How to deal with "illiberal" corruption?

Two issues keep the debate around the new Multiannual Financial Framework (MFF) going: one is about how to find a mechanism to react to governments which do not comply with the Copenhagen Criteria, i.e. infringe democratic and/or rule of law principles (the infringement of democratic principles is more indirect as the sheer outcome of elections favours the governments of Hungary and Poland - although in Poland the tide may turn - but the circumstances under which these governments win the votes are at least dubious) without resorting to the famous (or rather notorious) Article 7, which is rightly called the "nuclear option" as it is very strong and virtually impossible to implement. It has to be noted also that this "nuclear option" is not directly so nuclear as it strips a country from its voting rights but leaves all other right untouched - of course after this the other member states can vote other sanctions if they are in line with general law.
The other question is also raised in the context of the projects in Hungary where the government is distributing EU funds with an extreme speed - leading to suboptimal decisions in itself - and favours its cronies in this distribution.
As it seems that - at least in Hungary - these two negative phenomena go hand in hand - and the concentration of power and hollowing out of all checks and balances really ensures that cronyism and corruption cannot be brought to court or hindered any other way, including wide publicity, the two questions are mixed together.
Proposals are tabled which would make EU funds conditional on rule of law criteria. In terms of proper use and avoidance of fraud, joining the European Prosecutor's Office is favoured. On the other hand, soon a new Financial Regulation will be voted which will simplify the disbursement of EU funds.
EU structural funds are an important source of economic development, a positive factor in the image of the EU and also help cohesion between the countries (also by enabling that their economic development approaches them to each-other - they are also called cohesion funds). I totally agree with Markko Markkula, president of the (European) Committee of the Regions, who emphasised the importance of these funds in an interview already serving as a preparation to the fight around the new MFF, arguing that the cohesion funds should not be cut. A recent article (and one of a leading Hungarian commentator who can also not be suspected of being on the side of the present Hungarian government, arguing that austerity will not break the government of Orbán) warns that the cut of funds can be counterproductive.
So what?
My proposition is that the decisions (including acceptance of projects and procurement) should be more centralised and also more controls should be applied, covering the cost of these from the funds made available to the country in question. These controls should also depend on whether the coutry joins the European Prosecutors' Office.
This would of course require additional resources which is always difficult to achieve but even more difficult now when EU sources are decreasing due to the Brexit. Therefore the structural funds should be used for this purpose. This would not be such a sensitive cut as what is proposed in the framework of the new "conditionality" proposals. Also, joining the European Prosecutor's Office should be the precondition of applying the simplifications in the new Financial Regulation.

What does the Hungarian minister of the national economy (including finance) know and understand?

