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Hungary: Fairy-tale Politics in the Summer of 2022

Guest Post: Anon Expat argues reality always trumps fairy-tale economics and catches up in the end - but leaves a trail of damage on the way, and hurts more in the end.

Photo: Scene from a recent demonstration against the changes to the KATA tax system and cuts to household utility subsidies. Photo Anon Expat.

I still remember my first trip to Hungary. It was in the summer of 1986. We drove with the tiny car of my Austrian friend Klaus. We were students, with almost no money. We parked in the centre of Budapest and bought a drink.

We couldn't believe how cheap it was, a fraction of the price in Austria. At first we thought there must be a mistake, but then we realized that we had landed in an incredibly cheap country. We had lunch in a restaurant and paid almost nothing (in our currency).

Then we decided to go for dinner in the most expensive restaurant, Gundel, then and now a flagship of Hungarian haute cuisine. We ordered a five course meal, with caviar and goose liver. For this luxury dinner, including wine, we paid the equivalent of a soup price in Vienna.

It was unbelievable! A fairy tale!

For the waiters at Gundel our appearance must have served as the perfect cliché. Young foreigners in their early twenties throwing their money around. Rich, decadent capitalists! (Of course, we were not rich at all.)

We were studying business and economics, so we understood that the secret behind this fairy tale was the Iron Curtain. The Eastern bloc, a whole group of countries, was completely shut off from the rest of the world with its own rules, currencies, prices, its own system.

No market economy, just communism.

Of course, this was not sustainable in the long run, and the system eventually collapsed. On our way back to Vienna we were caught speeding downhill from Tata. It was an easy “negotiation” with the police guys. We offered them a journal about modern cars and became friends. They waved us “Farewell”!

We decided to come back more often. And so we did. Over the following years we invited friends and family to festive lunches and dinners at Gundel. Step by step I fell in love with Hungary. After my studies I volunteered to become an expat in Hungary and eventually settled here.

In the ensuing years, I have witnessed many ups and downs in the Hungarian economy and in the hopes of my Hungarian friends.

Curiously enough many of them have left the country. I had come and they have quit.

One reason: during the recent years the Orban government has adopted more and more of the same old communist logic. The rule is: “If we do not like an international price level, we just shut it out!” It is usually called “price - STOP”. There is a “fuel price stop”, an “interest rate stop” on loans, a “food price stop” for certain basic foods, an “energy price stop” for households.

There is - was - too an extremely favourable tax system called “KATA” for small entrepreneurs. And once again it is a Potemkin village. The situation has become unsustainable. There is no more EU money to cover the losses from subsidising such politics.

“The fairy tale is over, wake up!”

As in any fairy tale you always need a big bad enemy, a wolf or bear, which one has to fight.

For Hungary today, this is “Brussels”. The EU is made responsible for everything bad. Currently the EU sanctions are the source of all problems, at least according to the Hungarian government.

Never mind that the Hungarian government also voted for these sanctions.

And now Hungarians have been brutally woken up in the middle of a hot summer, and they gather every day for demonstrations, blocking the Danube bridges.

Overnight, the government has changed the rules, effectively stopping the KATA tax system and reducing household energy subsidies.

At once such recently, several thousands of frustrated young people were demonstrating peacefully. One of them shouts into the megaphone: “Why does this government force us to leave the country? Why can we not live a normal life here?”

They have been kept too long in their fairy-tale world of low taxes and unrealistic, subsidised cheap prices.

They don´t understand the world anymore. They feel betrayed, because they have been betrayed.

I have watched my Hungarian friends and contacts as they have become ever more frustrated with developments. However, most of them avoid discussing politics and many are even afraid of doing so. The risk of an explosive confrontation, possibly ruining a good business contact or even a nice acquaintance, is simply too big.

The country is sharply divided with everybody staying in his/her own media bubble and not listening to any arguments from “outside the bubble world”.

As one of them said, “The root of all these problems is the artificial world (read fairy tale) that the government has created”.

Before the last election the opposition was pointing out that fairy-tale politics was not sustainable. They were punished during the elections for talking about market reality.

A fairy tale is usually nicer than the reality. Orban said in a recent press statement: “If a politician changes his politics after the election, it usually leads to a bad outcome.”

Now he is doing just that, because, just as in 1989, reality has struck back!

* Editorial note: I have known Anon Expat for something like 20 years. He is a professional, with wide experience in Hungary and the region. He requested anonymity for this post. It came in last week, but I haven't had time to edit it until now. The protests are still going on, but more intermittently than a week ago.

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Jul 29, 2022

Pity he didn't have the balls to put his name to it. I do to mine!

On a similar subject, I love the way items subject to price controls are included in the basket of goods used to calculate Hungarian inflation - another part of the Alice in Wonderland approach I suppose.

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