The Goulash Archipelago

A version of this article appeared in Ceylon Today on October 2 2014

Imagine a country where a populist leader wins a two-thirds majority in parliament and uses it to make radical constitutional changes, which were not in his election manifesto. The opposition is negligible and ineffectual. The popular leader sees his electoral success as a mandate to restructure the justice system and to place his acolytes in important institutional positions. He clamps down on the media, undermines religious organisations and imposes a nationalist viewpoint, citing national sovereignty when subject to international criticism. Checks on executive power are removed. Transparency International condemns widespread corruption. NGOs (including some based in Norway) are intimidated by police raids. Slum clearance is making people homeless. The leader seems to regard himself as a monarch. Where is this country?

It is not some failed state in Africa or Asia. It is right at the heart of Europe and of the “ethical” project known as the European Union.

Will Hungary become a dictatorship and remain within the EU?

Hungarian Prime Minister Victor Orbán has said that his aim is to build an “illiberal state” on “national foundations,” citing as models China, Russia and Turkey. He denied that these plans conflicted with Hungary’s EU membership.

EU Values

The EU presents itself as a moral model to the world. Any European nation wishing to become a member of the EU must, in theory, respect the values set out in Article I-2 of the Constitution. Turkey has been trying to get into the EU for a long time, but, despite its ongoing electoral success, the Erdoğan government makes the EU uncomfortable. The EU takes steps to ensure that a prospective member state meets certain criteria about democratic practices. This has delayed Turkey’s acceptance. What happens when a state is accepted into the EU, and then reneges?

Although Viktor Orbán has made no secret of his plans to use his popular support to make sweeping constitutional changes, to muzzle the media and reshape Hungarian institutions to suit his own purpose, the European Commission agreed in August 2014 to provide Hungary with nearly 22 billion euros of economic assistance. The money will arrive between 2014 and 2020 to boost competitiveness and growth. Hungary will also get €3.45 billion for rural development and €39m for fisheries.

Collapse of Communism

Hungary was the first Eastern European country to gain some economic freedom under “Goulash Communism”. Communist leader Janos Kádár, through the New Economic Mechanism, reintroduced some elements of a free market. Hungary was “the happiest barrack” in Central and Eastern Europe. However, Kádár had to borrow money and, in 1982, joined the IMF. The resultant debt contributed to the instability of subsequent governments.

In 1989, Hungary allowed thousands of East Germans to escape to the West by opening its border with Austria. Hungary began a programme of privatisation soon after the collapse of communism and within four years privatised half of the country’s economic enterprises. By 1998, nearly half of foreign direct investment in Central Europe was going to Hungary.

Hungary and the EU

In 1988, Hungary was the first among the Central-Eastern European countries to establish diplomatic relations with the European Community and benefited from assistance programmes. Every political party elected to the Hungarian National Assembly after the first free elections of 1990 agreed that accession to the European Community had to be a priority.

At the EU Summit in Dublin on 25-26 June 1990, the twelve then existing members initiated talks with the Central-Eastern European countries to establish a “new type of relationship”. In 1998, the EU began negotiations with Hungary on full membership. In a 2003 national referendum, 85% voted in favour of joining the EU and Hungary became a full member on 1 May 2004.

Credit Crunch

Despite EU membership, a high level of private and state borrowing left Hungary vulnerable to the credit crunch of 2008, and in October of that year, the government was forced to appeal to the IMF and the ECB for huge sums to avoid disaster.

Fidesz

In 1992, Viktor Orbán became leader of the Fidesz party, which was originally founded by young democrats persecuted by the communist party. In 1998, Orbán formed a successful coalition and won that year’s parliamentary elections with 42% of the national vote. Orbán became Prime Minister of Hungary at the age of 35.

Fidesz does not have a coherent ideology, but draws on populist themes, including those espoused by extreme right wing groups- national sovereignty, distrust of foreigners and NGOs (an NGO that trains dogs to help disabled people was recently raided by police). Fidesz narrowly lost the 2002 elections to the Hungarian Socialist Party. Dissatisfaction with the Socialist government’s subsequent handling of the economy from 2002 to 2010 coincided with the rise of the right-wing nationalist party Jobbik. Fidesz moved to the right and won the parliamentary election in 2010. Fidesz scored another comfortable victory in the 2014 election and Jobbik increased its share of the vote from 17% to 20.5%.

