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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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