Key findings

  • With the approaching date of the next election, statements by Fidesz politicians and experts tend to send the message: there are no systemic differences between economic policies of the Bajnai-cabinet and Fidesz.
  • Simultaneously, Fidesz tries to explore and expand its economic and political potentials, reassure investors and prepare voters for unpopular measures to be implemented by the next administration.
  • Once in power, the opposition party hopes to open a new era with symbolic changes (the cancellation of the property tax and the reinstatement of the family welfare system), while in the first years of its term it will be in a position to pursue fundamentally different economic and especially fiscal policies. Pressure from international bodies and markets will enforce budgetary discipline. Despite generous promises, once in power Fidesz will be unable to splurge and reverse all policy decisions passed by the Bajnai-cabinet; such steps would go against its own vested interests.
  • Fidesz’ future economic policies acceptable to the market will be undermined primarily by its own past anti-reform rhetoric and Jobbik's social populism.
  • At the same time, Fidesz may have the opportunity to postpone popular measures by referring to the failed economic policies and rampant corruption of the previous administration, while economic expansion in the second half of its term can be converted into political support.
  • It is yet to be seen however, whether the party’s economic and monetary policies will be controlled by a group led by Mihály Varga, an advocate of budgetary discipline within the party, or György Matolcsy who subscribes to the theory of deficit spending.

Cautious approach to governance


With the prospect of coming into power drawing ever closer, Fidesz and its leader repeatedly make statements that stand in contrast with the general rhetoric which focuses on criticising the government, the austerity measures and the structural reform initiatives. 


  • On the day of the vote of confidence on Ferenc Gyurcsány that took place just after the local elections of 2006, Viktor Orbán said in an interview that “austerity measures are inevitable”.
  • In the midst of the political uncertainty brought on by the coalition break-up, details of a speech given by the leader of Fidesz leaked to the press in the summer of 2008. He indicated freezing of infrastructural investments and amount spent on pensions, hinting at the possibility of severe austerity measures.
  • In his statement to Reuters following the catastrophic defeat of the governing parties Orbán prognosed that the state of the economy will deteriorate further by 2010, prompting the need to renew the IMF loan.



Policy experts of Fidesz gave similar statements with Orbán’s indicating that while in power, the enacted economic policies will not be that much different from those of the current government. For example, Mihály Varga recently stated that he agreed with the methods and goals of the new tax laws, but they are not far-reaching enough. It was not long ago that politicians of Fidesz spoke of revoking all measures of the government. This has changed recently and now they would only rescind specific provisions (principally family aids and the capital tax); apart from that they only speak of new economic policies in general. Instead of vehemently defending the 13th month pension, Viktor Orbán and Mihály Varga recently ruled out its reinstatement.


There is only one aspect, in which there is a fundamental difference between Fidesz and the current government: fiscal curbing and the scheduling of Euro adoption. While a strict budget is still the government’s highest priority, the politicians of Fidesz (mainly György Matolcsy and Viktor Orbán) assert that economic stimulation trumps the need for a balanced budget and the adoption of the Euro. The leader of Fidesz went further by stating that the budget deficit could get as high as the EU-average (expected to be 6-7%).


The economic-related statements of Fidesz serve three main political goals:


  1. Preparing the voters for unpopular measures. Fidesz is trying to carefully infuse the popular messages with the idea that a new government can’t start spending immediately. 


  1. Gaining the trust of investors. Fidesz is consciously trying to win the support of domestic and foreign economic actors, whose support will be needed while in power. These messages that often contradict the general messages of the party’s politicians. While criticising the government’s austerity measures and the reforms, Fidesz has on more than one occasion hinted to investors that campaign and governance are not the same.


  1. Feeling out the limits. With the beginning of the Fidesz-led governance is getting closer, the party – by gauging the reaction of the financial world to its ideas – is trying to broaden its fiscal and economic scope for action. György Matolcsy and Viktor Orbán presumably have the purpose of realising the “Hungarian miracle” and substantially loosen the fiscal targets but they have to know the limits of this policy. Consequently, politicians of Fidesz do not just always articulate messages that are welcome by investors. Feeling out the future government’s scope for action comes naturally with conflicts, and the main point is that they want to be fully aware of their possibilities by 2010.



What are the options of Fidesz? 