New Constitution: Top-Down Coup d’État

The two-thirds parliamentary majority gained by Fidesz in 2010 allowed it to replace the comparatively liberal post-communist constitution. Critics say the new constitution removes essential checks and balances but Fidesz claims that the constitution needed to be changed to expunge vestigial traces of communism. However, deep constitutional change was not part of Fidesz’s electoral programme and it does not have a democratic mandate for the changes it has introduced.

NGOs were raided by the police. This was “completely unacceptable”, complained Vidar Helgesen, Norway’s minister for Europe. News services became centralised monopolies. Employees lost the right to strike. Dozens of religious organisations closed. The government looted private pension funds. Schools were nationalised and all headmasters replaced. The government attacked critical intellectuals. Fidesz loyalists gained long-term powerful posts, including the presidency, the office of the chief prosecutor and the audit court, as well as top jobs in cultural organizations. The Orbán government reduced the powers of the constitutional court and the budget council. Bill Clinton said Orbán was an admirer of “authoritarian capitalism” and never wanted to leave power. “Usually those guys just want to stay forever and make money”.

Corruption has worsened, says Transparency International. A recent report highlights “worryingly negative trends” in Hungary. In the Social Justice Index (SJI) Hungary scored 4.44% in 2014, down from 4.79 in 2011 and 5.07 in 2008. The report showed that 43% of children are at risk of poverty or social exclusion. Children are worse off in this respect only in Romania (52.2%) and Bulgaria (52.3%). Hungary ranks second to last with respect to the percentage of children suffering severe material deprivation (35%), with only Bulgaria (51%) behind it. In Miskolc, a slum-clearance programme has made many homeless.

Democracy in Danger?

According to the Council of Europe’s Venice Commission, Orbán’s politicisation of the constitution poses serious threats to democracy and the rule of law. The opposition had no say in the drafting of the new constitution. Further amendments weakened opportunities for political competition and removed checks on executive power.

In April 2013, the Monitoring Committee of the Council of Europe’s Parliamentary Assembly recommended monitoring of Hungary. Hungary would have been the first extant EU member state to have its democracy scrutinized. On June 25^th, the European Parliament voted not to subject Hungary to the monitoring procedure but adopted a resolution, stating that according to Article 2 of the Treaty on European Union, the situation in Hungary is incompatible with EU values.

The Economy

When in opposition, Orbán accused the government of allowing the Hungarian economy to fall under foreign control. Fidesz bases its political appeal on an image of rescuing the country from an incompetent and corrupt Hungarian Socialist Party. Despite this populist stigmatising of foreign control, Hungary received a bailout of over $25 billion jointly from the EU, the IMF and the World Bank. Orbán was unwilling to make severe cuts in public spending and the IMF declined to provide the requested flexible credit line for Hungary.

Recently rating agency Standard and Poor’s warned that growth could slow to about 1% to 1.5% pointing to a large public sector, political uncertainty, weakness in the banking sector, and a regressive, complex tax system. Nevertheless, GDP rose in the second quarter at an annual rate of 3.9% and industrial output is up 11.3%. Tourism revenue has risen by more than 10% year-on-year.

Because Hungary is not a member of the Eurozone, it has the option of doing what ECB membership denies Greece and Ireland: printing more money and devaluing its currency. This could provide the sort of internal stimulus needed without additional borrowing. Orbán has said he has a duty to protect national sovereignty and preserve Hungary’s independence. Adopting the euro would mean local officials losing control over monetary policy. Hungary is required to introduce the euro eventually under its EU accession obligations. However, analysts believe there is not much chance of Hungary   adopting the euro before 2020.

EU Failure

International organizations like the IMF and the Council of Europe have criticised Hungary’s political direction but nothing practical was done to stop Orbán unpicking the framework of Hungarian democracy. The Council of Europe adopted an ineffectual resolution, which criticised undermining of European democratic standards in Hungary, but merely resolved “to closely follow” the situation in Hungary. The Hungarian government has agreed to a few constitutional changes after the latest Council of Europe Venice Commission report, but did nothing to withdraw measures on political advertising and recognition of religious groups.

Sweden’s EU Affairs Minister, Birgitta Ohlsson, proposed that EU funds – which Orbán distributes to his supporters – should be withheld and that he should be warned that Hungary’s EU voting rights could be suspended. The European Parliament on 15 September rejected a proposal by the liberal group for a plenary debate on Hungary at its session in Strasbourg.

A few years ago, Tibor Navracsics boasted that he faithfully executes all tasks he receives from his superior. Navracsics has been appointed EU commissioner for education, culture, youth and citizenship.

Conclusion

Orbán has moved out of the Hungarian equivalent of the White House into a castle that formerly housed Hungary’s kings. Six million dollars from the exceptional provisions reserve fund will pay for renovation.