According to a press article,the minister of the national economy, Mihály Varga (this superministry integrated or rather melted into itself the finance ministry, ministry of economy, labour and the different sectoral ministries - foreign trade, commerce, industry etc.) declared that the Hungarian government will not follow the recommendation of the European Council (it is prepared by the Commission but descussed in the Council and signed by the president of the Council) to cut tax benefits to poor people. Apart from the fact that low earners in Hungary have no special tax benefits (they were abolished by the FIDESZ government to cover partially the costs of the flat personal income tax), the article states that Varga confused the tax wedge with the tax benefits as the coutry-specific recommendation to Hungary proposed to decrease the tax wedge for low earners (see point 3 on page 7). Actually the document complains in an earlier paragraph (number 12 on page 5) that the" tax wedge on single low-income earners is one of the highest in the EU". Probably Mr Varga should have read the Hungarian version. There, the translator (who knows why, certainly not fearing misunderstanding by an economist and economy minister) translated the tax wedge to "tax burden" (pages 5 and 8 as the Hungarian text is somewhat lengthier).
The recommendations are denouncing the sectoral extra taxes (with the following justification: "The application of different tax rates across sectors is an obstacle to the effective allocation of resources
and thus negatively affects growth" and recommend a more equitable tax system. This is no surprise. No surprise either but very instructive are, however, some other statements about the situation of the economy and about economic policy: "Notwithstanding the Central Bank's subsidised 'Funding for Growth' scheme for small and medium-sized enterprises, normal lending to the economy has not picked up in a sustainable manner." (see also in Hungarian: Why the "funding for growth" programme did not help?)
"The regulatory burden on the financial sector has been
further increased, thus limiting the capacity for capital accumulation. Measures like
the increase of the financial transaction duty have contributed to a pick-up in the cash
usage of the economy. The household portfolio has further deteriorated and the high
proportion of non-performing loans currently represents one of the biggest
challenges for the financial sector. Portfolio cleaning is hindered by the weak
efficiency of resolution proceedings."
Also interesting: "The youth unemployment rate has decreased in 2013, while the rate of young people who are not in employment, education or training has increased." -  hints to the phenomenon often discussed in the Hungarian economic press that employment figures may hide more than reveal the real processes. "The Public Work Scheme attracts the bulk of budgetary resources available for employment measures, but in 2013 less than 10% of its participants were able to return to the open
labour market after exiting the scheme."
"The business environment in Hungary is characterised by frequent changes in the
regulatory framework and limited competition in an increasing number of sectors.
New barriers have been introduced in the services sector and existing ones have not
been removed (e.g. pharmacies, waste management, mobile payment, retail tobacco
and textbooks)."
"Overall investment has declined particularly strongly in those sectors
where sector-specific surtaxes have been imposed in recent years. Between 2010 and
2013, nominal investment declined by 44 % in energy, 28 % in finance and 18 % in
the communication sectors, while increasing by 3.4 % overall."

And so on, and so on. So if after this, the minister of national economy says that Brussels does not require adjustment any more, obviously concentrating on the budget balance (in fact this is also a little false as the recommendations state: "Reinforce the budgetary measures for 2014 in the light of the emerging gap of 0.9% of GDP relative to the Stability and Growth Pact requirements, namely the debt reduction rule, based on the Commission 2014 spring forecast. In 2015, and thereafter, significantly strengthen the budgetary strategy to ensure reaching the medium-term objective and compliance with the debt reduction requirements in order to keep the general government debt ratio on a sustained downward path."), he forgets his role beyond being the minister of finance, to be very polite. For the uninitiated: a lot of criticism and recommendations target the governments pet measures, denounced also in Hungary even by economists who supported FIDESZ before.

There are problems also in the social area (another superministry is the Ministry of Humnan Resources): "The proportion of early school leavers is on the rise and the adoption of an early
school leaving prevention strategy has been repeatedly delayed." - and this in the context when compulsory upper schooling age has been decreased.

A final quote: "Review the impact of energy price regulation on incentives to invest and on competition in the electricity and gas markets. Take further steps to ensure the autonomy of the national regulator in establishing network tariffs and conditions. Take measures to increase energy efficiency in particular in the residential sector." - Another pet project, the "decreasing utility charges" is under attack. If we look what was written above about the investment scenario, we see why. The criticism of the public procurement system is very diplomatic, but sstill, recommends improvement. THis would, however, stop the government from distributing public work contracts to its cronies. No surprise but very sad that the minister shows himself deaf.

