Portfolio blogger

Sunday, December 9, 2012

What we can know from PISA

Pisa test results usually stir waves when published and countries complain that their education systems are not up to the mark. This is true in particular for countries with Prussian school systems, like Hungary (which started modernising but is now set to slip back to more rigid solutions). Fewer people take the pain to look behind the results. The European Commission organised recently a conference about performance auditing , and one of the presenters was Andreas Schleicher from the Pisa project of the OECD. He outlined (At 177.17 of the Day 2 the webstream or if this link does not work, select day 2 here ; you can watch his presentation) some results of the analysis which may surprise us: excellent results can be achieved in countries which spend a lot or which spend less (per student) on education, the real question is what this money is used for. Only twenty percent of the variation in results is explained by the amount of money spent. So they looked at how Where teachers are not paid well and technical and infrastructural conditions are weak, the results are worse. This seems plausible. However, this means that there will be larger class sizes for the same amount of money per student. That's why Korea performs better than Luxembourg where they spend both a lot on education and Finland better than the U.S. who both spend less. And this correlation was proven for a lot of other countries as well They bought a lot of tuition time and gave also a lot of time for teachers to develop, so the proportion of teaching time is smaller. Methodology you can hear from 180.00, the comparison from 187.00. Another interesting conclusion, not from that presentation but from the PISA report : Over the period, there was a decline of two percentage points in the share of students in OECD countries who reported that students cannot work well during their reading classes. However, some of the countries with the worst records in this respect showed large improvements. In 2000,69% of students in Israel and 74% of students in Hungary disagreed with the statement that students can “never” or “almost never” work well during their reading classes; by 2009, this proportion had increased to 77% in Israel and 80% in Hungary. And this challenges the traditional truth that class discipline is continuously deteriorating. Instead of conclusion, let me quote also fro the PISA report: "Many of the world’s best-performing education systems have moved from bureaucratic “command and control” environments towards school systems in which the people at the frontline have much more control of the way resources are used, people are deployed, the work is organised and the way in which the work gets done. They provide considerable discretion to school heads and scho ol faculties in determining how resources are allocated, a factor which the report shows to be closely related to school performance when combined with effective accountability systems. And they provide an environment in which teachers work together to frame what they believe to be good practice, conduct field-based research to confirm or disprove the approaches they develop, and then assess their colleagues by the degree to which they use practices proven effective in their classrooms. Last but not least, the most impressive outcome of world-class education systems is perhaps that they deliver highquality learning consistently across the entire education system, such that every student benefits from excellent learning opportunities. To achieve this, they invest educational resources where they can make the greatest difference, they attract the most talented teachers into the most challenging classrooms, and they establish effective spending choices that prioritise the quality of teachers."

Tuesday, November 27, 2012


The Monetary Council of the Hungarian National Bank cut the interest rates again. This is no surprise. It can be debated whether the National Bank should only follow the inflation target (the prevailing view in the developed world, at least in Europe) and whether the cut is justified. It is a little bizarre that always the external members (nominated by the government) vote for the cut and the internals for a hold. Last time the National Bank analyst team submitted a study which argued strongly against a cut but it was ignored. It is also becoming commonplace that as long as the president of the National Bank is the person nominated by the previous government which was that of another party, they want to keep interest rates high. The communiqué of the Monetary Council explaining the latest cut, however, is really absurd: The economic and financial portal Portfolio.hu (disclosure: this blog is a "Portfolio" blog - this means that if the editors of portfolio.hu decide, they put a link to a post on their main page and the title page of the blog runs the Portfolio logo and a running news strip) simply published the communiqué just commenting that there is no guidance in the communiqué whether the cuts will continue but it seems that it will. The previous one contained a hint that it will under certain circumstances, i.e. when "data arriving in the next months support the durability of the favourable financial developments and confirm that medium term inflationary outlook is coherent to the target of 3%". OK, so what did the Monetary Council say this time. I only quote the most striking parts: "Medium term inflationary trends can be moderated by the long-term continuing improvement of the risk assessment." This immediately after downgrading and with the perspective of further downgrading. "The consumer price index is basically driven by the increase of food prices, tax increases and other administrative measures." Tax increases - the government propaganda says that they decreased taxes. The extraordinary taxes on financial institutions, telecoms etc. were declared to stay. Administrative measures increasing prices - I do not know what they are but this is not a praise of government either and in particular does not support the statement which follows: "Inflation will significantly exceed the target this year and next year" (this statement just does not explain the rate cut) "but with the running out (a typical saynothing Hungarian term meaning just the expiry of the impact) of the shocks which increased the price level, more and more the slight desinflationary effect of weak demand will have an impact." Apart from the gloomy perspective - which will come up in the next sentence again - painted by this statement, the factors outlined being here to stay, I do not see a justification for optimism. So continuation: "It is paramount that the increase next year of the salaries and within that of the minimum wages (don't ask me why the plural, there is only one set minimum wage) should be in line with the increase in productivity." This is a laudable objective but does spell havoc for the employees. OK, if they had said that the real wages, I could maybe agree. What follows, may be true but spells trouble both for the economy and for inflation:"The measures announced support the commitment of the government for a low budget deficit. Significant uncertainty accompanies the expected macroeconomic impact of the measures: they do not influence significantly the short term outlook of the real economy and inflation, but could cause a cost side inflationary pressure on the middle term (here you have the mid term favourable outlook justifying the cut) and through decrease of the capital attraction capability of the banking system (I would rather say the propensity to lend, not to attract capital - this latter is decreased by the decrease of the interest rates) and the limitation of lending (OK, here we are) can moderate the growth potential of the economy." In a final paragraph, they again emphasise that an oversupply will limit inflation. To me, the many doomsaying passages in the communiqué serve as a proof that it was the improvement of the economic outlook which was the mean objective of the cut and they tried to hide it behind inflationary arguments. Apparently also some parts of a professional analysis were taken over, which cause a significant incoherence in the message given.

