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Page 1: The Politics of Crisis Beyond Orthodoxy

The Politics of CrisisThe Politics of CrisisBeyond OrthodoxyBeyond OrthodoxyGábor ScheiringVédegylet

Page 2: The Politics of Crisis Beyond Orthodoxy

What has happened?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 accounts

Complete freeze at the market for government bonds - bankruptcy

Page 3: The Politics of Crisis Beyond Orthodoxy

5 year sovereign CDS 5 year sovereign CDS ((bps)bps)

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Crisis management: Enter Crisis management: Enter IMFIMF25 billion loan

◦IMF: 15,7 billion $◦EU 8,1billion $◦WB 1,3 billion $

In return◦Constant monitoring from IMF◦Reducing wages of public servants by

7,5%◦Reducing pensions by 3%◦Keeping budget deficit below 2,5%

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Political responsesPolitical responsesGovernment (Socialists)

◦Cuts in personal income tax and social security contributions to boost competitiveness

◦Raising VAT◦But – lack of confidence, lack of

parliamentary majority◦Gyurcsány resigns as he cannot get

through his proposal

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Political responsesPolitical responsesReform Allience (HAS + leading capitalists)◦~ 1000 billion HUF, 3,3 billion € cut in

expenditures◦Tax and social security contributions cuts◦„Rationalizing schools”, cutting social spending

Free Democrats and Democraric Forum◦~ 2000 billion HUF, 7 billion cut in expenditures◦Far reaching tax cuts and restructuring of welfare

services, decreasing the number of local governments, closing universities, privatization of health care and the pension system

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Bad macroeconomic Bad macroeconomic management?management?

Page 8: The Politics of Crisis Beyond Orthodoxy

Premature Welfare State?Premature Welfare State?

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LessonsLessonsNo direct relationship between

crisis and budget deficitNo negative relationship bw.

economic development and redistribution

What then?

Page 10: The Politics of Crisis Beyond Orthodoxy

Semi-Peripheral Semi-Peripheral IntegrationIntegrationPrivatized and unregulated

banking sector◦Short term speculative money◦Early warnings: IMF, BIS◦Euro/Frank loans

Long term consumer loans financed through short tems cross border loans

Although international rates were dropping, Hungarian interest were on the raise

Continue to make substantial extraprofit

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Semi-peripheral Semi-peripheral integrationintegrationDualistic economy

◦ FDI not able to solve employment problems if not networked well into the local economy

◦ Direct state subsidies and tax exemption disproportionally favor FDI at the expense of local economy

◦ Liberalized banking sector allocated money towards consumer loans Current account imbalances and risks Harder to get access to capital for local firms

◦ Reduced the policy space for local counter-cyclical demand management

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Ways out beyond Ways out beyond orthodoxyorthodoxyBolstering state capacity

◦ Economic planning◦ Strenthening bureaucracy (higher wages, examinations,

identity)Re-regulating financial sector

◦ Internationally: peripheral countries interest◦ Reduce the possibility of short term speculative

investments Both at currency, capital and commodity markets

Strenghtening local economy◦ Slovenia, Czech Rep.

Self-financing Green New Deals: green collar jobs◦ Energy efficiency of public and privative buildings◦ Renewable energy◦ Sustainable agriculture

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Political lessonsPolitical lessonsStrenghtening labor and civil

society◦Carriers of transformation

Strenghtening CEE cooperation◦Braking tax competition

Building capacity◦Breaking the resilience of neoliberalism

needs alternative knowldge Research Institutions

Also the interest of „Old Europe”


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