Hungary in near-critical situation – says Governor of Central Bank

The Governor of the Hungarian Central Bank, György Matolcsy spoke with scathing criticism about the government's economic policy on Monday morning at the meeting of the Parliament's Committee on Economic Affairs, when presenting the annual report of the Hungarian Central Bank for 2021. This has been confirmed to Telex by several members of the committee who were present.

Bence Tordai, a representative of Párbeszéd Magyarországért (Dialogue for Hungary), quoted from Matolcsy's speech on Instagram. According to this, the Governor of the Central Bank said, among other things, that "Hungary is in a near-crisis situation", it is "the fourth-fifth most vulnerable country in the world", and "the 4th from the bottom in the EU in terms of productivity".

According to Tordai's post, Matolcsy also said that Hungary "has the second highest twin deficit in the EU after Romania; and next year's inflation will be the highest, (among member states) around 15-18 percent". Matolcsy also said that inflation is not "due to the sanctions" or "because of the war" as it has been spiking since the summer of 2021 due to the rise in energy prices.

The government has made bad decisions

The Governor of the Central Bank also said that the reason we are in trouble is in many ways the result of our own decisions. There is a disconnect between the Central Bank and the government's economic policy. According to him, "we did not make the right decisions after 2010", but after 2021 the government has been making bad decisions.

Matolcsy said that "the government's crisis management strategy is flawed", that "the price caps are causing a 3-4% inflation increase, they should be immediately withdrawn", and that "Hungary is the only country that consumes more petrol and gas oil than it did before the energy crisis".

In response to the above, Z. Dániel Kárpát, Jobbik's vice-president, called an online press conference and said that Fidesz was incapable of managing the crisis. The opposition politician said that György Matolcsy was speaking the truth about "the failure of Orbán's economic policy and the dark times that await Hungary if we don't do something" and said it was an "unbelievable disclosure which carries the same weight as the infamous "őszödi" speech of Ferenc Gyurcsány. (TN: Former socialist PM, whose speech caused his party to be ousted from power at the next elections and which many believe has paved the way for Fidesz' election victory in 2010)

The MPs couldn't believe their ears

Several people who attended the meeting confirmed to Telex that all who were there could hardly believe what they were hearing. It takes a while for the minutes of the committee meetings to be released, but there is no doubt that the opposition parties will definitely request them. Opposition members of the committee kept asking questions, to confirm they had heard certain statements correctly. Erik Bánki and Kristóf Szatmáry were there to represent the government, and the latter asked a question about a side issue, as if nothing had happened. Erik Bánki, the chairman of the committee also brought up that he had made proposals before.

There has been some precedent for György Matolcsy expressing criticism on a single issue in a debate paper before, but he has never been this critical.

Analysts have already indicated that something was broken. Márton Nagy (Minister for Economic Development) has been known to argue for measures explicitly contrary to the Central Bank's ambitions. When the Central Bank set a desirable interest rate level, Márton Nagy lowered effective interest rates, or when the Central Bank worked to keep inflation in check, the government introduced the price caps which stimulated demand and kept inflation high (although of course the official communication was that this was going directly against inflation.)

The Central Bank has been very bothered by the government's ad hoc measures

The dual interest rate regime, the phasing out of KATA (the tax reform which affected small business owners), the fuel cap, which has been modified many times but generates serious deficits and fossil fuel consumption, were all completely misguided and confusing measures, and for many months now, the Central Bank has been very bothered that while they have a serious team of analysts working to determine the desired measures, the government has been influencing the market with their ad hoc, uninformed decisions.

Of course, during

the two-hour committee meeting ("which was so interesting that one didn't dare stand up", said one MP),

the opposition tried to ask Matolcsy why he didn't do anything if he saw that serious mistakes were being made and what he thought of the fact that it's his former deputy who is responsible for these steps.

“The Central Bank is independent”

- Matolcsy replied, but the somewhat belated "I told you so" confrontation is still extremely odd after all the recent talk about the huge success of the government's policies.

At the same time, even critics have acknowledged that a belated confrontation is better than a continued distortion of the market. Indeed, although it would be very justified to phase out the price cap on fuel on 1 January, the government may still be unwilling to let go of its successful “products” which have shaped its policies.