The Politics of CrisisBeyond OrthodoxyGbor ScheiringVdegylet
What has happened?2008 October: major drop in the value of forint2009 March: another major drop 1 = 317 HUF (a year before it was around 245)Rumors that if it reaches 320 mass loan defaults will happen and the government is going to freeze bank accountsComplete freeze at the market for government bonds - bankruptcy
5 year sovereign CDS (bps)
Crisis management: Enter IMF25 billion loanIMF: 15,7 billion $EU 8,1billion $WB 1,3 billion $In returnConstant monitoring from IMFReducing wages of public servants by 7,5%Reducing pensions by 3%Keeping budget deficit below 2,5%
Political responsesGovernment (Socialists)Cuts in personal income tax and social security contributions to boost competitivenessRaising VATBut lack of confidence, lack of parliamentary majorityGyurcsny resigns as he cannot get through his proposal
Political responsesReform Allience (HAS + leading capitalists)~ 1000 billion HUF, 3,3 billion cut in expendituresTax and social security contributions cutsRationalizing schools, cutting social spendingFree Democrats and Democraric Forum~ 2000 billion HUF, 7 billion cut in expendituresFar reaching tax cuts and restructuring of welfare services, decreasing the number of local governments, closing universities, privatization of health care and the pension system
Bad macroeconomic management?
Premature Welfare State?
LessonsNo direct relationship between crisis and budget deficitNo negative relationship bw. economic development and redistributionWhat then?
Semi-Peripheral IntegrationPrivatized and unregulated banking sectorShort term speculative moneyEarly warnings: IMF, BISEuro/Frank loansLong term consumer loans financed through short tems cross border loansAlthough international rates were dropping, Hungarian interest were on the raiseContinue to make substantial extraprofit
Semi-peripheral integrationDualistic economyFDI not able to solve employment problems if not networked well into the local economyDirect state subsidies and tax exemption disproportionally favor FDI at the expense of local economyLiberalized banking sector allocated money towards consumer loansCurrent account imbalances and risksHarder to get access to capital for local firmsReduced the policy space for local counter-cyclical demand management
Ways out beyond orthodoxyBolstering state capacityEconomic planningStrenthening bureaucracy (higher wages, examinations, identity)Re-regulating financial sectorInternationally: peripheral countries interestReduce the possibility of short term speculative investmentsBoth at currency, capital and commodity marketsStrenghtening local economySlovenia, Czech Rep.Self-financing Green New Deals: green collar jobsEnergy efficiency of public and privative buildingsRenewable energySustainable agriculture
Political lessonsStrenghtening labor and civil societyCarriers of transformationStrenghtening CEE cooperationBraking tax competitionBuilding capacityBreaking the resilience of neoliberalism needs alternative knowldgeResearchInstitutionsAlso the interest of Old Europe
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