If Orbán succeeds in his stated ambition of building an illiberal state within the EU, existing or new members might copy him. Is the success of Fidesz and Jobbik a peculiarly Hungarian phenomenon, or is it an advanced symptom of a broader popular discontent with the “Europe Project”?

If Hungary gets away with using sovereignty as a justification for passing laws that directly contradict important democratic and human rights principles, this could undermine the whole ethos of the EU. As the EU expands to include a more diverse array of countries and cultures with different versions of democracy, it needs to examine its economic, social, and political values. Can the EU’s current mechanisms cope with further expansion?

Inequality -Europe and the Precariat

A version of this article appeared in the July 2014 issue of Echelon magazine

 

European Values and Inequality

In theory, the core of the EU project was opportunity. Free movement, competition, a single market and non-discrimination should be pillars of an equal society. Nevertheless, socio-economic inequalities in Europe are greater today than in the 1980s and many who oppose free movement were recently elected to the European Parliament.

 

Five years of austerity policies have led to a further deterioration of living standards. Europe’s social model of welfare will no longer be sustainable if a majority of citizens can barely scrape by and have no security or opportunity. In Greece, infant mortality is up 43% because of stringent cuts to healthcare services. In Spain, over 400,000 families lost their homes. There were 4.5million people in Ireland on Census night (10th April 2011). There are an estimated 1,300 ghost estates in Ireland with 300,000 houses lying empty. There are plans to demolish these estates. In 2012, Focus Ireland, a charity for homeless people dealt with 8,000 customers.

 

Spending on education has effectively dropped in most EU countries. Youth unemployment affects a quarter of young Europeans and in Greece and Spain, 50% of the young are unemployed.

A study launched by UK deputy PM (at time of writing) Nick Clegg (educated at the private Westminster School and Cambridge University), shows that in Britain, one child in five is on free school meals. Only seven per cent of children attend private schools, but these schools provide 70 per cent of High Court judges and 54 per cent of FTSE 100 CEOs.

David Boyle, a fellow at the New Economics Foundation think-tank, warned that rising property prices would effectively render the middle classes extinct as the dream of home ownership becomes ever more distant. The “squeezed middle”, would need to take three or four jobs just to make ends meet and no longer have time for cultural activities.

Causes of Inequality

Over the last few decades, large international corporations have been powerful generators of inequality. By the early 1980s, the CEOs of the largest 350 US companies were getting 30 times as much as the average production worker. By the start of the 21^st century, they were getting between 200 and 400 times as much. Among the 100 largest UK companies, the average CEO received 300 times the minimum wage.

The EU encourages cuts in social spending, even presenting them as preconditions of recovery. They argue that recovery depends on “employer-friendly practices”. “Labour flexibility” really means crushing trade unions. More than a third of all workers in the private sector were union members forty years ago; now, fewer than seven percent are members of a trade union. France and Spain used to have powerful unions, but today less than ten per cent of their workforce is unionised.

Precariat

Employment is becoming increasingly unstable. Privatisation of government services, short-term and part-time contracts, temping agencies and low wages undermine job security. The British economist Guy Standing has coined the term precariat. Professor Standing argues that the dynamics of globalization have led to a fragmentation of older class divisions. The precariat consists of temporary and part-time workers, interns, call-centre employees, sub-contracted labour – those who are engaged in insecure forms of labour that are unlikely to help them build a desirable identity or career or guarantee them secure accommodation.

Spirit Level and Malignant Growth

The Spirit Level is a book by Richard Wilkinson and Kate Pickett, published in 2009. The book argues that there are “pernicious effects that inequality has on societies: eroding trust, increasing anxiety and illness, (and) encouraging excessive consumption”. The authors claim that for each of eleven different health and social problems: physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life, violence, teenage pregnancies, and child well-being, outcomes are significantly worse in unequal rich countries.

Piketty

Capital in the 21st Century, by French economist Thomas Piketty, focuses on wealth and income inequality in Europe and the US since the 18th century. The book’s central thesis is that inequality is not an accident but rather a feature of capitalism that requires state intervention to reverse. The book argues that unless capitalism is reformed, the democratic order is in danger.

Piketty predicts that the rise in inequality under neoliberalism will increase throughout the 21st century, reaching Victorian levels by 2050. He argues that if growth is low, labour’s bargaining power weak, and the returns on capital high, this will encourage speculation rather than entrepreneurial risk-taking or working hard to accumulate wealth.

