The politics of crisis beyond orthodoxy
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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 crisis beyond orthodoxy

The Politics of CrisisBeyond Orthodoxy

Gábor Scheiring

Védegylet


What has happened
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
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
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 responses1
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
Lessons

  • No direct relationship between crisis and budget deficit

  • No negative relationship bw. economic development and redistribution

  • What then?


Semi peripheral integration
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 integration1
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
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
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”


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