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

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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


5 year sovereign cds bps

5 year sovereign CDS (bps)


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


Bad macroeconomic management

Bad macroeconomic management?


Premature welfare state

Premature Welfare State?


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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