Let's carry on - on the EU budget

Everybody likes to get money. But not too many like to give. The masters of the EU (who are, contrary to common belief, still the member states) gave the Union a moderate financial framework (this is how the long term budget is called in EUspeak) and 2014 budget. The negotiations were relatively successful for Hungary - it remains the second-third most supported country in terms of net balance per capita or by share of GDP. So now the Hungarians should be happy, shouldn't they? Well, the EU funds are well "earmarked", at least the area where they could be spent, is defined.You cannot spend European Social Fund money for economic development or infrastructure, only if there is a social benefit, and cohesion funds also have certain goals to be adhered to and also limitations. Rules of spending, documentation and accounting are not so simple. Partly this is due to the conditionality, adherence to which has to be checked. There is, however space for simplification. Increasing the flexibility in using the funds both concerning eligibility criteria and administrative requirements in beneficial but this should be done in a way that the possibility of fraud should be avoided. On the other hand, in spite of the short-term temptations, the real interest of the country is to prevent that EU funds should be used to distort competition as on the long term this means loss to Hungarian competitiveness to richer countries. Hungary is interested in simplification and also in decoupling the EU budget from conjunctural changes and spirit fluctuations between member states, thus also in giving the EU genuine own sources, for example from a future financial transaction tax or energy tax. This has nothing to do with the extraordinary taxes introduced in Hungary and probably would require their abolition which would actually help the Hungarian economy. Work is in progress and finally sme member state control and also mechanisms to equalise temporary fluctuations can be expected. The condition of agreement of the European Parliament to a decreased budget was more flexibility in reassigning funds and also a review to see if increases are necessary. Hungary should carefully follow this review and support an increase in the budget - improvement of economic conditions can be expected and thus more could be made available - benefiting the recipient countries, Hungary among them. Inevitably there will be a question, what the additional funds should be used for. Part of the funds was made available already to the youth employment programme - if more Hungarian regions could benefit from increasing its amount and lowering the threshold where it can be used, it would address a burning problem.

Youth guarantees

There are two European countries, Austria and Finland which guarantee, that if a young person is unemployed for four months, he/she should get a job, traineeship or re-training offer. This is basically different from the public work which is now the favourite job-creating tool of the Hungarian government. On proposal of László Andor , the commissioner for employment, social affairs and inclusion, the new Multiannual Financial Framework will contain a new youth employment initiative (this was the only addition to the proposal of the Commission on the European Council meeting which approved the Council position on the MFF the 8th February (see criticism about the deal and its enthusiastic reception in a Hungarian article ). And these 6 bn euros can also be used to establish this guarantee as the Council agreed the 28th February (see here . It will be used in the regions where youth unemployment is the highest. The youth guarantee initiative also has a Twitter stream. According to estimates by Andor, the programme would cost 20 billion Euros in Europe. This would mean proportionally 50 billion HUF in Hungary. Thus roughly the amount which has been just taken from the universities or less than half of the interest difference between market financing and an IMF loan (by the most conservative estimates). Further information about the Council negotiations on the MFF is available here while the European Parliaments position can be followed here . A third-party report about the presentation of Mr Van Rompuy and the responses to it shows the main controversies.

Salaries of officials

The fight around the EU budget and the salaries of eurocrats continues. It has yielded some very interesting side-branches. A huge proportion of the EU budget is going back to the member states, although not to those who pay them in (The Guardian tried to set up a flowchart showing where the money goes but of course the euros (and pounds and kronas) are not earmarked. However, there are net payers (the richer countries) ant net recipients (who actually spend a significant part of the money received in the richer states), as one aim of the EU is to equalise the level of development in its members - out of solidarity but also out of plain self-interest. No one of the states will openly tell another one "I do not want to pay for you" although citizens and some journalists - in particular in the context of the debt crisis - do say things like that.

So what remains is the administration. Without echoing the allegations of the staff unions who see an intention to weaken the European public service, and without denying that efficiencies can be gained (where can't they?), this endeavour is not well placed in the eyes of an impartial observer (which I am not). The 2004 reform brought huge savings and the Commission is now proposing a further cut of 5% in staff numbers (and to reallocate staff internally to fulfil new tasks coming from accession, the economic governance package and a number of other projects aiming at competitiveness for Europe, research, etc.) as part of a wider package to cut other benefits of the officials (which are fixed in a regulation voted by the Council and the European Parliament). Negotiations on this proposal stalled as the member states did not accept the proposals. The EU budget is about 1.3% of the total GDP of Europe and administration is less than 6% within this. So big savings cannot be expected.