Sunday, November 18, 2012

Together - Együtt 2014

Good news - Bad news. I'm afraid mostly bad news today. The co-operation platform launched the 23rd October (see my post ) was never promised to have an easy way. Its founder Gordon Bajnai, being an ex-minister in the Gyurcsány-government, prime minister thereafter, was exposed to "character murder" pinpointing a past business failure which harmed a number of small entrepreneurs who sold to the company - the links of Bajnai to the company then are up for discussion but he won a number of lawsuits on the topic which cleared him personally - that the comp,any was due to pay indemnities is no surprise as no one doubts it owed money but bankruptcy is the situation where you cannot pay and limited liability companies are invented to stop the failure of a business to cripple its owners. The panic caused among the ruling party (formally parties) is the good news, and also that the movement achieved the political sympathy rating which in votes would be needed to get into parliament (5%) within days is the good news. Its manifesto was signed by a number of personalities who have credibility (including the founder of the "Danube circle" or Duna-kör, which was one of the cores of the resistance during communism, taking up the symbolic case of the Bős-Nagymaros dam. However, one can hear voices that the signatories are "people of the bad socialist regime" - not the one before 1990 but the "pasteightyears" as FIDESZ likes to condemn. Here the bad news starts. But there are only two people among the signatories who were politicians and both were in the back lines, in particular during the Gyurcsány-government, actually both tied to the smaller partner, the liberal SzDSz. Some days after the announcement of the start of the movement as an association, FIDESZ changed the draft election law under discussion (well, this was an exaggeration) in Parliament to forbid for associations to participate in the elections. This is a sign of their panic, referred to above. Furthermore, the election campaign will be shortened and the media available for election advertisements limited to the public service media (i.e. commercial tv which is watched really is excluded) and to open air posters (in which area FIDESZ-friendly enterprises have a dominant position). Now this can be regarded already a significant limitation of citizens' rights in my opinion. A package of more than 200 modification proposals was submitted by one member of the FIDESZ and half a day was given to the MPs to read, discuss and agree in the factions. The debate was very short and - as is usual for critical issues - scheduled for late night. That's why I called the term "discussed" an exaggeration. Of course private individuals or associations can submit private advertisements which have nothing to do with the elections (but expect a scrutiny by friendly attorneys and courts - here setting the retirement age for judges will serve well). So did a pseudo-civil forum start an ad on buses (look at the picture) (of the Budapest Transport Company which is also managed by political appointees) depicting Bajnai and Gyurcsány together, with the text "they ruined the country together" etc. Some facts about the association: its president, who also organised the pro-government "Peace march" also mentioned in my 23rd October article, is also chairman of the committee distributing the government funds for civil associations (NGO's) and the association received government subsidies this year. So is this election advertising? And finally, the congress of LMP (Politics can be different), the anti-globalist green and human-rights-oriented party, which came from nowhere into Parliament (a nice feat in the Hungarian system) in 2010, refused to co-operate with the movement of Bajnai. The decision was more diplomatic, of course: the congress empowered the leaders to start talks about anything except joining. The also new 4K! (fourth republic - the present one is called the third) welcomed the decision which they took before. This formation is brand new, was created by secession from Milla ("a million for the freedom of Hungarian press", a movement which started on Facebook, achieved about a hundred thousand likes but staged several successful demonstrations - one of these was the 23rd October referred to above where Bajnai announced starting the movement Együtt 2014 (Together 2014, latter being the year of the next elections). Its leader said that they want to resemble most the Scandinavian social democrats, thus they also have a left-wing programme. So two new formations refused co-operation. 4K! could be considered irrelevant (their reaction to the announcement of president Barroso on a federal Europe simply was that they also require the harmonisation of social systems - in a tone as if they were an important political player in a powerful member state and also ignoring that this is to some extent already the case. The "loss" of LMP is also more a loss of image for the new movement as this step may cost LMP more voters than the new movement. The head of the parliamentary faction and his deputy immediately resigned, calling the decision irresponsible and unrealistic both for the party and for the country. Their announcement was greeted with loud "hurray"-s and applause probably by the 77 who voted against the decision (97 voted for). The diplomatic formulation of the decision leaves a small opening to return but already called disappointing comments from some blogs and commenters on websites and also on Facebook.

Friday, October 26, 2012

23 October in Hungary

We are living in challenging times aren't we? To increase the enthusiasm of its followers who staged a demonstration the 21st January to support them and to show that Hungary does not want to be a colony (whoever wants to colonise it - there is a joke that all alliances which were joined by Hungary have collapsed and the EU is also in big trouble now), the rumour was raised that if this "Peace march" had not taken place, the EU (or the IMF, you never know who is the actual enemy) would have caused his demise. So as the January march was a response to the opposition demonstration (the biggest and most successful of its type since long), now they staged a second "Peace march" simultaneously to the opposition demonstration on the anniversary of the 1956 revolution (or was it a late reaction on the also successful March 15 opposition demonstration?). This time Van Rompuy was favouring Orban (last year he called a European Council meeting for the 23rd October and thus Orbán could not speak on the FIDESZ/government demonstration and therefore the whole demonstration was cancelled) and so he could be the main orator on the government festive assembly, which was also the final point of the "Peace marchers". Let me save you - and myself - from commenting on the numbers and on the foreign participants and those who were bussed from the countryside from our taxes. It was more interesting what happened on the opposition demonstration and around it: Gordon Bajnai, the ex-prime minister of Hungary, whose face is like that of a young pioneer, and who never was a big orator, but "blackmailed" the government (socialist and liberal) factions of the previous Hungarian Parliament to support his almost neo-liberal austerity programme - simply putting the Hungarian budget back on track by avoiding the collapse of the budget. It is forgotten that meanwhile he could also set up a programme to collect memories of still living witnesses of the 1956 revolution and the times around it. He was a businessman before, and this makes him vulnerable to "character murder" by distributing rumours that a failure of one of his ventures was pushing his suppliers to commit suicide as he did not pay them. As FIDESZ follows left-wing policies and almost the whole opposition is leftist, quite a number of opposition forces are at most moderately enthusiastic about him as prospective leader of the opposition. Why should he? Because the election laws were thwarted by FIDESZ in a way that - there is no lower participation limit to the validity of elections and - there is no second round. This means that even if most of the voters do not vote, the candidate winning the most votes will take the constituency. Thus the opposition has to have a single candidate and convince those who do not like the present government, but are disappointed with politics as such or do not like the common candidate (who can represent only one of the divergent opposition forces) to go voting and vote against FIDESZ. Additionally, most probably only those will be able to vote, who register in advance. About this another time but this means that only citizens with a strong conviction and ready to take some inconvenience on them will vote which decreases the chances of the opposition. I do not agree, however, with those who look at the divergences and reservations with horror: it is maybe better not to lay all cards on the table. If a strong opposition unity will be visible, the government may change the election system again, quoting the critics, and use the fact that they are formally two parties, to favour themselves again. So challenging times now? Rather ahead of us,

Saturday, September 29, 2012

Food speculation and food prices - food for thought

The German left-leaning daily Süddeutsche Zeitung has first called attention to the research of Ingo Pies which called into question the statement of a report from Foodwatch and other reports of Oxfam and the Welthungerhilfe , renowned non-profit organisations, that speculation (forward index deals on food prices) has contributed to the recent steep increase in food prices. (Deutsche Bank has published an English version of the article.) Mr Pies deals with ethics of the economy and is rather sympathetic to ONGs, he himself founded one as a student. The main point of his argument is to list the real reasons for food price increase, but he also shows that prices of other raw materials also subject to forward index deals have not risen. The reaction of the two organisations is at least disappointing: Oxfam just states that they did not demand the total ban on these deals just their regulation. Andreas Winkler, responsible for public relations in Foodwatch reacts in a comment saying also that they did not ask for total ban, but also implying that only hedging is a justified reason (he writes that they are a certain degree of speculation is useful for farmers, dealers and processors) and finally stating that if speculation did not increase prices, it has increased their swings. He also points out that their study was dealing with all counter-arguments. The counter-arguments of Jens Berger , that the speculators are always the counterparty of the farmers and that they are always winning and thus always interested on price rises, is just showing that he does not really understand how markets and forward deals in particular work. It has to be noted that before there was an exchange between Foodwatch and Deutsche Bank where the bank’s reaction was rather muted and not too convincing. As a result, Commerzbank stopped dealing in food speculation . Further information can be found on the following site (in German)

Saturday, September 22, 2012

State of the Union and the f-word

Blogactive analysed the reactions to the State of the union address of president Barroso and fond surprisingly small activity in Eastern Europe. The map also shows that there was none in Hungary. The Hungarian press was also not very active, and in my opinion misunderstood a little the message or at least what is behind it. "Barroso uttered the F-word" was the main message - as it was also tweeted by Dave Keating , a journalist in the Economist group who writes fairly regularly for European Voice . The Hungarian press mostly reacted as if they had hear the first time a call for closer co.operation in Europe and thus as if this were really a call for this which partly it was. But in a well-tempered way and it was less in depth than what the Germans talked about for the last some months. Eurosceptics used to talk about federation instead of a superstate - and the president said: " Not a superstate. A democratic federation of nation states..." So, is it a step backward? In some respect, yes. But reading the text, however, it called for a broader co-operation and also announced some concrete steps. It was no doubt provocative, whichever way we look at it: The parliament Magazine and also other sources familiar with EU matters also mentioned the mixed reaction in the European Parliament where the MEPs took the F-word as a retreat. Verhofstadt even said that we have the federation of states in Europe. Barroso's answer where he refused to engage in discussion about wording, shows that the issue is sensitive It is remarkable, however, that while trying to appease the present institutions ("We do not need to separate institutions or to create new institutions for that. Quite the contrary: for this to be effective and quick, the best way is to work with and through the existing institutions: The European Commission as the independent European authority, and overseen by the European Parliament as the parliamentary representation at the European level.") and argued for the community method to be applied (unlike in the case of the fiscal discipline accord). But he made an acidic remark: "If it was left to the Member States, I can tell you they will not resist pressure from big corporations or large external powers." Another important point: he emphasised several times the social dimension. What was new and breaking a taboo: he called for a treaty change, well prepared by public debate. This is a courageous undertaking: - let's see what future holds.

