East Europeans Opt for Needless Austerity to Battle the World Recession

Article excerpt

ALMOST all the developed world ranging from Britain, Western Europe, North America, Japan and Australia are in the grip of a deep recession. With varying degrees of misery all of these places are suffering a decline but increasingly politicians and economists are worried most about Eastern Europe.

Hungary's economy fell by 6.4 per cent in the first quarter of 2009 according to an official report (Reuter 15 May). Once the brightest economic hope of formerly communist-administered Eastern Europe, Hungary is set to suffer a severe and unnecessary self-inflicted wound by embarking on a brutal austerity programme as it seeks its separate way out of the world recession. The brunt of the projected economies will burden the most vulnerable segments of society.

A similar tragedy is also occurring in many countries elsewhere in this region. The reason is that their leaders are still steeped in the obsolete discipline of the bygone Soviet command economy.

Gordon Bajnai, a non-party technocrat and former businessman, has just been sworn in as Hungary's new prime minister. He had been endorsed by a crisis conference of the ruling Hungarian Socialist Party (MSZP) to replace Ferenc Gyurcsany, the prime minister who had tendered his resignation. Bajnai, the 41-year old former economy minister in Gyurcsany's cabinet, has also won the support of the neo-liberal Free Democrats (SZDSZ), the Socialists' erstwhile coalition partners.

These two parties command a decisive majority in Parliament. The dominant ultra-conservative Fidesz Opposition would prefer parliamentary elections in the realistic hope of securing a landslide victory.

Gyurcsany resigned because he said he perceived himself as an obstacle to national economic recovery from conditions generated by the deepest and most widespread global recession experienced since the Second World War. Hungary is the third East European country to face a government crisis triggered or exacerbated by the recession.

Its austerity programme coincides with the emergency release of a staggering 830bn euros, through the International Monetary Fund (IMF), following a decision reached by the Group of 20 industrialized countries (G20) at their London conference in April, to forestall national bankruptcies by stimulating trade in Eastern Europe and elsewhere. But many leaders in this region evidently still see their countries isolated from the world economy, like in the bad old days under the rule of the Kremlin, as they attempt to battle the recession on their own.

Belt lightening in socially divided Hungary will increase tension between the classes. It will isolate further the underprivileged ethnic minorities. It will hurt mostly the poor and the pensioners, undermining the socialists' diminishing voter base. This will increase the chances of Fidesz, led by the populist Viktor Urban, at the next national elections due in 2010 at the latest. Indeed, the socialists' crisis conference coincided with a Fidesz rally at Heroes' Square in Budapest attended by an angry crowd of 25.000. including uniformed members of an outlawed racist paramilitary organization, demanding immediate parliamentary elections.

The present austerity measures follow an earlier wave of tough tax increases and social benefit cuts imposed by Gyurcsany, intended to meet the conditions prescribed to adopt the euro as a national currency in place of the volatile forint. The Gyurcsany administration sought to moderate the burgeoning budget deficit that reached 9.3 per cent of the gross domestic product (GDP) in 2006. generating a national debt burden worth 64bn euros, a third of it in foreign currencies.

These economies enabled Hungary last year to cut the deficit to 3.4 per cent and the country became the first member of the European Union (EU) during the present recession to obtain a package of soft loans from international lenders led by the IMF, worth 20bn euros, to avoid default. …