Storms

Demonstration near to the National Museum in Budapest two days after the day of independence when - according to legend - the national poet of Hungary (Petőfi, born Petrovics) declamated the National song on the stairs of the Museum, Snowstorm on the roads (that's wha the demonstration was postponed), storms all over Europe and the U.S. around the fourth amendment (how classical this sounds) of the Basic Law of Hungary, The forint plunging in response to - not the nomination but the first measures of the new president of the Hungarian National Bank -. ANd the European Peoples Party invites Frigide Barjot (no typo) to perform before the press conference of Commission vice president Viviane Reding (who, by chance, belongs to the same grouping) ti express herself against the marriage of homosexuals which is just being admitted in France. These storms on the surface hide undercurrents which have more importance for the future. The European Parliament - including the majority of EPP MEP's votes against the compromise long term budget agreed between the member states (but fails to request an increase). Good news: a compulsory mid-term review with qualified majority voting which could mean that a minority of member states cannot stop the EU adjusting its budget to the - hopefully - favourable future economic conditions. Greater flexibility, real own resources are the two further demands and a fourth one, which is in fact an increase in the amount: settling the backlog between commitments (promises to pay) and payments, which grew every year as payment budgets were always lower that commitment budgets. In a time of continuous growth of the budget, this difference would cause no trouble as payments are also later than commitments and thus the increase automatically means that payments - coming partially from commitments in previous years - can be somewhat lower that commitments in any given year. But if the difference is bigger than covered by growth, or there is no growth, the situation aggravates. Meanwhile, a bail-out is agreed for Cyprus. 10bn EUR instead of 17bn, a further 6bn is to be covered by the depositors of Cypriot banks vie a tax on deposits which averages about 6,5%. The European Federalists Party and the blogger of Reuters are enraged. The Parliament did not have a say (well, the national Parliament of Cyprus will have, and Cypriots already staged a run on their banks), they complain. It must be admitted, it is an unorthodox move. But if we think about the methods other governments (whether bailed out by the EU or not) put their budgets right, it is a song. In Hungary, inflation is 6% per year - the same toll on the value of deposits, just to talk about us. Of course, this tax is just a one-off solution (or will it be annual? I doubt). But it soothes to some extent the "northern" citizens who are already very sour about "their money" bailing out "irresponsible" southern states. And, given the composition of Cyprus deposits, it may be well targeted to some who hid their fortunes there.

Incredible

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.

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.