“I don’t believe the new government will be able to reverse everything” – one of Fidesz’ economic advisers, György Szapáry, announced a few days ago in an interview in weekly HVG. He made it clear: the next administration will also have to walk a very fine line when it comes to economic and budget policies. “I’m sure neither the IMF nor the EU would accept a 7% deficit”, he said.


The timing of the interview is not accidental; it was published after international financial organizations sent a clear message concerning their position on Hungary’s future fiscal policy:

  • A Standard and Poor’s analyst described Fidesz’ post-election economic policy shift as a potential risk (emphasizing that the market will not tolerate a loosening of the budget[1]) ,
  • In its review report on Hungary the IMF made it absolutely clear: in the coming years there will be no options for the relaxation of fiscal discipline[2] (in fact, public spending will have to be curtailed even more),
  • Europe's Commissioner for Economic and Monetary Affairs, Joaquin Almunia threatened to suspend the loan if a future Hungarian government fails to meet its obligations,
  • recent comments by foreign observers have been clearly supportive of measures taken by the Hungarian government so far. Moreover, rising demand for government securities, declining yields, a drop in CDS premiums and the continued appreciation of the forint are all signs of returning confidence, partly due to government actions.


One year ago Viktor Orbán asked the former National Bank of Hungary vice president, György Szapáry, to improve Fidesz’ international standing and assist the party in developing international contacts that would minimize the risk of capital flight following the inauguration of the next cabinet. In other words, Mr. Szapáry's statement is aimed primarily at foreign listeners (the IMF, the EU and investors) sending the message: Fidesz hears, understands and tries to dispel fears concerning its economic policies. In essence, the statement is an admission that due to external pressures the “Hungarian model” (a program based on anti-cyclical and public spending economic policies) often promoted by Orbán and Matolcsy, currently cannot or can be implemented only in part. However, as officially György Szapáry is not a Fidesz politician, his statements can be ignored by the party president, just as was the case earlier with proposals advanced in the economic policy plan Our Future: “Experts debate and argue over issues and make proposals, and politicians make decisions”.


The moderate and pragmatic tone of the Szapáry-interview appears to be realistic under the circumstances as the fiscal options of the government are not expected to improve in 2010:


  • The majority of research institutes project a recession for 2010 (see chart below) despite generally improving economic prospects; i.e., in the short term there is little chance the deficit can be “outgrown” as envisioned by a Fidesz-government.  
  • In this context, in 2010 the new government is expected to apply for an additional HUF 10-15 billion in IMF loans – something hinted at by Viktor Orbán and Mihály Varga alike. For, despite increased demand for Hungarian government securities and the success of the Euro-bond issue, the government is likely to receive credit at more favourable terms from the IMF and can maintain a “safety buffer” to supplement market loans.
  • By all signs, international bodies extending loans to Hungary expect the country to maintain fiscal discipline. Of course, this will not put the next administration in a “straight jacket”: the national government will have the chance to develop its own program and decide on the method of implementing specific economic objectives, i.e., in some areas a Fidesz-led government will be free to set its own priorities in economic policy. However, due to insufficiently flexible deficit targets, there is little chance for a “radical shift”. 



  • Even if Hungary could forgo the IMF loan, the expectations of financial markets will continue to demand a tight fiscal policy from the Hungarian government. The objective is that in the medium term Hungary return to financing from the markets, and investor confidence is also essential for the government for the forint's exchange rate and to make more room for action for its monetary policy. Currently the credibility of the Hungarian economy rests on budgetary discipline; without it the apparently regained fragile confidence in the Hungarian economy could again go into a nose dive.


In short, a ballooning deficit would simultaneously lead to the extreme instability of the forint, a further contraction of the country’s monetary policy, the drying up of IMF loans and the flight of market players. As a result, Hungary could be easily left without funds that, in turn, would lead to a rapid economic collapse.



What measures will be implemented by Fidesz?


In light of recent statements made by Fidesz politicians and the country’s current economic prospects, a potential Fidesz-government taking over in 2010 is likely to emphasize the following measures:


  • Cancellation of the property tax. As it did in respect to the tuition introduced by the Horn-cabinet in 1998, of all measures implemented by the Bajnai government Fidesz has focused on the property tax (in its definition - “real estate tax”) and raised it to a symbolic level. Fidesz will try to open a new era in economic policy with the  abolition of this item with negligible impact on the budget (based on earlier estimates, involving around HUF 50 billion), while it may leave other major measures in place. 