Arguments against Promoting Equality

Companies are reluctant to implement equality measures because of what they see as heavy costs, which reduce their profit margins and impede their investment capacity. Equality and anti-discrimination contradict the ‘freedom’ of their enterprise, as executives would not be free to hire and do business the way they choose. They argue that inequality is not systemic but a failure of individuals to be resilient.

The engine of the neo-liberal system is widespread discrimination, and inequalities of class and geographical location. Globalisation so far has ensured that cheaper labour can always be found somewhere else. Some entrepreneurs have been cynical enough to claim that discrimination makes perfect business sense and should be acknowledged as such. From this perspective, removing inequalities would bring this very profitable system (for a few) to collapse.

Arguments for Equality

Almost all production and wealth creation is the result of cooperation. Society as a whole and its infrastructure contributes to everyone’s income and living standards. Accumulated technical and scientific knowledge, an educated population, transport systems and electricity supplies help the wealthy to become and remain wealthy. The combined efforts of vast numbers of people affect the living standards of even the rich.

Promoting equality is an investment. Excluding able individuals entails a huge loss of talent and skill when the economy needs to harness all potential creativity. A 2012 talent shortage survey found that around one in three employers around the world found it difficult to fill vacancies. Talent is often wasted because of discrimination.

Conclusion

In a speech to the Sutton Trust, Mr Clegg admitted that the Coalition “cannot afford” to leave a legacy like the current position. “Morally, economically, socially: whatever your justification, the price is too high to pay. We must create a more dynamic society.” Clegg’s statement is part of the “therapeutic management of inequality”- the officially sanctioned smokescreen of seeming to promote fairness, social justice, social equality, and equal access to education. A fear of what UK PM David Cameron called a “broken society” is the organising principle behind a wide range of measures to regulate supposedly dysfunctional behaviour. The “middle” sees itself as living in a nightmare world being ripped apart by greedy bankers at one extreme and sub-human Chav ‘trailer trash’ at the other.

Standing noted that, lacking any work-based identity, or sense of belonging to a labour community, the psychology of the precariat is liable to be determined by anger, anomie, anxiety, and alienation. Perhaps the precariat will rise up but they are not the real vandals. The one per cent or ten per cent’s constant looting of the middle classes as well as the working class engenders resentment. In a context of too much debt and slow or no growth, austerity weakens the body politic rather than strengthening it. Austerity only really helps those who are wealthy enough to take advantage cheaper asset prices and sell the assets back later.

The EU needs to remember its founding principles and take action to complete the banking union, protect small savers from the banksters, create decent jobs, implement a realistic investment policy, and protect consumers and the environment. Equality must be at the heart of every European policy.

 

Beware of Greeks Bearing Good News

This article appeared in the March 2014 edition of Echelon magazine.

Greece takes on the Presidency of the Council of the EU

It is not so long ago that there was much talk about Grexit – Greek exit from the eurozone and possibly the EU itself. Now Greece holds the Presidency of the Council of the EU. Every six months a member state of the EU holds the Presidency of the Council of the EU and presides over its work. This is not to be confused with President of the European Council (current incumbent Herman Van Rompuy) or the President of the European Commission (currently José Manuel Barroso). During the time a state holds the Presidency of the Council, it plays host to the majority of the EU’s events and plays a key role in the activities of the EU. It is responsible for organising EU meetings, setting the Union’s political agenda and ensuring its development, integration and security.

As I write, Greece holds the Presidency from January-June 2014. The Greek government will have to lead hundreds of meetings, conduct complex negotiations, and host 13 ministerial councils in Athens. The Greeks will have to manage with a budget for the next six months that is about 40 percent lower than that of the previous presidency. Greece’s Deputy Minister for Foreign Affairs, Dimitris Kourkoulas, announced, to show what good managers Greeks could be, that he planned to make do with an even less than the allocation.

Panagiotis Ioakeimidis, professor for European policy at the University of Athens believes the presidency will give Greece the opportunity to improve its image within Europe and restore the credibility it has lost in recent years. Greek Deputy Prime Minister Evangelos Venizelos insisted that Greece was not thinking of its domestic priorities, but of those of the EU. The EU parliamentary elections in May are likely to bring a new political balance and a rise in euroscepticism and representation for far right groups.

