subsidies for home renovation and other repression of local governments, the economic policy decisions still in force until then had been taken, this part did not lose much of its relevance after the book was sent to print.

Mellár explains that the government wanted to prevent the economy from slowing down again when the second wave hit, and even for a long time afterward.

“Even with a shock as big as the one it received in the second quarter, the country could no longer recover.”

But he also adds: it cannot be trusted that if, following the Swedish example, the economy is saved with lax epidemiological rules, there will be a recovery. Our economy has much higher supply rigidity and lower international competitiveness than that of the Swedes, so no far-reaching conclusions should be drawn from the situation there.

But what can be done then? According to Mellár, the recovery should take advantage of the fact that the EU is more lenient in releasing the budget deficit, so that revenue supplements and social benefits can be provided. Furthermore, money should be invested in sectors where this would have a multiplier effect and support SMEs with the potential for technical change. But that wouldn’t leave enough support for the favorites.

It is also problematic that the government is making the financial situation of local governments difficult. Opposition cities and their agglomerations produce more than half of the country’s GDP, so when the government places them in a difficult position, it also reduces the opportunities for crisis management.

The prime minister now feels that there are many problems and that support must be provided elsewhere, but he cannot afford to weaken his clientele, which is why Mellár says Orbán has become a prisoner of his own system.

Mellár closes the book with this: many see the Orbán government as one that manages to deal with emergencies with quick and unexpected decisions, but this has yet to be proven.

“Our western western hero was insecure during the virus crisis, he did not know who to shoot, and because of the blind shots, there was little ammunition left in his gun.”



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