Portfolio blogger

Sunday, July 17, 2011

Hungarian indebtedness

The Hungarian government is proud that it could decrease the debt of the Hungarian state to 77 percent of GDP from 81 percent in a blow (and from about 90 percent where it stood when they took over). The reason: the funds in the private pensions funds were transferred to the state (not put automatically into the state pension fund) and almost half of these funds (4% of GDP) were in government bonds (as for security reasons they had to be by law) which were now eliminated.
Apart from how other assets will be sold, some of these funds were and will be used for current expenditures.
Also, the state purchased (for an amount 80 Bn HUF, a little over 300 Mn EUR more that for how much the previous government wanted to buy it when it was stopped by the then opposition FIDESZ) the share of Surgutneftegas, a Russian company in MOL, the Hungarian oil and gas giant (also active in the region) using deposits from the loan of IMF which was taken but not used by the previous government.
Thus a blog shows that even the gross debt has not really decreased, not to talk about the net debt, which increased to 20,218 billion HUF from 18,104 billion HUF between end of April 2010 and May 2011.
On top of that, although future pension obligations are not in the balance sheet, they exist as people whose private pension participation was transferred to the state, have to get the total of their pension from the state as opposed to a minimum guaranteed amount to which private pension fund members are entitled.
Why is the net debt more important than the gross? If I borrow and the loan is paid to me and I put it into deposit without using it, I increase the gross indebtedness. Until I spend this money, however, I can always use it to repay my debt. Thus, only if I spend it, do I have a real indebtedness.
OK, so why do states keep reserves which increase their indebtedness? Clearly for security reasons: if unexpectedly an amount has to be paid, the deposits can immediately be used while to get new loans takes time and effort and is also not sure to succeed.
Some analysts, however, also counter the statement that gross debt decreased, the chart on the blog quoted shows this.

How did the Hungarian presidency do?

A lot has been said and written about this. I try to summarise here the main legislative initiatives: which succeeded and which failed.

Economic governance: failed on one question where no political agreement could be reached. The issue is going to be put back in the agenda by the Polish  presidency which seems to attribute a lower priority to this question. Hungary did not join the Euro plus agreement as one of a handful states citing "tax competition" as the reason. Enikő Győri, state secretary for European affairs stated that the left in the Parliament was looking for the right thing (growth) at the wrong place (budgetary discipline) however, the one difference left (from over 2000) is about budgetary discipline and not about growth: whether sanctions should be automatic.
Roma strategy and Danube strategy: the Roma strategy was initiated in the Parliament by a FIDESZ MEP of Roma origin and well received. The Commission (partly its Directorate Generals under the Hungarian commissioner (nominated by the previous governing party) was swift in working out the strategy which was endorsed by the Council. The approach was criticised by human rights groups as minimalistic, but it has to be recognised that the EU does not really has competencies in this area.  The Danube strategy was already in the making when Hungary took over (just like the Swedes had a Baltic strategy accepted, it was logical that the Hungarian presidency aims at a Danube strategy and the other members of the Trio (Spain and Belgium) probably gave a helping hand) and accepted during the presidency's term, These are issues where no EU money is directly involved and thus their real impact remains to be seen.
Authenticity of the electronic edition of the Official Journal: pursued with ambition and  intelligence but still pending on the issue of which treaty article is the legal base. This could further reduce the use of paper and thus help the environment but also improve efficiency of those who work with European legislation, Clearly a must in the 21st century.
No result on labeling of „high-tech foodstuff” i.e. genetically modified foodstock and "new foodstock" in general failed but a general food labeling regulation was finally accepted the 6th july. This latter harmonises the indication of ingredients and nutritional value on packaging and is a good result in face of differing interests.
"The outgoing Hungarian EU Presidency failed to adequately tackle some of Europe’s biggest environmental problems, the European Environmental Bureau (EEB) has said in an assessment. While positive on mercury, biodiversity and GMO cultivation, EEB said several issues were undermined by a lack of political commitment and leadership"  http://www.eeb.org/EEB/index.cfm/news-events/news/assessment-of-hungarian-presidency-bad-on-climate-energy-good-on-biodiversity-and-mercury/
Croatian accession negotiation – closed but no accession date fixed explicitly by the Council, although July 2013 seems to be the date.
Energy policy: The presidency achieved a deal on the 2020 energy strategy just before the Japanese disaster and the new strategy also creates more transparency and eliminates some of the European Gas network's inefficiencies (gas dead.ends of which Hungary is one and which hinder that Eu countries share their resources in case of shortages or other problems).
In transport, Hungary brought to decision the agreement on cross-boarder traffic fines (not a big joy for some motorist) which was a long-lasting saga. Also, agreement was reached on the Eurovignette for trucks.

In internal affairs, strictening the rules for sexual abuse of children and child pornography, an agreement about Frontex helping member states with immigration problems were positive but European Voice quotes MEPs that in this area legislative work was hindered by the political quarrels over Hungarian domestic policy.
It was a mistake to set the aim of getting Romania and Bulgaria into the Schengen area, the achievement of recognition that they are technically ready was what could be and was attained.
Agreement was reached that the suspension of the Schengen accord is only allowed in exceptional circumstances but the presidency did not react to the Danish measures contravening this.

I think the reader can draw conclusions, my aim was to collect in one place most of what could be collected on the main legislative measures as legislation is the field where the presidency (of the Council) is active. Political issues are treated in the European Council which has a permanent president.

Money from the EU

The 2009 report on the EU budget contains interesting tables about the net balance (Euro per capita) of individual member states with the EU. Luxembourg is by far the biggest beneficiary but it is a small country with a big presence of European institutions so the figures are distorted. This can be seen when column 5 (administration) is deducted from the amounts on page 57 of the report (see link below).

The other country figures also give interesting reading, however. I am interested in the states joining in 2004 which started with a low balance - all the Eastern Europeans progressed well but their development was different. Hungary started very low (all comparisons in % of GDP) but has now the most positive balance among Slovakia, Slovenia, the Czech Republic and Poland. The figures of Malta showed a steep decline, Cyprus is even in minus (I assume that the assistance to the Turkish part of the island is not included). As the last year counted is still 2009, the situation of Romania and Bulgaria who joined in 2007 cannot be judged but if they continue the trend, they can progress well.

The table summarising the balances by year and by member state is on page 86 of

Other sites about the same topic:

Further financial publications and also "myth-busters" can be found on: 

  (the label points ot the financial report, the publication above).