Salaries of eurocrats seem to be a stumbling block. In 2004, a special levy (starting at 2.5% and increasing every year till 5.5%/ was introduced on top of the taxes and social security contributions paid by the officials. This was tied to a method of calculating the annual salary adjustments. This method tied the increase of the salaries to the increase of salaries of public servants in the richer member states (to avoid that the increases in the member states due to higher inflation and the catch-up effect, as salaries there were lower than in Western Europe, should result in a higher increase). Of course the data have first to be available and so the changes take effect a year later. So after the crisis, there was still one year where the salary increase fell out higher than the member states thought justified (surprisingly, not in 2008 but in 2009) and then the member states did not want to apply the algorithm, referring to an exception clause in the regulation, for the case of an unexpected and serious crisis. The Court of Justice later found that that year the crisis was not sudden and not severe enough in its consequences to justify the application of the exception clause. The year after the cut in national public salaries had its effect on the calculation and the 0.1% increase was approved by the member states. The year after, they refused to apply the method again, and similarly in 2012.

Meanwhile, the method of salary adjustment and the special levy expired (they were tied to each other). The Commission proposed to extend these two elements of the staff regulations for another year, independently from the status of the negotiations on the budget and the Staff Regulations. The Council refused that which meant that the special levy (which gradually increased to 5.5%) also expired and all officials of the European institutions got a salary increase of about 5.5%. This was pinpointed in a number of articles in the press. One of them got a surprising reaction from a European Official who stated that he/she is a secretary and earns 700 euros a month. As the salary table of the officials is public, it is easy to establish that this means at least a grade 8 official. Given that secretaries start at grade 1 and the average time to jump a grade is 3-5 years (in reality, it can be longer), this means that this person works in the EU since 20-30 years and is still a secretary. Draw your own conclusion. If you want to see the Staff Regulations, you can find it here

By the way when member states - and in particular David Cameron, outraged about EU salaries compared to his own - complain about 1-2% of salary increases and "perks" of EU officials, Commonwealth officials received a 3.8% salary increase and have much more sumptuous perks - but this is Britain's favourite child, as opposed to the EU.

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."

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.

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?

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."

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.

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”.

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.

What is the use of the IMF for Hungary

Looking at the path the Hungary has followed, it appears that turning to the IMF is just the continuation of a strategy, however abrupt a change it seems to be. By distancing i tself from the IMF the government got the necessary freedom of maneuvre to take the steps necessary to build its power base, occupy all institutions and prepare to make the next government a lame duck using the occupied positions. Also, it benefited from some "non-orthodox" steps and thus installed the mechanisms to favour its clientele and the party itself in distributing the financial resources of the budget. This almost brought the coutry to the brink. The sole announcement that it re-starts negotiations with the IMF has stopped the free fal of the forint and may enable the financing of the budget, independently whether an agreement will arrive or not. By this, the consequences of its past steps can be avoided - if not, Hungary is worse off also.
Another way to avoid consequences is a sentence hidden in the law containing the transitional regulations for the new Constitution. This law has been submitted to the Parliament by two members - I may return to this in a later post.

Court of Justice detects flaw in Hungarian VAT system

The European Court of Justice decided in its judgment in Case C-274/10 that the Republic of Hungary has failed to fulfil its obligations under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax - by requiring taxable persons whose tax declaration for a given tax period records an ‘excess’ within the meaning of Article 183 of to carry forward that excess or a part of it to the following tax year where the taxable person has not paid the supplier the full amount for the purchase in question, and
– because, as a result of that requirement, certain taxable persons whose tax declarations regularly record such an ‘excess’ may be required more than once to carry forward the excess to the following tax year,
More precisely, Hungary has exceeded the limits of the freedom available to the Member States under Article 183 which allows the Member States to lay down conditions for the refund of a deductible VAT excess.