Greece’s Prime Minister Antonis Samaras declared: “Greece starts the EU presidency on a positive record, with a primary surplus and an imminent recovery. This is going to be a presidency of hope – hope for more Europe, and hope for a better Europe.”  Athens seems to want to do whatever it takes to show that Greece is on the path to recovery, reminiscent of what Ireland did last year when it held the presidency of the EU. Hit by the economic crisis, Ireland was in an ideal position to lead the way in driving forward policies and legislation on core priorities of jobs, stability and growth. Getting agreement on the €960 billion Multiannual Financial Framework (MFF) budget for 2014-2020 was arguably the Irish Presidency’s greatest achievement. The budget is effectively an investment in key policy areas that will help boost growth and create jobs in all Member States. By December, Ireland became the first EU member to exit its bailout.

 

Few believe at this stage that Athens can make good. The latest figures show a jobless rate of 27.4%, with youth unemployment standing at 59.6%. Critics say the average Greek on the Athens omnibus does not perceive improvement and the upcoming municipal elections, which will take place at the same time of the EU parliamentary elections in May, might show the crisis is not over. Austerity policies have shrunk the labour market by 21%, throwing 40% of the workforce out of the national insurance system.

 

The state holding the presidency should not push through their own interest. Nonetheless, Greece started its six months in charge by declaring that the imposition of austerity by Berlin and Brussels could no longer be tolerated. One of the first things the new presidency will have to do is renegotiate with the Troika about itself. Greece will also have to reach an agreement with the rest of the eurozone on how to finance its debts beyond 2014, when the current aid program ends.

This will be Athens’ fifth run in the rotating presidency. Previously, they tried to advance a socially conscious agenda, albeit with moderate success. In 1988, Andreas Papandreou pushed for a European Social Charter, which only a year later became a reality under the French presidency. In 1994, Athens’ social agenda was set aside in the face of negotiations for an enlargement of the EU to the north. In 2014, in particular, Greece wants to devote attention to youth unemployment and EU subsidies to get young people into jobs. Greece plans to focus on proposals for a banking union and amending the data protection act, and the policy of particular importance to its own interests – growth.

According to figures from the Greek Finance Ministry, 98% of EU bailout funds have been directed back to Greece’s lenders, rescuing French and German banks, while only 1.6% of the money from the European Stability Mechanism’s flows into the real Greek economy. Officials are lethargic about pursuing tax evaders — including the 2,000 prominent Greeks with Swiss bank accounts on a list provided to the Athens government by IMF managing director Christine Lagarde.

In order to maintain the pretence that Greece has turned the corner and is on the road to recovery, EU and Greek officials celebrated the beginning of the EU presidency amid draconian security and a ban on public demonstrations. Nigel Farage of the Eurosceptic UKIP became a hero to Greeks when he told PM Samaras “I must congratulate you for getting the Greek presidency off to such a cracking start.” Farage said Samaras should drop his party’s name, New Democracy. “I suggest you call it No Democracy because Greece is now under foreign control. You can’t make any decisions, you have been bailed out and you have surrendered democracy, the thing your country invented in the first place.”

Although Venizelos warned of the growing appeal of neo-Nazis, there is a strong folk-memory of what German Nazis did to Greece during World War II. There is rising anti-German feeling in Greece, even though, in the year up to August 2013 Germans were the biggest spenders among visitors to Greece, with a total of 541 million euros. Angela Merkel is seen as the architect of the austerity policies that are hurting Greeks. Merkel, whose steering of the euro crisis propelled her to soaring popularity at home and a third term, has become increasingly resented in the rest of the EU. Greek newspapers regularly run articles on how much money Germany owes Greece. There is persistent resentment over hundreds of billions of euros in reparations that Greeks say Germany owes the country from World War II, money that some say should go toward helping to forgive Greece’s debt. Just before the Greek Presidency was due to begin, a gunman sprayed the German Ambassador’s residence in Athens with bullets.

Some critics question the wisdom of the rotating presidency. Greece was the recipient of the EU’s biggest bailout. Other EU states were anxious when Cyprus, a bankrupt member, whose economy represents a mere 0.2% of the eurozone, led policy-making just when Europe faced its greatest hour of need. Barely a week before taking over the presidency, Cyprus was forced to follow Greece, Ireland, Portugal and Spain in resorting to the EU and IMF for emergency financial assistance. Another economically weak country, Italy, takes over the presidency in July 2014. Italy is not relying on money from the bailout fund, but it too is suffering from a recession and is heavily in debt. After Italy, Latvia, the newest member to join the eurozone, takes over. In 2008, Latvia lost a full quarter of its economic output and during its recovery lost 8.5% of its population.

George Soros wrote, “What was meant to be a voluntary association of equal states has now been transformed by the euro crisis into a relationship between creditor and debtor countries that is neither voluntary nor equal. Indeed, the euro could destroy the EU altogether.”