Friday, 13 June 2014

Hungary's financial nationalism

There is in the heart of Europe a country that has done some exceptional things to make the financial sector bear more of the costs of the financial crisis.  For instance:

  • A transactions tax was implemented
  • Tax rises to balance the budget were directed at banks via a levy on their assets
  • Banks were made to forgive mortgage borrowers part of their debts

A leftist triumph?  No.  These things were done by Fidesz, the odious party that has abolished democracy in Hungary in all but name.  And these measures were motivated not by leftist values, but by reference to a nativist, at times anti-Semitic ideology.  As Prime Minister Orban put it in January,

The truth is that we had had enough of the politics that is forever concerned with how we might satisfy the West, the bankers, big capital and the foreign press, and how we must put our hands up in surrender at the first word of complaint... 
Over the past four years we have overcome that kowtowing mentality, which was a subservient mentality. We once again have self-esteem and we have self-respect and we have self-confidence. Meaning Hungary will not succumb again!

I learned all this from a fantastic new paper by the political scientists Juliet Johnson and Andrew Barnes. They describe Fidesz's general "financial nationalism," which involved not only the above-described pressure on banks, largely foreign-owned, but also significant resistance to the efforts of the IMF and EU to shape economic policy through conditionality agreements.

Johnson and Barnes argue that Fidesz was able successfully to pursue this agenda for two reasons. First, on the backdrop of disastrous economic conditions, Fidesz came into power in April 2010 with a parliamentary supermajority. As a result, the party was in a position to use legislative and constitutional changes to consolidate nearly complete internal policy autonomy (eliminating "checks and balances"), which they used to pursue a policy of austerity the costs of which were largely borne either by foreigners or their domestic political enemies. Second, international private lenders were sufficiently impressed by the resulting successes in reducing budget deficits (and sufficiently unconcerned about anything else) to enable Hungary to access credit on acceptable terms and maintain intransigence in dealing with the EU and the IMF.

One interesting (to me, anyway!) aspect of the Hungarian story is the role of foreign-denominated debt. Over the course of the 2000s, many Hungarians took out mortgage loans in denominated in foreign currency, as these were offered with lower interest rates. As a result, when the value of the forint began dropping in late 2008, they experienced significant financial distress. Compared to Southern Europe, Hungary had the advantage of having its own currency, but these trans-currency loans somewhat constrained its ability to make use of this advantage. (Though see the next post; for related issues in Argentina and Russia, see here.) Financial nationalism as a political ideology went hand-in-hand with attempting to regain effective use of the exchange rate as a policy instrument.

There are some notable parallels here with the aftermath of financial crisis in Russia and Argentina. In all three of these cases, it was nationalism that provided the language of backlash after a period of constrained autonomy due to austerity under international conditionality and financial integration that made exchange rate devaluation costly.  Leftists and even small-d democrats who think that signing on to austerity is the responsible thing to do ought to consider this. It shouldn't only be nativists who have the brass to stand up to the international financial establishment.

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