What is this about? One way of VAT fraud is when the seller does not pay the VAT which is claimed by and refunded to the buyer. In these cases sometimes the buyer does not pay the seller. The first Orbán government decided that one way to counter this is not to enable actual payment of the VAT reclaimed if the buyer did not pay the seller. The amount can be deducted from VAT payable, the excess being carried over to the next period (which can be the next month, the next quarter or the next year, depending on the amount of VAT payable by the company over the previous year – exceptions to shorten the period are difficult to get), Thus, companies having one big purchase (usually investing) can in some cases have to wait a year or more till the get the VAT back.
This of course addressed only a marginal aspect of the problem as in VAT fraud it is often the seller which then vanishes with the money. This regulation put actually investors and leasing companies (who invest in goods and thus have immediately a claim to reimbursable VAT to lease them out where their income comes over time) and also their lessees (who only pay in installments and were thus not able to get even the VAT of the first large installment repaid) in a difficult position. After a discussion between the Ministry of Finance and the Leasing Association the problem was partially solved (in this case reimbursement can be made if the amount of the VAT is paid which leaves only lessees who pay a first installment below 20/% out in the cold).
The complaint of sellers, which could also be the basis of the rule, namely that if they do not receive the payment, it is difficult to pay the VAT (and thus this rule could improve payment discipline) could actually have been solved based on Article 66(b) of the Directive which allows that a Member States makes VAT chargeable, in respect of certain transactions or certain categories of taxable person no later than the time the payment is received. However, the Republic of Hungary has not claimed to have made use of that possibility (point 50 of the judgment).
The Court of Justice found that this rule infringes the fiscal neutrality of the VAT system: "such conditions must enable the taxable person, in appropriate circumstances, to recover the entirety of the credit arising from that excess VAT. This implies that the refund is made within a reasonable period of time by a payment in liquid funds or equivalent means, and that, in any event, the method of refund adopted must not entail any financial risk for the taxable person" (point 45 of the judgment).

It must be noted that no deadline has been set for changing this rule. It is also clear that the main problem highlighted by the Court was that there was no assurance that the tax will be recovered and when it can be recovered (the taxable person may have to carry forward the excess several periods giving rise to an uncertainty and a long delay).
Point 55 of the judgment states: "In that regard, it must be borne in mind that the carrying forward of a VAT excess over several tax periods following that in which the excess in question arose is not necessarily irreconcilable with the first paragraph of Article 183 of Directive 2006/112 (see, to that effect Enel Maritsa Iztok 3, paragraph 49). However, given that the national legislation at issue provides for tax periods from one month to a year in length, it may create a situation in which certain taxable persons, do not, because of the repeated carry-over of an excess, obtain a refund of that excess within a reasonable period."

So the consequence is not - as it is hinted by several articles in the news - that the amount of VAT has to be repaid immediately to everybody who has an outstanding claim, but the time to refund has to be limited to a reasonable and foreseeable extent and the conditions have to be in accordance with the VAT directive.

Of course, from this moment on, VAT subjects can request the refund of their excess VAT in their first VAT return. The judgment of the Court gives them the assurance that they are acting correctly. Although in general, European directives are not directly applicable, the member states have to transpose them into their national legislation and the national legislation is applicable, the judgment of the Court of 19 January 1982 in the case 8/81, (Ursula Becker v Finanzamt Münster-Innenstadt) enables direct applicability of the directives if the provisions of a directive "appear, as far as their subject matter is concerned, to be unconditional and sufficiently precise, those provisions may, in the absence of implementing measures adopted within the prescribed period, be relied upon as against any national provision which is incompatible with the directive …". And this can be done by all those who still have recoverable VAT which has not been paid to them based on the provision of the Hungarian VAT law which was annulled by the Court. If they do not request it, however, then they have to wait till the Hungarian Parliament modifies the tax law - ideally the modification should contain transitional provisions on the cases in progress.

Hungarian indebtedness

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

How did the Hungarian presidency do?

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

Economic governance: failed on one question where no political agreement could be reached. The issue is going to be put back in the agenda by the Polish  presidency which seems to attribute a lower priority to this question. Hungary did not join the Euro plus agreement as one of a handful states citing "tax competition" as the reason. Enikő Győri, state secretary for European affairs stated that the left in the Parliament was looking for the right thing (growth) at the wrong place (budgetary discipline) however, the one difference left (from over 2000) is about budgetary discipline and not about growth: whether sanctions should be automatic.

