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.

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....

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.

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."

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.

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.