Sunday, July 29, 2012

About memories, again

This time comparison of British and Hungarian memorials, both controversial and still different. It is about memorials to victims of the second World War. OK, British were the winners and Hungarian on the side of losers. And in spite of that, British are more tactful, balanced and consider more the sensitivities of others. The Hungarians have a mythical eagle (originally most probably a lanner). It appears as the bird on the coat of arms of the first royal family descending from the chieftain under whose reign the Hungarians entered the Carpathian Basin where they reside also today in a medieval chronicle and as the forefather of this family in another. In Hungarian, however, the word "turul" (most probably of Turkish origin) was first used by a 19th century poet, János Arany. Immediately before and during the war, it was the symbol of a far-right, nationalist and anti-Semitic movement and thus hundreds of thousands of Hungarian Jews and Roma were murdered in this sign. In spite of that, a memorial was erected in Budapest to commemorate the victims of the war figuring this symbol. The idea led to vivid protests and the Budapest Municipality did not authorise the erection of the monument which was done in spite of that. The creators wanted to soothe the sensitivities by declaring that the memorial also wants to commemorate the civilian victims, including those deported to concentration camps. They were not, however, to give up that the sculpture should be this ill-reputed symbol. The British recently unveiled a memorial to the Bomber Command which also killed many civilians in Germany, among others during the cruel raid on Dresden. It has aroused strong feelings in Germany but it was not erected until they arrived to an agreement that the civilian victims will also be mentioned. But this is a memorial to the dead, and the form, although somewhat strange, and resembling the Brandenburg Gate in Berlin, has no offensive message.

Monday, July 23, 2012

European Court Cases affecting Hungary - part two

This time about a case which got some publicity in Hungary and one which did not. It concerns customer protection, which is in the powers of the EU as a unified market clearly requires uniform consumer protection rules. The cases were so-called "references for preliminary ruling" where a national court dealing with a topic which is subject to European law, can ask the European Court of Justice to interpret a European regulation or directive. A lot of these cases are about whether a certain national law is in line with European legislation as if it is not, it cannot be applied. In most cases if a directive is not implemented correctly, the directive should be applied, except against individuals if the national law is unfavourable to the State (this means that a Member State cannot benefit from its own failure to implement the directive). (for example Case 8/81, Ursula Becker v Finanzamt Münster-Innenstadt). But also interpretation of a regulation can be asked from the Court. In the case (C 472/10) between the National Authority for Consumer Protection (Nemzeti Fogyasztóvédelmi Hatóság) and Invitel Távközlési Zrt, a telecommunications company, the Hungarian court proceedings were about the right of the provider to charge its cost from expenses due to a specific form of payment to the client who chose this form of payment. The client had a contract - fairly frequent - where in exchange for a benefit (like free or cheaper purchase of equipment) the client undertook not to cancel the contract for a certain binding period. Thus, it did not have the possibility to chose another provider due to the increase of the charge. Another aspect of the fee increase was also taken into account by the Court: " term included in the general business conditions of consumer contracts" enabling "unilateral amendment of fees connected with the service to be provided, without setting out clearly the method of fixing those fees or specifying a valid reason for that amendment". The Court set out some guidelines in judging terms in the general conditions invalid: "The national court must determine, inter alia, whether, in light of all the terms appearing in the general business conditions" "and in the light of the national legislation" whether "the reasons for, or the method of, the amendment of the fees connected with the service to be provided are set out in plain, intelligible language and, as the case may be, whether consumers have a right to terminate the contract". Thus, the reason and method of the change of price must be set out clearly in the general conditions, but the absence of the right to terminate the contract is also a factor to be considered. Thus, the general interpretation in the Hungarian press that all clauses in the general conditions which give the provider the right to change the price are invalid, is too wide, there are conditions under which price increases - in particular if there are elements of cost which change - can be valid. There is one factor I miss actually from among these factors: it is the possibility of the consumer to change some behaviour to escape from the price increase. In this concrete case, the fee was tied to a certain method of payment and the change of payment method may have been open to the customer. The other question was whether the national authority has the right to declare the clause found invalid by the national court invalid in respect of all other contracts. The answer of the European Court of Justice to this question was also yes: "it does not preclude the declaration of invalidity of an unfair term included in the standard terms of consumer contracts in an action for an injunction, provided for in Article 7 of that directive, brought against a seller or supplier in the public interest, and on behalf of consumers, by a body appointed by national legislation from producing, in accordance with that legislation, effects with regard to all consumers who concluded with the seller or supplier concerned a contract to which the same general business conditions apply, including with regard to those consumers who were not party to the injunction proceedings" This means that if national legislation gives the right to the consumer protection or similar authority to declare invalid the clause which was found invalid by a court also in respect of consumers who were not parties to these court proceedings. The other case (C 137/08) between VB Pénzügyi Lízing Zrt. and Ferenc Schneider , the question again is the validity of a clause in the general conditions, this time the court having jurisdiction for a case between the service provider and the client. It is normal practice to assign a court which has jurisdiction in a case. This is also often contained in the clauses of general contractual conditions. Under Hungarian law, the court on the seat or residence of the defender has default jurisdiction. That would mean that the service providers suing customers would have to sue them at the court where they live and this is usually avoided by this clause, prescribing the jurisdiction of the court close to the service provider. As these are in the bigger cities, typically in Budapest, they can be assumed to be usually more experienced in business law. The court in which the case, in conjunction with which the preliminary ruling was requested, suspected that this clause of assigning jurisdiction may be invalid and thus asked the European Court of Justice whether it can refuse to handle it. The question was also raised whether a clause in a contract can be considered invalid when the client did not contest its validity before. The Court suspended the case until the judgment in another (C243/08) between Pannon GSM Zrt. and Erzsébet Sustikné Győrfi where it was established that: "The national court is required to examine, of its own motion, the unfairness of a contractual term where it has available to it the legal and factual elements necessary for that task." Thus, the court could declare on its own motion invalid the its assignment and refuse to handle the case. A more interesting question is, which finally has to be decided by the national court and sorry enough, I did not find any information about the result of the case in the Hungarian court, whether such an assignment can be declared invalid. The court found that a “term whose purpose is to confer jurisdiction in respect of all disputes arising under the contract on the court in the territorial jurisdiction of which the seller or supplier has his principal place of business, obliges the consumer to submit to the exclusive jurisdiction of a court which may be a long way from his domicile. This may make it difficult for him to enter an appearance. In the case of disputes concerning limited amounts of money, the costs relating to the consumer’s entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence. Such a term thus falls within the category of terms which have the object or effect of excluding or hindering the consumer’s right to take legal action”. Thus, taking into account the circumstances, such a term may be invalid. The court did not establish that such a term is necessarily invalid, just that it can be invalid (“must be considered in the light of the particular circumstances of the case in question (see Freiburger Kommunalbauten, paragraph 22)”) and that if it is, the court assigned in the contract can refuse to deal with the case. There is one gap in the argumentation of the court: as mentioned, in Hungary the default court is the one on the seat or domicile of the defendant, thus, when the customer wants to sue the provider, the default court is also not necessarily one close to him/her. On the other hand, the argument is valid when (as in the concrete case) the provider sues the customer.