  • Reinstatement of the family welfare system. For Fidesz the “correction” of the family welfare system also has symbolic value; a “family-friendly” rhetoric linked to population growth has been one of the cornerstones of Fidesz politics for the past 10 years. Even by government calculations the reform of the family welfare system could bring but modest budget savings only over the longer term (based on preliminary government estimates, reducing the length of eligibility for child care allowance in 2012 would save HUF 3.6 billion and from 2013 annual HUF 14 billion) which means that the reinstatement of the system could be done with relatively little pain in the short term. However, as in other areas, Fidesz has yet to unequivocally commit itself to an immediate return to the previous model, while at this point it makes it subject to economic growth[3].  


  • Amendment of the tax system. As a continuation of the current tax reform, the majority of Fidesz economic policymakers call for deep cuts in labour-related expenses and the personal income tax. This measure is expected to be implemented only in the medium term and it is yet to be seen what tax system Fidesz would introduce; some of its economic experts recommend a flat-rate, others a progressive “family” tax system. In fact, the letter proposal has a number of versions, depending on whether the “family” principle is applied for tax allowances, tax deductions or in calculating personal income tax. While there is no consensus on the issue at this point, some version of “family taxation” would better suit Fidesz’ symbolic objectives.  


  • Implementation of the state administrative reform. The reform of the state administrative system is a common theme promoted by Fidesz politicians and the party's written materials, demonstrating a genuine desire to take action in this area. All relevant statements presage major cutbacks, including the closing of background institutes[4]. As it affects structural issues, the measure could lead to long-term savings, although it could generate serious social/political conflicts as well.



  • The dismissal of András Simor and changing the rate policy. Since November 2008 Fidesz has waged a sustained attack against the central bank and its chairman on two fronts: 1) at the professional level, it charges that the bank keeps the base rate too high; already in November 2008 Fidesz demanded a cut to 6% when the base rate still stood at 11.5% 2) on account of his company registered in Cyprus, András Simor (along with Bajnai and Oszkó) was given the honorific of “off-shore knight” by Fidesz. With this rhetoric the largest opposition party challenges the independence of the central bank, while it discredits the fiscal and monetary policy at the same time. This in turn reinforces the message that the economy must be put on a “new basis” instead of simply tinkering with some of its components. With this Fidesz may line up plausible arguments behind its political manoeuvring aimed at Simor’s future removal. András Simor’s mandate expires only in 2013, which means that should Fidesz win the next election, for three years of its four-year term it would have to “put up” with a central bank chairman appointed by Ferenc Gyurcsány, a prospect at variance with the party’s interests. At the same time, calls for an “immediate rate cut to 6%” backfired and undermined the credibility of Fidesz in the eyes of investors.


Following his appointment in March 2001, as the chairman of the central bank Zsigmond Járai did not make an effort to keep the base rate permanently low. In the Fidesz era, when Mihály Varga was finance minister and György Matolcsy headed the economic department, the rate never sank below 8.5% even in a rather favourable economic environment, and the rate remained at 6% now demanded by Fidesz only in the three quarters following September 2005.



The economic policies of the next government: risks and perils


In the forthcoming campaign and in the beginning of the new Fidesz term, the party will have to face multiple challenges which may hinder the implementation of strict, market-oriented and reformatory economic policies.


1)      Its recent stance against austerity measures and reforms. Fidesz is responsible for its narrow scope for action by arguing against austerity measures and reforms from 2006. This will make it exceptionally difficult to reform the large redistribution systems with the citizens’ consent and based on contributions from private capital, or to curb social benefits that are still very high compared to other countries in the region. With the social referendum of 2008, Fidesz manoeuvred itself into a corner, making citizen co-payments of the health and higher education systems almost impossible to be introduced. By repeatedly stressing the importance of protecting state property, further privatisation is not viable anymore, and by defining the curbing of social benefits as “deliberate genocide”, reforming the welfare system is also off the agenda. The public administration reform will probably be implemented, the much needed reform of the system of local governments could face the same obstacles already mentioned – even with a 2/3 majority – even though it would result in big savings for the central budget. Since the 2008 referendum, private companies that operate in sectors with strong state control or influence, such as health, education, pension or energy, face higher political and legal risks. More than one Fidesz politician promised to tighten regulations concerning the banking system, the energy providers and the private pension funds, which can force Fidesz’s hands to act so when in power, generating conflicts with economic players.