Roma strategy and Danube strategy: the Roma strategy was initiated in the Parliament by a FIDESZ MEP of Roma origin and well received. The Commission (partly its Directorate Generals under the Hungarian commissioner (nominated by the previous governing party) was swift in working out the strategy which was endorsed by the Council. The approach was criticised by human rights groups as minimalistic, but it has to be recognised that the EU does not really has competencies in this area.  The Danube strategy was already in the making when Hungary took over (just like the Swedes had a Baltic strategy accepted, it was logical that the Hungarian presidency aims at a Danube strategy and the other members of the Trio (Spain and Belgium) probably gave a helping hand) and accepted during the presidency's term, These are issues where no EU money is directly involved and thus their real impact remains to be seen.

Authenticity of the electronic edition of the Official Journal: pursued with ambition and  intelligence but still pending on the issue of which treaty article is the legal base. This could further reduce the use of paper and thus help the environment but also improve efficiency of those who work with European legislation, Clearly a must in the 21st century.

No result on labeling of „high-tech foodstuff” i.e. genetically modified foodstock and "new foodstock" in general failed but a general food labeling regulation was finally accepted the 6th july. This latter harmonises the indication of ingredients and nutritional value on packaging and is a good result in face of differing interests.

"The outgoing Hungarian EU Presidency failed to adequately tackle some of Europe’s biggest environmental problems, the European Environmental Bureau (EEB) has said in an assessment. While positive on mercury, biodiversity and GMO cultivation, EEB said several issues were undermined by a lack of political commitment and leadership"  http://www.eeb.org/EEB/index.cfm/news-events/news/assessment-of-hungarian-presidency-bad-on-climate-energy-good-on-biodiversity-and-mercury/

Croatian accession negotiation – closed but no accession date fixed explicitly by the Council, although July 2013 seems to be the date.

Energy policy: The presidency achieved a deal on the 2020 energy strategy just before the Japanese disaster and the new strategy also creates more transparency and eliminates some of the European Gas network's inefficiencies (gas dead.ends of which Hungary is one and which hinder that Eu countries share their resources in case of shortages or other problems).
In transport, Hungary brought to decision the agreement on cross-boarder traffic fines (not a big joy for some motorist) which was a long-lasting saga. Also, agreement was reached on the Eurovignette for trucks.

In internal affairs, strictening the rules for sexual abuse of children and child pornography, an agreement about Frontex helping member states with immigration problems were positive but European Voice quotes MEPs that in this area legislative work was hindered by the political quarrels over Hungarian domestic policy.

It was a mistake to set the aim of getting Romania and Bulgaria into the Schengen area, the achievement of recognition that they are technically ready was what could be and was attained.

Agreement was reached that the suspension of the Schengen accord is only allowed in exceptional circumstances but the presidency did not react to the Danish measures contravening this.

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

Money from the EU

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

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


The table summarising the balances by year and by member state is on page 86 of
http://ec.europa.eu/budget//library/biblio/publications/2009/fin_report/fin_report_09_en.pdf  

Other sites about the same topic:

http://en.wikipedia.org/wiki/Budget_of_the_European_Union#State_by_state_analysis

http://www.money-go-round.eu/

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

http://ec.europa.eu/budget/biblio/publications/publications_en.cfm#rapfin

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

Future in the past

Long, long ago, a European Commissioner, Edith Cresson was asked by a journalist, whether it is true that her dentist is employed as a consultant by the European Commission. She refused to answer.
After some months and a series of other allegations of abusing funds and lack of proper control and accountability, the whole European Commission was forced to resign.

From the news:: The Hungarian government wants to assign one thousand million forints (about 3.8 million Euros) to develop dentistry tourism to Hungary. Newspapers write that the co-ordinator of the programme will be the family dentist of Viktor Orbán, the Hungarian prime minister

Reference has also to be made to the election slogan of the FIDESZ governing party in a previous election: ""The future has begun".