Thursday, July 19, 2012

European Court of Auditors audits organic product control

The European Court of auditors published a special report (approved the 28th March) about its audit of the control system for organic products, whether they provide sufficient assurance that the key requirements for organic production, processing, distribution and imports are fulfilled. Control procedures governing the organic production within the EU, were introduced by Regulation (EC) No 834/2007 , from January 2009 while control procedures for importing products were introduced by Council Regulation (EEC) No 2092/9120 and amendments in June 1991. The organic market has rapidly developed and experienced annual growth rates of more than10 % in the last two decades. The European market for organic food amounts to about 20 billion euro annually, representing an estimate of 1,5 % share of the entire food market. Therefore it is important that customers should have assurance that the products they buy as organic, are really produced according to the rules. The Member States have to set up a control system that verifies and certifies for each operator in the supply chain (farmers, processors, importers) the correct application of the production rules. The control system aims at guaranteeing the production processes and not the products themselves since there is no scientific way to determine whether a product is or¬ganic or not. The Member States designate one or more competent authorities responsible for controls. This authority designates, depending on the system chosen: public control authorities; private control bodies; or a mix of the two. Where a Member State chooses a system with private control bodies, these bodies need to be accredited. Each EU Member State has appointed a single national accreditation body. The Commission is responsible for auditing Member States’ control systems. Four systems were foreseen for imports, out of which the system of recognized equivalent third countries (managed by the Commission) and of import authorizations, provided by the Member States are operational. This latter was intended to be transitional, two other regimes, both based on the recognition of recognized control bodies or authorities for countries which have not yet attained recognition. The unified system of EU production control is put in place so that any consumer in any Member State can be sure that a product certified by another Member States conforms to the same requirement as that labelled in their own country. The court found weaknesses in the control system of the Member States (which is no surprise, its task is to find the weak points). It highlighted the following main problems: Some authorities do not exercise sufficient control over the control bodies that actually perform the controls. They do not have the information to ensure that all operators are inspected at least once a year, as required. Exchange of information does not always function correctly, even within Member States and there are difficulties in ensuring the traceability of the organic products. This is even more difficult to achieve for products crossing borders. Exchange of information could help in adopting good practices in areas like testing for residual chemicals where the regulation is interpreted differently by different control bodies. The audit also tested the methods of residue testing and found some good practices to disseminate. Two of the ten control bodies, however, did not apply adequate procedures for sampling and analysis. In assessing the traceability, the auditors found one case of a falsified certificate which is part of a larger ongoing investigation of alleged fraud. Also concerning traceability, from the sample 32 % of the products could not be traced back to the producer level and the information required was complete for only 56 % of the products (after collecting additional information). One major explanation for this situation is that Member States do not have authority over operators outside their territory, in the case of products or product ingredients crossing intra- and extra-EU borders. The Commission has to exercise more oversight in the EU and has to collect more information to assess that third countries recognised as equivalent continue to fulfil the requirements. There is also a significant backlog in assessing applications for equivalence from third countries – probably also due to the lack of information.

Friday, July 13, 2012

Votewatch: how the Council votes

Votewatch.eu has now started to follow votes in the Council although this is much more difficult. Surprising results: not only the U.K. but also Germany and Austria frequently voted against the majority (29, 16 and 16%, respectively). The U.K. actually also voted most against these two states and vice versa. The countries with the fewest "No" votes in the last three years (of which two were under the "liberation war" government of Viktor Orban) were Lithuania, Cyprus, Estonia, Hungary, Luxembourg, Romania and Slovakia. As far as Hungary is concerend, out of 10 negative votes, 2 fall to the period of the Orban government. The votes recorded are only final formal votes where the motion was accepted. Of course, "no" votes in case of rejected motions would count to be majority votes anyway. It also has to be noted that 65% of votes where a qualified majority was sufficient, unanimity was nevertheless achieved. (analysis based on European Voice

Wednesday, July 11, 2012

The most dangerous banking scandal?

Conspiracy theorists may feel justified: big British banks manipulated the LIBOR and EUROLIBOR fixings in London first to boost their profits - more precisely some brokers convinced the submitters to submit false numbers to improve the valuation of the positions they held and then, after the 2008 crisis, to decrease the visible extent of their problems. Barclays published an e-mail about a discussion with the deputy president of the Bank of England, from which they concluded (during the crisis, i.e. in the second case) that the BofE also wants to see lower rates. There are news that regulators warned Barclays in the other direction. As far as the U.S. dollar is concerned, the LIBOR is the main reference rate for Europe while in the case of the Euro, EURIBOR has a wider base then EUROLIBOR. Interestingly, it was already seen in 2009 that the EUROLIBOR is coherently lower than the EURIBOR ( also in 2010 ). So are banks the villains who manipulate everything? Well, concurrently, we have seen that JP Morgan manipulated energy contract prices in the U.S., the German internal secret service (Verfassungsschutz) was unable to track extreme right murderers for years as they did not evaluate and did not share information. The world is evil, and the only good news is that manipulations are uncovered and punishment comes (the otherwise very successful CEO, Bob Diamond also had to resign from Barclays). What is more interesting, though, is whether someone can sue to recover losses suffered due to the manipulation. Of course, the manipulations impact was small (probably some basis points) and thus small investors and borrowers cannot really gain much. It has also to be investigated whether Barclays' rate was not excluded as the extreme ones are. And it will not be easy to prove the damage. In the first times, borrowers lost if their contracts were LIBOR or EUROLIBOR indexed but it can be argued that the margin may not have been the same, had been the reference rate lower. And in the course of the duration, the downward manipulation could have benefited them (and if the rate was fixed in the contract and then indexed to LIBOR for example, it can be argued that they only profited). The reverse is true for investors, who first may have gained. In Hungary, retail contracts are made out at an initial rate and then are - until recently - not indexed explicitly but depend on the cost of funding of the bank. So there is little to do. And Hungarian banks use the EURIBOR wider than the EUROLIBOR - it was evident from the outset that it is more representative and there is more liquidity behind. May this also mean that it is more difficult to manipulate it?

