The Washington Diplomat / December 2012
By Larry Luxner
This year, the Hungarian Embassy has been celebrating the 90th anniversary of diplomatic ties with the United States with a series of conferences, banquets, classical music performances and patriotic speeches.
And in October, the embassy sponsored a lavish “56 at 56” gala dinner marking the 56th anniversary of the 1956 Hungarian uprising against Soviet domination. The dinner, held at the U.S. Institute of Peace, attracted high-profile U.S. political figures, many of them conservatives, such as former Defense Secretary Donald Rumsfeld and Rep. Mario Diaz-Balart (R-Fla.), who toasted the Hungarian freedom fighters that stood up against tyranny.
Yet today, the country’s prime minister, Viktor Orbán, who honored those fallen freedom fighters with a stirring 1989 speech in Budapest’s Heroes’ Square that catapulted him to prominence, is now accused of systematically chipping away at the very freedoms Hungarians clamored for in 1956.
And many of Hungary’s 10 million inhabitants are more divided than ever on the future of the country, which even celebrated the anniversary of the 1956 revolution not with national unity, but with two competing mass rallies in the capital — one supporting the controversial prime minister and the other denouncing him.
Indeed, the Magyar Republic, which for the last 23 years has been a solidly pro-Western democracy, has been looking a little wobbly lately. Orbán has even compared Brussels to Hungary’s former communist overlord Moscow for trying to dictate how his government should handle a financial crisis that’s shaken the once-thriving Central European nation.
This summer, the Hungarian economy slipped into its second recession in four years, with second-quarter GDP shrinking 1.3 percent compared to the same period in 2011. Unemployment is nearing 12 percent. Hate speech and xenophobia are on the rise, incidents of anti-Semitism have increased, and press freedom groups worldwide have condemned a new Hungarian media law they say is politically motivated.
György Szapáry, Hungary’s ambassador to the United States, agrees his country is in crisis, but blames external factors rather than his government’s own policies for its current predicament.
“Hungary is so integrated into Europe that whatever happens in Hungary depends very much on what’s happening in the EU, particularly Germany, where more than a quarter of our exports go,” he said. “Hungary, being a small, open economy, is export-driven, so if there’s a slowdown or recession in the major European countries, Hungary will be very much affected. That’s mainly why our economy is not doing well.”
Szapáry spoke to The Washington Diplomat from his ornate residence on 30th Street, NW, only two houses down from the Massachusetts Avenue home of Count László Széchenyi, who presented his credentials as Hungary’s first minister to the United States on Jan. 11, 1922.
“László married a wealthy lady, Gladys Moore Vanderbilt, and they had five daughters. One of those daughters married Antal Szapáry, an uncle of mine,” said the ambassador, who was born into a noble family in the village of Tizsabura as Count György Béla Mária József István Szapáry de Szapár, Muraszombat et Széchy-Szige. For obvious reasons, the amiable, modern-day diplomat does not use his formal name, which harkens back to a different era in history.
At 74, Szapáry, an economist by profession, is old enough to remember the tail end of World War II as well as the hyperinflation that followed. Hungary still holds the record for the largest-denomination banknote ever put into circulation — a 1946 bill issued by the National Bank of Hungary for 100,000,000,000,000,000,000 pengo.
Szapáry, who served as deputy governor of that bank, spent 27 years at the International Monetary Fund, both in Washington and Budapest. He’s also held key positions at the European Bank for Reconstruction and Development, the Budapest Commodity Exchange, the European Commission, European Central Bank and the Hungarian Economic Social Council.
“While the current prime minister, Viktor Orbán, won the election and formed a new government in June 2010, he asked me to be his chief economic policy advisor,” said Szapáry, who later became ambassador in early 2011, replacing Béla Szombati.
Being Orbán’s official voice in Washington can’t be easy — especially given the anti-communist crusader’s growing reputation as an authoritarian figure given to venting rage against the 27-member European Union, which Hungary joined in 2004. By pushing through a new constitution and weakening the independence of the judiciary, central bank and media, Orbán’s detractors say he’s undermining democracy in a bid to consolidate his power.
Frank Bruni, writing earlier this year in the New York Times, noted that, “Brussels and Budapest have clashed already over the Hungarian government’s attempts at tighter control of the news media, the judiciary and the central bank. Hungary could also be a window into just how potently economic anxiety fans the flames of bigotry. EU membership hasn’t brought Hungarians the broad prosperity they had hoped for; the country has had severe budgetary woes of late.”
