The international community should not use the threat of financial ruin to overrule Hungary's democratically elected government.

Over the past several months, there has been an avalanche of increasingly hysterical articles in the mainstream international media warning about the allegedly unfolding 'dictatorship' in Hungary, an EU and North Atlantic Treaty Organisation member in the middle of Europe. How could I have missed it, I ask? I am reasonably knowledgeable about the country where I was born, raised and very often visit. The country that I know and the one that emerges from the diatribes are not the same.

I have worked in the City of London for a long time, and financial upheavals are happening in the market every day: from the UK banking crisis and nationalisation, through the US debt ceiling impasse, to Greece defaulting and the eurozone near-collapse. At first I tried to take the reports in my stride. After all, Hungary’s small, open, export-dependent economy has always been vulnerable to economic downturns and political upheavals in the EU and world markets in general.

The hysteria over the Hungarian situation in the past few weeks, however, has reached fever pitch. High-profile commentators such as Paul Krugman and Kim Lane Scheppele evoke the picture of a country on the brink of descending into totalitarianism. And Mark Palmer, a former US ambassador to Hungary, recently gave an interview to a left-wing Hungarian newspaper in which he suggested that Radio Free Europe – a news broadcast funded by the US during the Cold War – be re-launched in the Hungarian language, and suggested that Hungary risked expulsion from the EU.

The hysteria over the Hungarian situation in the past few weeks, however, has reached fever pitch

Andrea Hossó

Then there is Charles Gati, an adjunct professor at Johns Hopkins University in the US, publicly threatening the incumbent government of prime minister Viktor Orban with “regime change”.  He assures us that all means are acceptable, including the removal of Mr Orban less than two years after the Hungarian electorate gave him and his Fidesz party a virtually unprecedented two-thirds super-majority in the Hungarian parliament.

Communist legacy

Certain elements in the US and the EU seem determined to crush a small European country that dared to attempt to start serving its national interests. The Hungarian government’s alleged crime, committed in honouring the platform on which it was elected, lies in trying to exercise a modicum of economic policy independence to overcome the heavy legacy of the communist era.

The orchestrated media broadside keeps repeating what a monster the Hungarian government is. Yet few concrete arguments are offered to support the sweeping allegations. One of them is the passing of a new Hungarian constitution; another is the law on the National Bank of Hungary (NBH). What a strange experience it is to see the democratic West lamenting the replacement of a patched-up Stalinist 'constitution' that was forced upon Hungary in 1949 by the infamous totalitarian communist government.

How puzzling, if not dumbfounding, it is to see the EU so worried about the NBH allegedly losing its independence due to the expansion of its monetary policy council (MPC) by two or three members appointed by the prime minister and the president. As if central bank 'independence' relied on the number of MPC members, or constituted a sacrosanct value akin to the protection of human life, rather than merely an economic theory which Western countries have ignored when they chose.

What a strange experience it is to see the democratic West lamenting the replacement of a patched-up Stalinist 'constitution' that was forced upon Hungary in 1949 by the infamous totalitarian communist government

Andrea Hossó

Hungarians would be entitled to ask how independent is the US Federal Reserve with its consecutive bouts of quantitative easing, or the European Central Bank with its new venture to buy up hundreds of billions of eurozone bonds to keep the project afloat. In the midst of the greatest financial crisis since the Great Depression, are the US and the EU in a position to pronounce infallible judgements on a minor modification of the law on the NBH?  Even if they were, does it entitle them to demonise a freely and democratically elected government? Or are there some other motives at play here?

Putting Hungary right

Any objective observer could detect the well-orchestrated campaign masterminded by a greatly reduced internal Hungarian opposition and its Western supporters. This particular interest group, whose former leader once admitted “lying morning, noon and night” to win re-election, is having a hard time accepting its resounding electoral defeat in May 2010. That defeat diminished its political dominance and generated fears of losing the wealth amassed by some of its members during the opaque fire-sale privatisations of the past two decades.

Notwithstanding the political campaign coupled with open threats of financial squeeze, Hungary’s financing situation is far from the dismal scene depicted by most commentators. Debt instalments due in 2012 amount to approximately €4.7bn, a figure that can be covered from available resources such as budget reserves. Effectively, the country can finance itself this year even without access to capital markets. Inevitably, the abundance of negative publicity keeps the pressure on Hungarian assets, creating a difficult political backdrop to negotiations with the EU and the International Monetary Fund.

Mr Orban’s government and its policies continue to enjoy the support of a wide voter base, and nobody contests that the government’s two-thirds majority was legitimately won. Those who advocate the removal of this Hungarian government are, in effect, seeking to nullify the will of the Hungarian electorate, democratically expressed by a huge margin. Yet protecting that expression of political will should surely constitute the very essence of democracy.

Andrea Hossó is a Hungarian-born emerging market asset manager now based in London.

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