Sunday, June 24, 2012

History and national sentiment

Listening to the debates around Horthy and Kádár (the first was the governor of the Hungarian Kingdom which had no king and led Hungary - driven by the hope to get back the territories lost in the peace treaties after the first world war (simply called Trianon in Hungary due to the place where its Hungarian part was signed) from Hitler, the second "reigned" over the time between 1956 (crushing of the Revolution) till the dawn of the system change over the "merriest barrack" of the socialist camp) and noticing that even if two evoke the same facts and both think they are in the centre and are realistically judging these eras, they can draw diametrically opposed conclusions, it was interesting to read an article of Tony Judt (http://www.nytimes.com/2010/08/08/books/08judt.html?_r=1&pagewanted=all) in his book: Reappraisals: Reflections on the Forgotten Twentieth Century (see also: the review by the Guardian ) about the seven-volume "Lieux de memoire" from Pierre Nora where he - end Nora - diagnosed the recent problems in the French historic conscience: on one hand: history and memories have lost their relation to each other - meaning that before, the memories of people about history were shaped by what historical science said about the events and was taught at school while as historical narrative is very little taught now at schools, they lost touch with each-other. It has to be known that on French motorways, not only tourist attractions but also places where important historical events took place, are marked with a board, showing the name of the place and a picture of the event but with no further explanation. I had to search the net for example to identify a place, where the picture showed armed people (the French will apprehend, but by the scenery, they could have been robbers) stopping a post-coach. Well, at home I found out that this was the place where Louis XVI was captured when he tried to escape the revolutionary court which later sentenced him and his wife, Marie-Antoinette, to death. These boards meant something to those who could connect to the historic event and its significance and meaning to the French from the name of the place (other examples being Péronne, Verdun, Ypres from the first world war). The other aspect is maybe best shown that such a board does not show Vichy (at least did not when Judt wrote his book). And the reason is that there is no universally agreed narrative about what it means and it is thus not integrated into the political conscience of the Fifth Republic. This does not mean - writes Judt - that a uniform appraisal is necessary, there are other events which are controversially interpreted (even Jeanne d'Arc, being the favourite of the Le Pens - it was Jean-Marie in Judt's time, now Marine) but that it was not discussed. Mitterand, who consciously tried to celebrate the glory of the French and has thus built and inaugurated memorials all over the country, was conspicuously silent about Vichy. Hungarians have a similar - although not at all silent - conflict with both long periods of the twentieth century - although one could argue that the period before - 1867 to 1914, when Hungary was part of the Austro-Hungarian Monarchy and when most of the conflicts which resulted in such a bloody harvest, were sawn - is also not processed in national memory and common conscience. A glimmer of hope is that debating began and, as mentioned, a common understanding of the facts may emerge. There are, however, some factors which make it almost impossible to achieve a "minimum of understanding" which, I think, Judt and Nora consider as a precondition: the connection to daily politics, the polarisation of political camps, coupled with the total lack of interest for politics on the part of the majority, and these two, seemingly contradictory factors leave space for purely emotional approaches. And in my opinion, only a rational approach can arrive to this mentioned minimum of understanding. While searching for links for this post, I found an interesting article about the same topic, also inspired by Nora's gigantic enterprise. When I read it, I may return.

Monday, May 28, 2012

Breaking news: New Hungarian Liberal Civic Party in the making!

OK, I was at least as bombastic as a tabloid but still: the first sentences of a programme have been published and another blog pőublished a similar call . This is not the first expression of desire but till now everybody just dreamt of it - and expected others to come up- but now someone at least was undertaking an initiative. In a normal environment, you could ask, what is a party initiative on a blog worth? In Hungary, however, the most politically active who do not belong to the mainstream parties are present in the blogosphere or on Facebook. Well, Orbán, the prime minister claimed in the European Parliament that they won the 2010 elections on the Internet and on Facebook. If this is (rightly) not convincing, think about the "Milla" who organised the most successful opposition demonstrations since FIDESZ is in government. This organisation gave birth to the party "Fourth Republic" . I am afraid that some explanation is due. The first republic was the one after the first World War, the second after the second, both were followed by communist rule. The third republic counts its days from since the system change, 1990. So the party wants to establish the fourth one, as the resources of the third one are depleted and there is imminent danger that a Putinist system will replace it. What are the chances of a liberal civic party? Can it gain sufficient votes? Is "civic" bourgeois or citoyen (the two different meaning of the Hungarian word "polgári" which I translated to civic? "Civic" is there in the name of FIDESZ, the now ruling party. They understand it (if at all) as supporting their clientèle, mainly the wealthy among them, by government interventionism (and even by unlawful methods which are justified by retroactive legislation or formalistic application and using gaps in the law). Apart from their support for the rich, they are not right wing, they practice social demagogy and state interventionism in everything including sexual morale, education, economy, culture... Jobbik is a nationalist populist party who wants to exit the EU and re-instate national ownership. The border on the extreme left in their economic programme (which is by far not coherent). LMP is an antiglobalistic green party. MSzP has implemented neo-liberal policies against its will and is widely seen as the party of people who only serve their own good. The Democratic Coalition of ex-prime minister Gyurcsány regards itself as a leftist liberal but also sees that it has a Socialist past and that it can only gain support by maintaining left-wing rethoric. The liberals and the conservative (were they?) MDF disappeared among scandals. This is a separate story in itself but not worth mentioning at the moment. So what are the chances? Right-wing in Hungary always meant nationalism. There is no one who can address the national questions in a way that would be European, progressive and realistic and at the same time appealing emotionally. Of course real liberal, pro-enterprise policies are missing and would appeal to a lot of "opinion-leaders" but would have a slim support in the countryside. Finally, the election system is such that one strong alliance could only defeat FIDESZ. The individual election constituencies are single-round, first-past-the-post and no validity limit is set. So if the 54% who cannot chose a party now do not vote, and there are six parties (which is realistic now), 9% is enough to win a seat. And the winner in the individual constituencies wins additional seats on the lists. So if a party wins the individual seats (50%) and some places on the lists, it can already even have 2/3 but surely a majority. Questions abound....

Thursday, May 17, 2012

Hungarian cases at the European Cout of Justice part 1 - some taxes

I collected some cases of the European Court of Justice in the area of consumer protection and taxes where Hungary was affected. I start with taxes, the second part will deal with consumer protection cases. Let’s start with a tax case where Hungary won against the Commission. The Court ruled in its judgement in the case C 253/09 about the deduction from the base of the personal income tax payable on the sale of property and about the deduction of the transfer tax paid on the purchase of property of the transfer tax paid on property sold by the same person (although it is paid by the buyer) that it is not discriminatory if only amounts paid for properties purchased can be deducted from the tax base of property sold where the property purchased is in Hungary. This sounds logical, as it was also established by the Court, saying that “there is a direct link between the tax advantage granted and the initial levy. First, that advantage and the tax levy are applied to one and the same person and, second, they both relate to the same tax” and “that the objective of the legislation at issue is to avoid – upon the purchase of a second principal residence in Hungary – the double taxation of the capital invested in the purchase of the previous residence that has been sold”. However, the Court looked a little further. Firstly it established that these rules constitute a discrimination but recognised that in light of the above arguments this discrimination is justified by pursuing and objective in public interest (i.e. to preserve the coherence of the tax system and also: "If taxpayers not having paid the tax at issue previously were able, under the tax regime at issue, to benefit from the tax advantage concerned, they would take unfair advantage of taxation that was not applicable to their previous purchase outside Hungary.") Interestingly, no specific arguments are found in the judgement about the transfer tax but the same logic would apply here, except that the tax in not paid by the same person (but was paid at the time of purchase by the seller, although on a value at that time).
The COurt made an interesting statement, by also giving its opinion about tax harmonisation: “While the property transactions carried out in other Member States might also have been subject to similar or even identical taxes to that at issue, it must be noted, however, that in the current stage of the development of EU law, the Member States enjoy a certain autonomy in the area of taxation provided they comply with EU law, and are not obliged therefore to adapt their own tax systems to the different systems of tax of the other Member States in order, inter alia, to eliminate the double taxation.” So, according to the Court, one way of further integration can be a harmonization of these taxes also and a mutual recognition of taxes paid in another member state.

