Cut Orban off at the Soup Kitchen: Suspend EU Funds

The suspension of EU structural funds to Hungary should happen on Monday, March 11, 2013. This is if the Hungarian Parliament approves the fourth round of revisions to the Hungarian Constitution. Actually, it should happen anyway, as there is no real difference in the state of affairs today and what it will be Monday. But deadlines are useful and it seems that Brussels and the rest of the world woke up again to what is happening in Hungary. My argument for suspension of funds is focused on the role of state institutions. High quality and non-politicized state institutions must ensure the transparent spending of EU money. If these do not exist, the state is open to corruption.

I wrote before about Prime Minister Viktor Orban’s distaste of state institutions that are professional and align with common EU norms. With the placement of former Economics Minister Matolcsy to head the Central Bank and the demotion of two deputy governors, and the expected gutting of staff from the Bank, along with the finalization of the stacking of the Constitutional Court and planned retirement of the remaining hold-outs of non-regime judges, the institutionalization of regime supporters is almost complete. My call for suspension of EU funds rests on the need to remove the financial support of the consolidated Hungarian state under the Orban regime. If Orban’s and Matolcsy’s economic policies are such a success then they should stand on their own two feet. The longer the game of calling Hungary a democracy only perpetuates the regime resulting in the long term decline of the country’s professionally organized institutions and the rule of law. The door of the country is now open to ingraining corruption even deeper and allowing special groups to control whole sectors of the economy – including energy.

The Bulgarization of Hungary

The best example to give is a meeting I attended about six years ago in Athens with South East European countries. It was a technical working committee and most of those in attendance had the authority to agree to changes in how their electricity systems were operated. The only one that couldn’t do anything was the high ranking delegation from Bulgaria. They either sat there and opposed everything or said they didn’t have the authority. The problems with Bulgaria’s energy system are showing themselves from frequent black-outs due to lack of investment to protests erupting over the electricity bills. Snap elections are now underway. Representative of the problems in Bulgaria was the selling of cheap electricity abroad while Bulgarians were forced to buy expensive generation. The long fight between Brussels and Sophia over organized crime in the country – and the failure of Bulgaria to tackle it, demonstrates what can happen when  gutted and powerless state institutions exists and crime/special interests control the state.

I was a co-author of a study in 2009 on the privatization of the state owned electricity distribution companies in Bulgaria. It turns out that the privatization process or the new private owners were not the source of the problem. Rather the shifting politicized regulatory environment and the actions, or rather in-actions, by state owned energy companies is the source of much of the problems. Thus the fault lies with the state – demonstrating the importance of effective state institutions, with a professional work force to oversee the energy system.

Hungary's future 'regional' cash cow - maybe a little too fat to make it out of the country
Hungary’s all purpose state vehicle. From pipelines to mobile phone operators. The cow should be the symbol of the Orban regime. From milking private companies to producing milk for the Hungarian nation.

Economic Corruption 

One of the biggest complaints since the fall of the Communist regimes was how leaders of state owned companies financially benefited from the privatization of their units. The Hungarian economy is becoming more state owned, centralized and controlled by political connections by the day. Certain companies are ‘lucky’ enough to continually win government tenders while tenders that should be public are placed behind the curtain of state security (like a swimming pool or a parking garage) thus allowing certain firms connected to the government to be selected. At the same time, the Hungarian economy falters due to the lack of investment by established international firms. The cracks in Hungary are now appearing for organized crime and ‘opportunistic’ individuals to begin their investment cycle in Hungary.

The great thing about living in a failing state is I can watch it unfold and talk to people that are adjusting real-time to the economic and social changes. A few months ago I was in the gym and a business executive told me now was the time to begin investments in the country because when the regime falls then it will pay to be in the right position to pick up the pieces. His business, from what I know of it, is fairly legitimate. However, (representative of my movement between locker rooms and conference rooms) I recently met someone and his comments and interests in Hungary put me on guard. His business could be questioned as legitimate or not. Hungary for him was viewed as a great opportunity. He has money and wants to invest in Hungarian projects where most established players are pulling out and where any investment outcome is questionable or offers returns only in the far distant future. I question his motives for investing in Hungary and I view it as representative of broader interests in the country by ‘non-transparent’ businesses.

Once the dots are connected, a failing state, teetering on economic collapse, controlling special interests, Putinized democratic elections and state institutions that are under the direct control of politicians where professional decision making is given over to political and personal interests, then the recipe is set for Hungary to become a country ripe for economic corruption and pillage. Long term investments by established and stable national and international companies are replaced by white elephant investments given to government selected firms. EU subsidies are directed to political and economic allies (such as the recent agricultural land give away to connected individuals over local farmers). Hungarian nationalism is used as an excuse to ensure selected firms and individuals profit for their loyalty to the government. In this environment it won’t matter the character references of individuals or companies – if they support the regime then they are friends of the regime.

EU scapegoats – or Orban at the soup kitchen

The decision for the EU is simple. Does the European Parliament and the European Commission want to support the long term gutting of state institutions in Hungary? Certainly democracy and the right to vote is important, but the Orban regime can play soft with what democracy is in Hungary – values can be debated. Professional and institutional competence are inherent to the EU structure. Orban and everyone else may hate the bureaucrats in Brussels, but it is these bureaucrats in both Brussels and Budapest that disburse the funds and underline the democratic order. If funds could be suspended for Bulgaria and Romania over this point then they should be suspended for Hungary.

The suspension of funds for Hungary would drive the country into a greater recession, Orban will lash out at Brussels and blame the collapse of the Hungarian economy on the EU. But why should the EU fund a regime that doesn’t believe in democratic principles and effective, independent state institutions. These are the pillars of the EU. In a country where the rule of law is politicized businesses and EU funds cannot be spent effectively. Control over the Central Bank is only the most recent case of politicization. The longer the Orban regime stays, the less professional and more corrupt state organs become.(The greater the juiciest pieces will be picked over at the time of collapse). As economic decline takes hold (as it already is) the more desperate people will become to stay in their jobs and accept corrupt practices. Passivity and acceptance allows the erosion of democracy. It appears now, only the EU has the power to say no to Orban. And they should say no to his outstretched hand. If begging and homelessness is now illegal – according to Monday’s  constitutional revisions, Orban should be turned away from the soup kitchen.