In 2010, Hungarian prime minister Viktor Orbán’s right-wing party won a two-thirds majority of seats in parliament by gaining 52% of the votes. Subsequently, his government proposed legislation ending the independence of the central bank and other measures in sharp contravention of basic EU principles. This triggered a call from the head of the International Monetary Fund, Christine Lagarde, stating that if Orbán’s Hungary did not change the controversial legislation within a month, the country faced not only a lawsuit before the European Court of Justice, it also risked losing 15 to 20 billion euros in EU and IMF emergency loans.
Without these loans the country would go bankrupt.
The threat worked. Mr. Orban addressed the European Parliament on January 18 in a tone very different from his previous position when he firmly rejected going to the IMF, and saying he would not accept any outside direction in his lawmaking.
What changed the game was the intense sell-off in Hungarian assets at the start of 2012 when an IMF/EU deal seemed distant.
This time, he declared that his government had made extensive reforms in his one and a half year in office with a flurry of bills. During that time, some interests were hurt and some mistakes were made, but all the measures were based on EU principles and relied on the best practices of other countries, he said in his own defense. He added he would submit to the European Commission and make all necessary changes to the controversial legislation.
When asked about the contrast in how he addressed the European Parliament in 2010 and now, Viktor Orbán said his policies were not driven by doctrines. “If the best interests of the country need me to be hard then I’ll be hard. If the country needs me to make a compromise, then that’s what I’ll do.”
The markets approved. The forint was at 301 forints to the euro in Thursday’s trading, off the weakest levels on record, around 324 forints in early January. Yields on Hungarian government bonds fell an average of 60 points over two days.
Mr. Orban ended his war for financial independence with an unconditional surrender and saved his country from economic turmoil.
Source: The Wall Street Journal, January 19