This harmonization has relevance to a problem now widely discussed, the importance of which is secondary but some way emblematic. The issue is the registration tax and the amendment of the law about road transport, which introduced draconian fines for Hungarians who avoid the – very high though recently decreased – registration tax on passenger cars by registering their car in a neighbouring country where this tax does not exist or is lower. There is a European Directive on the harmonisation of car taxes, mainly targeted at the tax continuously paid in different countries on vehicles registered in that country. The annex to this directive lists a number of specific taxes in different countries but the registration tax in Hungary is not listed. There is also a draft directive, which wants to harmonise further the conditions of the obligation to re-register cars moved from one member state to another. In both the directive and the draft, there is a precise definition of the residence which defines where a car has to be registered and pay taxes. In contrast to this definition, the Hungarian law does not define residence but takes the registration in the residence register as a formal condition. There are two lists of conditions, one for the driver, which acknowledges the situation of those who are abroad temporarily (for work, for example) but the formulation of the conditions for the owner (operator) of the vehicle are chaotic. Driving a car rented abroad or registered on a foreign company – for which the driver may work – is, however, only authorised for one day for someone who does not have a temporary residence abroad. This is also causing problems. For those, however, who stay abroad but do not want to give up their permanent residence in Hungary (or have a temporary residence in Hungary) to go to Hungary in a car registered on their name can mean a fine of up to 3200 Euro and losing their car. This is clearly offending the freedom of establishment and of move within the EU and also the spirit of the mentioned directive, and the re-registration directive is still far away and has only partial impact. Recently a judgement of the Court in the joined cases C 578/10 to C 580/10, can mean some hope that at least when their case comes to the European Court of Justice, the Hungarian regulation may be declared contravening European Law. The judgement namely concerns the Dutch registration tax, and says: “that Article 56 EC must be interpreted as meaning that it precludes legislation of a Member State which requires residents who have borrowed a vehicle registered in another Member State from a resident of that State to pay, on first use of that vehicle on the national road network, the full amount of a tax normally due on registration of a vehicle in the first Member State, without taking account of the duration of the use of that vehicle on that road network and without that person being able to invoke a right to exemption or reimbursement where that vehicle is neither intended to be used essentially in the first Member State on a permanent basis nor, in fact, used in that way.”, which means that not only the tax paid regularly, but also the tax paid on registration cannot be levied on a vehicle which is not used “essentially in the” country “on a permanent basis”. By the way, the Hungarian registration tax was once subject to proceedings at the European Court of Justice (joined cases C-290/05 and C-333/05), when the question was again about proportionality (also referred to in the judgement in question), i.e. that the registration tax on used vehicles has to take into account the depreciation of the vehicle, i.e. can be levied only on basis of its real value and not on its purchase value.

Sunday, April 29, 2012

Some lessons on overindebtedness

In an article in the FT, Martin Wolf argues (based on a speech by Ben Broadbent, a member of the Bank of England’s Monetary Policy Committee) that the main problem with indebtedness is not its extent but the quality of debtors, their ability to service their debt. In dealing with a debt problem, the lessons from Scandinavia offer important insights, see as explained by the MacKinsey Global Institute :

- Both Sweden and Finland endured credit bubbles and collapses in the 1990s, followed by recession, debt reduction, and eventually a return to robust economic growth. Their experiences and other historical examples show two distinct phases of deleveraging. In the first phase, lasting several years, households, corporations, and financial institutions reduce debt significantly. While this happens, economic growth is negative or minimal and government debt rises. In the second phase of deleveraging, GDP growth rebounds and then government debt is gradually reduced over many years.

- The historic deleveraging episodes reveal six critical markers of progress: the financial sector is stabilized and lending is rising; structural reforms unleash private-sector growth; credible medium-term public deficit reduction plans are in place; exports are growing; private investment has resumed; and the housing market is stabilized and residential construction revives.

An enlightening example is how Sweden handled their housing loan crisis in 1993: the state undertook a lot of costs and risks and acted swiftly:
- generally guaranteed all liabilities of the Swedish banks except those of the shareholders (this was important to avoid moral hazard);

- special agencies took over the bad loans and sold off property which had to be seized from non-performing borrowers - banks were treated differently (in three categories) according to the magnitude of their problem;

- the central bank provided liquidity to the banks;

- all actions were taken and explained publicly;

- The Swedish Krona was devalued.

This cost about 4% of Swedish GDP according to Wikipedia (Its summary is simple but not bad). But the state required its price:
- the banks had to write down losses and issue shares to the Swedish state; - the profits from selling the seized property benefited taxpayers;

- also, the shares in the banks were sold at a profit for the state when the banks were again trading profitably; - a supervisory agency was formed, separately from the one which took over bad debt and sold the property.

The estimates of the benefits vary and some (among them some big Swedish banks) criticize the solutions chosen, partially because in their opinion the state went too far and partially as no measures were taken to prevent the crisis from repeating. In fact, however, Swedish exports spectacularly rose in the 15 years following the crisis. The EU study referred to below states that all costs were recovered. some others think it was only the half. One more factor: An article from 1994 highlights an interesting phenomenon: while in the U.S. homeowners normally default if the value of their property falls below their outstanding debt, this is much more seldom in Sweden. A lot of material is available about this. Let me highlight a European Commission study first. The latest account with comments, based on a lecture by Urban Backström, president of the Swedish central bank (Riksbank). Bäckström States: "Thus it was important both to avoid a widespread failure of Swedish banks and to bring about a macroeconomic stabilisation. The two are interdependent. The collapse of much of the banking system would aggravate the macroeconomic weaknesses, just as failure to stabilise the economy would accentuate the banking crisis." And his conclusion is: "This is an immense task that the Swedes took on. Their entire banking system was effectively insolvent. Yet, they were able to fashion a workout scheme that had bi-partisan political support, did not unfairly reward shareholders, dealt with moral hazard, separated regulatory and workout roles so as to reduce conflicts of interest, and that quickly wrote down valuations and liquidated the bad debts as opposed to dragging the process out. The Swedish authorities should be especially commended for dealing with the liquidity and solvency concerns simultaneously, while keeping moral hazard to a minimum."

Sunday, April 15, 2012

A "nonconventional" rating agency

A team of French youngsters (the age of their analysts is published, they are between 26 and 36, the age of the Notation Committee is not public, but from the photos you can conclude that most of them are less then middle-aged but have already some credentials in their profession) established notation agency called "Young and Poor" . The name is clearly an allusion to Standard and Poor's.
This agency, however, rates the programmes of the candidates for the French presidential elections.

Monday, March 19, 2012

What are European officials like? An independent research

The UK Economic and Social Research Council, EU Consent and a private donor financed an interesting research project , about the backgrounds, values, attitudes and motivation of European Commission officials (the Commission is by far the largest European Institution, with about 33 thousand staff ( see details here , more than all other European institutions together).

The project also investigated their opinion on how the Commission works, including the changes introduced by the 2004 reform and the latest big enlargements.

As the Commission supported the research, a representative sample of nearly two thousand officials could be surveyed. Also interviews of different categories of staff were conducted. The research was supported but not influenced by the Commission.

European Voice gave a good summary of the results:
First, the Commission's workforce is more diverse than is often assumed.
Most of them are economists and those who studied natural science are also more than lawyers. More than one-third of the Commission's staff recruited in the last years worked before in business and 90% had already work experience when joining the Commission.
As far as their views about Europe are concerned, only 36% of them are federalists, while 12% believe that the member states should be the central pillars of the Union.
Their motivations are also diverse: competitive remuneration and professional interest are factors of growing importance. Of course most of them share a will to ‘build Europe'.
The administrative reforms did not get a univocal recognition while the best rated president was Delors, but Barroso, the present president came out second after him.
They thought that the Commission is more difficult to manage since enlargement but they appreciated "their talented, enthusiastic and highly motivated colleagues recruited from the ‘new' member states", according to European Voice.
The Commission will soon publish its ‘strategy for e-procurement'. Public procurement should be enabled to use the internet.
Public procurement tender notices of all public authorities in the EEA are already published on the Internet and the submission of these documents is also continuously being streamlined. Notices can be submitted through a web-based for after registration or sent through computer-to-computer connections using the so-called e-sender network. The Commission's informatics directorate general is already doing some e-procurement. E-tendering is being phased in, first documents can be submitted, later the whole process will be possible on the net.