2)      The anti-capital and social populist stance of Jobbik. The image of Jobbik has not yet been tarnished by day to day politics like that of the parties in Parliament, and voters’ need for security has strengthened due to the crisis, which makes the public opinion receptive to the social populist rhetoric of Jobbik. These voters are however dismissive to similar campaign messages of the Socialists, who have supported numerous austerity measures in the last few years. This poses risks to Fidesz during the campaign as well as while in power. Due to the fact that Jobbik will probably not be part of the next government, they can intensify the race of spending promises and accuse Fidesz of not having a different economic policy from the Socialists, stating that Fidesz will plunge the nation in huge debt with the IMF loan to serve plutocracy. Trying to top Jobbik’s promises may seriously backfire to Fidesz: Viktor Orbán will have to prepare for a term where Jobbik will be his main competitor on the left and the right as well. The future agreement with the IMF will be the main target for Jobbik. Some politicians of Fidesz and most of the right-wing press are strongly against the IMF, and if there will indeed be another loan agreement, Jobbik’s popularity will strengthen on the account of Fidesz.


3)      Unreasonable expectations. The leader of Fidesz has declared the approach of a “new world order”, a fundamentally different economic policy view that will enable them to build a better country if they were in power. However, no deep-seated economic change is possible early on in their term, and not living up the very high expectations may cause massive voter dissatisfaction in the beginning of the term.


Supporting factors of the economic policies of Fidesz


However, there are a number of options that could minimise the risks of taking office by Fidesz:

  • Austerity measures of the Bajnai government. The drastic restrictive measures, amounting to approximately HUF 1.3 trillion are exceptionally advantageous to Fidesz, as with these the bulk of the needed steps will already have been enacted by the Socialists. This frees Fidesz from having to pass a lot of unpopular measures. Thus it is no coincidence that Fidesz casted a “soft no” vote to the Bajnai program, and by not taking part in the voting sessions they helped the legislative passing of the most important measures.


  • Favourable economic outlook in the second half of the term. Although the crisis will still affect governance negatively in 2010 and 2011, based on past experiences rapid worldwide growth can be expected after recessions, which will have a positive impact on the Hungarian economy as well. With economy bouncing back, a lot of possibilities will open up for the next government that include: presenting the growth as their own success and taking advantage of the growing playing field.  


  • The blame option. Fidesz will have the benefit – in contrast to the Gyurcsány-government – of reasonably blaming the previous governments and their wrong economic policies for the inability of fulfilling promises. The strong rhetoric for “accounting” and punishing the responsible after the elections can be seen as a preparation for this political move. There are numerous statements serving the same purpose as “a lot of skeletons will be found in the closet”[5], also: “there will be no reserves left in the budget, the economic statistics will be frightening. The shrinking of the economy will be much larger than 6% and that will cause the unemployment rate to rise.”[6]. 


  • Symbolic politics and nationalistic rhetoric. Fidesz has traditionally been better at symbolic politics and uniting communities by common goals. They can also utilize this ability while in power with slogans and measures that serve to strengthen national identity. Mentioning “building a better country” in Orbán’s speeches undoubtedly serves this purpose. Following this strategy may, in theory, make Fidesz’s policies popular even though easing the fiscal restraint might not be possible in the short run. Orbán can possibly follow the example of Slovakian PM Robert Fico. While on the campaign trail, Fico pledged the total reversal of the policies of the previous government; however, when he came to power, he built upon these policies and only reversed a few symbolic measures. By leaving most of the policies of the previous government in place and using a rhetoric meant to strengthen national identity, he managed to keep the trust of voters, and the investors at the same time.




[3]  Tibor Navracsics: “As soon as made possible by economic growth, Fidesz intends to introduce a family support system similar to that operated in the period between 1998 and 2002.” (…) “For this to happen the economy has to grow at an annual rate of 3 to 4%”. 25th May, 2009

[4] “The cost of the institutional system serving the government could be decreased. Instead of reducing the salaries of top managers at state-owned companies (nothing more than pure demagoguery) redundant institutions should be closed. The operation of several hundred government institutions must be reviewed and those deemed unnecessary must be closed. This could result in substantial savings”.

Interview with Zoltán Cséfalvay, Economic Expert of Fidesz. HVG, 26th May 2009

[5] Zoltán Cséfalvay, economic expert of Fidesz, 26th May, 2009, HVG

[6] Viktor Orbán, 26th May, 2009 at a press conference