Bruni warned that the far-right Jobbik party — which currently has 46 of the 386 seats in Parliament — “has converted these disappointments into questions about the country’s orientation to the West and, for good measure, about its supposed coddling of Jews, gays and Roma: Hungary’s trusty trinity of scapegoats.”
Earlier this year, Mark Palmer, who served as U.S. ambassador to Hungary from 1986 to 1990, went even further, telling Budapest opposition newspaper Népszabadság that Orbán — whose conservative Fidesz party won the 2010 elections with a two-thirds majority — is “abusing” his power and eroding democracy.
“Hungary’s ejection from the EU is now no longer unthinkable,” Palmer said, adding that the country “won’t be tolerated if it no longer counts as a democracy.”
Not true at all, Szapáry told The Diplomat.
“When things get difficult, of course people look around and try to find culprits,” he said. “Sometimes, the frustration visibly shows without really understanding the relationship between their own difficulties and our membership in the eurozone. However, Europe has no alternative than to be integrated, and politicians on both the left and the right — with the exception of a few extremist parties — know that.”
He added that “Jobbik is an extremist party with only 16 percent support. The extremist right is always stronger when there’s a leftist government, and it weakens with a right-center government. Jobbik is anti-Semitic and anti-immigrant, but they’re not in government and you don’t even need their support for anything. We have a two-thirds majority, so we don’t need anybody to pass legislation.”
That super-majority, secured in the landslide 2010 victory, has allowed Orbán to muscle through not only political changes, but also unorthodox economic measures.
Among them, he has nationalized pension funds, imposed taxes on banks, utilities and other big businesses, and forced lenders to absorb losses suffered by Hungarian homeowners on foreign currency-backed mortgages.
The moves have rattled investors, driving up interest rates. They’ve also alarmed the European Union and International Monetary Fund, forcing Orbán to abandon plans to merge the nation’s central bank and its financial markets regulator earlier this year. Hungary is also still paying off a 2008 bailout from the IMF and the EU — which insist that the country dump its flat personal income tax system as part of any new loan agreement. (Hungary needs $15 billion to roll over its foreign debt.)
Orbán says he’s simply trying to protect Hungarians against the excesses of capitalism and against foreign interference in domestic affairs. He also insists he’ll continue to buck Western prescriptions for an economic crisis that started in the West, saying he was given a popular mandate by voters who rejected his predecessor’s austerity-driven cutbacks.
“This is their problem, but in Hungary we refuse to build our policies on flawed recipes and austerity packages,” Orbán’s economic minister, Gyorgy Matolcsy, said on state radio in late October.
To be sure, the brash prime minister has his supporters. Gabor Takacs, a think tank analyst, argued in the Financial Times that Orbán is a pragmatist who enacted overdue structural reforms such as restricting early retirement in the police and military and making the welfare system more transparent.
Likewise, Szapáry defended his government’s decision to impose special taxes on banks and companies in order to slash the deficit. Before that, he said, Hungary’s corporate and bank taxes averaged 16 percent, the lowest in Europe. To raise revenue, Orbán hiked the value-added tax from 25 to 27 percent and slapped taxes on everything from unhealthy food to telephone calls.
“This is the biggest recession since the Great Depression,” Szapáry conceded. “Before, both governments and households increased their debts quickly, and measures to increase competitiveness were neglected. Then suddenly, when the crisis came, people had to reduce debt, and that has had an impact on growth and unemployment.”
We asked the ambassador and longtime economist how his government plans to lift Hungary out of its current mess.
“Hungary inherited a debt-to-GDP ratio of 80 percent, which is one of the largest in Europe. It has set out to reduce that debt — and to do that, it has to reduce the fiscal deficit. This year it’ll be below 3 percent, one of the few countries in the EU that has such a low deficit. That, of course, affects consumption as well, but the current government is very much determined to reduce the debt,” he explained. “At the same time, Hungary has undertaken very significant structural measures to improve the competitiveness of the economy, specifically in education and vocational training.”
Because the government was able to bring down its budget deficit, in May the European Union rescinded an unprecedented threat to suspend $625 million in EU subsidies. In early October, Orbán’s government announced $3.5 billion worth of deficit cuts for next year to keep the budget deficit below the EU’s 3 percent of output level and avoid the kind of economic turmoil now enveloping Spain and Greece.