Meanwhile two commissioners, Michel Barnier, the commissioner for the internal market and services, and Karel De Gucht, the commissioner for trade are planning a regulation which would enable municipal authorities to reject bids from companies from countries where EU firms cannot bid in public procurement.

This is part of the EU's fight against discrimination in trade.


I was skiing a couple of weeks ago in Austria. I used the computer in the hall of the hotel. It was subscribed to a content filtering service which classified blog.hu, one of the popular Hungarian blogging sites as pornographic. This would not in itself surprise me, it also had an interface to report errors so I reported that the site certainly has some pornblogs but this is no reason to block the whole site as - plausibly - the different blogs are independent of each other and a number of very good political, cultural and lifestyle blogs can be found on it.
When I wanted to access the site of a left-wing Hungarian weekly, another content filter became active and informed me that based on the frequent occurrence of certain words, this site has been blocked. As this site is in Hungarian, I did not understand it quite. There was no e-mail address or used interface to report errors or to contact them. However, I find this very strange.

Saturday, March 3, 2012

The EC proposes to suspend structural funds to Hungary

Without precedent - why does the EU punish us? is the title of a (surprisingly objective if we look at the article but not at all surprising if we look at the author) article in the Hungarian financial and economic portal portfolio.hu. The author, István Madár, in my opinion one of the best macro-economists in Hungary (he taught my son but as he graduated already more than five years ago, there is no conflict of interest) who never associated himself to any party and was always realistic and politically neutral in his opinions. He did not publish much in political newspapers but slowly seems to appear more. He explains why Hungary is the first to suffer the freezing of part of the cohesion funds (the part of structural funds to be managed by the central government) due to its excessive deficit and why the Commission had no other choice. This is the logical next step - not to be postponed - in the excessive deficit proceedings under existing legislation and also under the new fiscal rules which were brought to almost-finalisation by the Hungarian presidency and of which the Hungarian prime minister is so proud.
It has to be noted that this is only a proposition which gives nine months to the Hungarian government to react and rectify the problems indicated.
In spite of the nice numbers about the primary budget balance, the structural balance is far from the required 0.5% and the outlook is bleak. And even the nice numbers are due to one-off drastic measures - confiscation of private pension funds, crippling taxes on foreign enterprises.
It makes thus no sense to speculate how much the conflicts on political issues have influenced the decisions - as there was no choice. Hungary is the country with the longest history of excessive deficit procedure. It is a little paradox that György Szapáry, who was the deputy president of the National Bank, and went to denounce the Gyurcsány-government at the EU when it wanted to avoid the excessive deficit procedure by transferring the motorway-building loans into a company, is so much in favour with FIDESZ that a law was amended to enable him to take the position of the Hungarian ambassador to Washington.
What is more important, though, is that the government should take measures to remedy the situation instead of waving the primary deficit numbers as the only defence.
Another paradox must be discussed here: A lot of people expect the EU to put pressure on the Hungarian government to preserve democracy and follow a reasonable and just economic policy. The measures taken will, according to some opinions, increase anti-EU sentiment in Hungary, however. I think that Hungarians should solve their own problems but again, the EU has no other choice than to speak up, and take measures, in defence of its common values.

Sunday, February 26, 2012

What happened to MALÉV? - updated with the restructuring plan

The European Commission ordered Hungary to have MALÉV, the Hungarian national airlines, to pay back about 350-400 million Euros in illegal state aid. Here is the press release. The Hungarian economic weekly HVG (the original article is only available for subscribers but here you can browse articles about the events)stated that Hungary has do calculate the amount to be repaid (which duty is explicitly in the decision) and to define how the state aid has to be paid back. This aspect will be important later. Also it has to be remarked that if the company is wound up and its assets are transferred or sold at market value.
The decision is dated 9th January 2012 and must be implemented within four months. The 3rd February MALÉV ceased operations, leaving passengers stranded on airports all over the world as not just the flights were cancelled but code-sharing partners also did not take MALÉV passengers and no tickets for other airlines issued by MALÉV were accepted any more. Further information on the last days and implications can be found on the Wikipedia page of MALÉV
Some interesting developments preceded this collapse: the company was declared the company an “organization of strategic importance” which means that a state body has to manage liquidation and the rights of the creditors are substantially limited. MALÉV asked for bankruptcy protection and these two events led the creditors to stop financing (including the lessor of most of its aircraft requesting their blocking, in some cases on airports abroad).
The decision was preceded by a letter to Hungary . This gave the possibility to the Hungarian government to justify the state subsidies by showing how and when MALÉV was a company in difficulties (which would have justified a one-off aid only) and present a restructuring plan (this latter could have saved the situation).
The decision can be attacked in court ( in the case of the Budapest Power Plant , Hungary won such a case).
The Hungarian government was defying the European Commission in several cases (about media law, the new Constitution and its accompanying acts, the pay of the president of the Hungarian National Bank) but did not even hint on trying this now (remember the interpretation of HVG that Hungary can define the way and timing of repayment).
But was or is there any chance?

To start with, MALÉV had a business model, whether good or not, part of which it pursued since the seventies: it enabled travel from the West to the Middle East by having passengers change in Budapest. The schedule of its flights to the Middle East was adapted to this (start from Budapest after the flights from the West arrived). Of course in the times of cold war, an “eastern” airline had a better position in the eyes of Soviet-friendly or “non-aligned” Arab countries, but the model also worked with Cyprus, strictly committed to Western-Europe already then. It was a member of an alliance and had code-sharing agreements and for a while enabled even good connections to the Americas. It employed a significant number of Hungarian sub-contractors and gave about 50% of the traffic on Budapest Airport (see the Wikipedia article referred to above).

Its profitability was, however, shaky, due to its strong links to the Hungarian state – it was not run really as a business. This is why state subsidies were needed to keep it afloat.

In 2003, the new socialist government sacked Mr Váradi its former CEO who established Wizzair , a cheap airline, using a lot of MALÉV staff. MALÉV since tried to compete with cheap airlines, in some cases its prices were lower that Wizzair’s to a more remote airport in the same city. Wizzair was one of those companies who called the attention of the European Commission to the state aid to MALÉV (there was at least one other company and of course this state aid would not have remained hidden anyway).

Another surprising fact:
The company which directly caused MALÉV’s demise (by initiating the liquidation proceedings) is not a supplier of MALÉV but has bought debts of the company and is linked to the organisation which is the receiver of MALÉV now. (If creditors do not agree to the protection – “chapter 11” by American terminology -, then the proceedings are transformed into liquidation.)

Beyond the state aid, MALÉV was first privatised and then re-nationalised. The reason for re-nationalisation was that the Russian owner, who seemed to be an appropriate professional investor familiar with the airline industry, did not prove to be useful professionally and its share was acquired by an also Russian bank. Any further re-structuring was hindered by this ownership as this bank also was a huge creditor of the company. So the credits had to be repaid and/or securities given and the bank’s share re-purchased. This happened in 2010, in the last months of the outgoing socialist government of Gordon Bajnai . The government secured the agreement of FIDESZ, due to win the next elections in April 2010. They also prepared a restructuring plan but FIDESZ refused to co-operate further in formulating this plan and without them neither further details could be fixed, nor negotiations with prospective partners could be started as it was clear that this government will have no say any more when the actions will really materialise.
Nothing was done even since and now it seems to be too late – the leased aircraft is away, new players occupied the best landing slots in the airports etc.

