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The Politics of Crisis Beyond Orthodoxy. Gábor Scheiring Védegylet. What has happened?. 2008 October: major drop in the value of forint 2009 March: another major drop 1 € = 317 HUF (a year before it was around 245)
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The Politics of CrisisBeyond Orthodoxy Gábor Scheiring Védegylet
What has happened? • 2008 October: major drop in the value of forint • 2009 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
Crisis management: Enter IMF • 25 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%
Political responses • Government (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
Political responses • Reform 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
Lessons • No direct relationship between crisis and budget deficit • No negative relationship bw. economic development and redistribution • What then?
Semi-Peripheral Integration • Privatized 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
Semi-peripheral integration • Dualistic 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
Ways out beyond orthodoxy • Bolstering 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
Political lessons • Strenghtening 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”