“Hungary will not follow that path,” Szapáry vowed, “but it is affected by the confidence crisis that this creates in the markets. When people see what happens in Spain and Ireland, investors’ risk appetite decreases. Since Hungary has to rely on foreign savings, that comes at a higher cost.”
In an article titled “Hungary’s Ailing Economy: Sickness on the Danube,” the Economist magazine warned that Hungary’s failure to finalize a funding deal with the IMF and the EU could leave Hungary “dangerously exposed to outside events” such as a bank crash in Spain or a disorderly Greek exit from the eurozone.
But it added that the government, and not outside factors, are ultimately to blame for the current morass. “Eight years of Socialist sloth and corruption left Fidesz with a mess that has been made much worse by the euro crisis. But the excuses are wearing thin,” the Economist argued.
“Mr. Orbán promised to sweep away corrupt Socialist-era networks. But one lot of Magyar oligarchs has been replaced by another, who are allies of Fidesz,” it said. “Corruption is now institutionalized, say watchdogs. And hardliners are ramming through their cultural agenda. Miklos Horthy, Hungary’s wartime leader and an ally of Hitler, is now celebrated with statues and a renamed square.”
Perhaps one of the biggest controversies of all centers around Hungary’s media law, which has been roundly criticized by everyone from Germany’s Der Spiegel to the New York-based Committee to Protect Journalists.
Szapáry said the new law was passed “because the old media law wasn’t working” — requiring the government to reform an obsolete, inefficient and nontransparent media system. “We made a little order, but did nothing that would influence the freedom of the media,” he told us.
Yet opposition politicians describe the move as a “systematic political purge” of the state-run media. Said Attila Mesterházy, chairman of the Hungarian Socialist Party: “The government is firing anyone who doesn’t work in line with its directives.”
The law, which took effect in January 2011, establishes a Media Council appointed by Parliament, with members serving a renewable nine-year term. After Brussels objected, the Orbán government watered down the law this past May, but EU officials and watchdog groups are still unhappy.
Szapáry discounts accusations that hundreds of reporters, editors and technicians at state-run newspapers and public TV networks got pink slips because they didn’t support Orbán and his Fidesz party.
“If you lay off people, they’ll always say they were targeted for political reasons,” he argued. “But if you have to downsize, you have to downsize.”
The ambassador admits that “changes were done very quickly, and when you do things very fast, some mistakes slip in.” But he says Orbán’s critics are exaggerating.
“There’s a big perception gap between what’s happening in Hungary and media reports,” he insisted. “The media is entirely free and vibrant; 75 percent of it is owned by foreign investors, so I don’t think they can be influenced. Even Freedom House says the Hungarian media is vibrant, and that all opinions can be expressed.”
Asked about Secretary of State Hillary Clinton’s reported concerns about the crackdown on democratic freedoms in Hungary, the ambassador said her comments were widely misinterpreted, and that “sometimes even the State Department gets it wrong too.”
Nevertheless, Szapáry said ties with Washington are flourishing. “In Afghanistan, we have special troops fighting shoulder to shoulder with American soldiers. The U.S. government recently asked Hungary to take over the defense of Kabul Airport, which was a privilege. While other countries are reducing their military presence in Afghanistan, we’re increasing ours, because the defense of Kabul Airport requires additional troops.”
In addition, said Szapáry, Hungarian soldiers serve as peacekeepers in the western Balkans and last year helped overthrow the Qaddafi regime in Libya. “The United States asked Hungary to represent its interests in Libya during the fight against Qaddafi, and we were instrumental in freeing several U.S. journalists from Qaddafi’s prisons,” he said.
With Hungary’s 1956 revolt against the Soviet Union still fresh in the national consciousness, we asked Szapáry what the 56th anniversary of that event — the first serious blow to the Soviet bloc since Russian tanks drove the Nazis out of Central Europe in the waning days of World War II — means to him and his generation of Hungarians.
“For many people, it’s not communism they reminisce about. They reminisce about their youth, especially if they were not persecuted,” he said. “People hated Soviet rule, and after the 1956 revolution, the Soviets realized that they had to allow Hungarians a little more freedom if they didn’t want another revolution on their hands. Certainly nobody is nostalgic about that.”