Some speculation: what could have been the solution? The easiest (followed by Alitalia and Olympic Airways ) could have been to have a new company take over the assets, slots and contracts of MALÉV (see above: at market value – maybe that was the problem as this would not have enabled a cheap takeover by a “friendly” investor) and leave the old company with its debts, including the repayment of state aid. The restructuring of the company by re-scheduling debt and streamlining it would have been a more difficult option and only if the EC had accepted that in this case state aid was not illegal. What is however quite clear: considering and publicising that the government will take an option - at least delaying repayment of state aid - could have enabled a soft landing, without leaving “the people” (the favourite term of the governing party) sitting on airports, sub-contractors and the airport suddenly without revenue. Companies under normal liquidation normally operate and this enables a much better sale of their assets and saving also their name. This is due to the fact that in liquidation, the first priority is to pay so-called “liquidation costs” which include the operating expenses accrued during liquidation and thus the company is able to get supplies for its daily operation. This was the case in much more difficult cases, like steel mills, dairy companies etc. before.

The government commissioner responsible for exploring and prosecuting “the previous government’s sins” declared publicly, that the state also has an obligation amounting to billions of forints to the owner of Budapest Airport (to whom the state sold it). He mentioned a strange term which raised suspicion immediately (but not in him): senior and also junior debtors have to be paid. These latter terms are namely used in bankruptcy and liquidation proceedings. After the privatisation contracts have been published recently, it turned out that it is true what the previous minister of finance, Péter Oszkó already hinted: This has to be done only when the airport itself goes bankrupt due to loss of traffic from MALÉV. And as other airlines (among them Ryanair, an arch-rival of Wizzair, but this is another story) crowd in to occupy slots, this seems to be improbable.

Péter Oszkó had a lot of things to explain and most if his communication about the re-nationalisation and the restructuring plans occurred through sms-es so no proofs. He is now member of the board of the holding company of Wizzair. This latter position he gained about a year after he ceased to deal with MALÉV.

The responsible minister for national development recently answered to a question of MALÉV in Parliament: “I am only in office since the 23rd December, I cannot take responsibility for this affair”.

Wednesday, February 1, 2012

European Council - tasks for growth and jobs

Too much has been written about the financial stability pact (about budget discipline) and commentators are usually disappointed about the result achieved on the European Council the 30th January in further points concentrating on growth and jobs which were also on the agenda. J. M. D. Barroso, the president of the European Commission, published his presentation on the European Council and also his other materials (you have to go down the page as there are only newer items on it).
The presentation contains a series of important data and observations. I would call the attention to the balance data on page 3 and youth unemployment rates on page 8. The first one clearly shows that the 2011 surplus of Hungary is just transitional while youth unemployment in Hungary is in the mid-range of Europe.
It is worth looking at the nice chart on page 5. Hungary has red marks in the following areas in this chart:
Fiscal consolidation (interestingly long term sustainability is not red)
Fiscal framework
Taxation (I assume mainly collection of taxes and fighting tax evasion)
Active labour market policy
Labour market participation (the activity rate in Hungary is disastrous)
Business environment and SMEs (in spite of government rhetoric)
Public services and cohesion policy.
It is clear, given the dominance of big European players on the banking market that there is no red area in financial stability (although I doubt that the housing market in Hungary would be healthy but this is also caused by the perturbations due to the big foreign exchange housing debt and the fairly confuse measures trying to handle that.

Saturday, January 28, 2012

Update on "Future in the past" (about a dentist)

In a previous post I wrote about the benefits the Orbán-government is giving the dentist of the Orbán family. Now, a new information was published by HVG:
All dentists who want to receive EU money have to register (and pay) to the Development Office for Hungarian Dental Tourism which is established and managed among others by the dentist of the Orbán Family again. Will the European Union recover its memories?

Friday, January 20, 2012

Articles in European Voice - MTI bent the truth again

The official Hungarian news agency (you know, the one which is giving away the news for free and thus killed all independent agencies in the country) published that European Voice had an article of the Hungarian minister of foreign affairs justifying government policies and showing how unjust criticism is.
What they forgot is that there were three other articles: one just about the introduction of the infringement procedure by the European Commission , one about the deficit and finally one one from the eastern European correspondent of the Economist . This latter had arguments for both parts, but squarely showed how unjustified the paranoia of the FIDESZ and the government is, in particular the notion that western politicians and journalists are only informed by the liberals and the left in Hungary and have no first hand information (besides confirming that the Economist is not run by the Jews - how could this journalist have this thought, I do not understand - and is not serving the financial oligarchs - he did not think necessary to underline that neither is the Economist left wing, he also told that the two journalists they have in Hungary both speak Hungarian. It can happen, that some of these articles will not be readable without subscription, but I think some will be freely available a week after publication which must be over now.

Sunday, January 15, 2012


The survey of Workmonitor Randstad shows that in 21 of the 30 participating countries, workers expect to earn more in 2012 than in 2011. Exceptions: The Czech Republic, France, Japan, the Netherlands, the UK, Greece end of course Hungary.

The Economist Intelligence Unit found that Hungary is a "flawed democracy" and is 6 ranks behind its position last year.

Sunday, January 8, 2012

Turmix - mixture

Income per agriculture worker has increased 41.8% from 2010 to 2011 (was 74.5% higher than in 2005) in Hungary, says Eurostat. How come?

As usual, the New Year means the modification of some tax rules. This package was published in the official journal the 29th November. The 9th December the law which was intended to be the foundation for the 2012 budget, already modified it over four pages. (it was voted the 28th November, i.e. one day before the previous one was published).
The law about associations, public benefit organisations and the operation of and support for NGOs, published the 14th December, contained another three pages of modifications. The law about court registration and procedures thereof the 22nd December: another three pages.
The mentioned law about the foundation of the 2012 budget modified further five laws due to come into effect the 1st January, and itself was also modified three times (including once when the law about churches contained a deletion of one point of it). Further similar cases of other laws is listed here.
Update: the law on investment fund management organisations and collective investment service companies contains a further change: the deadline for reimbursing the VAT claims has been extended ( remember, there was a Court decision which found a limitation of tax reimbursement contradicting to European law). This hurts exporters and investing companies…

Still there is one case to be mentioned: An amendment to the law about the protection of non-smokers enabled smoking in casinos where there is no assigned smokers' area. A couple of hours (maybe this is an exaggeration but that's what the association against the smoking of children established) later, another amendment, voted before, came into force which forbid smoking in casinos altogether (again).
The tobacco lobby seams to be strong - in particular in the rows of the Christian Democrat party (an associate of FIDESZ with no independent existence and apparently no followers) as they already came forward with amendments which stopped Parliament from increasing the excise duty on tobacco.

A public procurement notice of 800 million forints (2.7 million Euro at the moment, in normal times closer or above 3 million Euro) for a media strategy has been just announced.

And a nice video, Viktor Orbán is asked whether he feels his responsibility for the disastrous performance of the forint. First he tells that the president of the National Bank did not fell responsible than repeats it and then says: "neither". The smile afterwards tells everything...

Thursday, January 5, 2012

Hungarian media

After the official TV (and one commercial channel) reported about the mass demonstration the 2nd January, which was on the front pages even in quiet Luxembourg with a picture of empty streets closed by a police line (by putting the camera with its back to the demonstration), it is encouraging to read Neelie Kroes's blog and tweets.

Also the tweets about the mentioned opposition radio station: