Missing file: Hungarian government’s crisis management plan

The Hungarian government’s plan to tackle the economic crisis is quite unorthodox. Technically, it does not even exist nor does it have a title. This is clear by their contradicting monetary actions. With this in my mind, what prospects does Hungary have for the future?

The Hungarian government’s crisis management technique is rather odd for various reasons. First of all, the media denies there is an economic crisis in the country. The press insists that Hungary is facing some difficulties because of the ongoing war and the sanctions. The poor economic performance can also be attributed to these factors, writes G7.hu. The anonymity of the government’s economic plans well demonstrates the lingering uncertainty in the country. It is not clear either whether the forced growth of the past years or the anti-inflation measures will be prioritised in the agenda.

There have been numerous contradicting government announcements creating further confusion. For instance, it was previously mentioned by Márton Nagy, Orbán’s chief economic policy adviser, that price caps would be phased out. Contrary to Mr Nagy’s statement, the government announced its decision to prolong the price caps. Most economists agree that the current economic route is neither feasible nor effective in the long run. Yet, it is evident that economically realistic decisions are overwritten by political interests. It is clear that the Hungarian National Bank’s easing of monetary politics is not based on professional considerations. This had happened twice in the past year, with both events resulting in the weakening of the forint.

Unyielding rigidity

Now, it is getting obvious that sooner or later the government will have to listen to the National Bank’s advice. The case with the approximation of installments of debts to the real value of interest rates was a good example of the government not taking important factors into consideration. When the measure was introduced it caused way more unnecessary harm than good. That is because the government rigidly insisted on decreasing utility costs for political reasons. Although it was understandable from a political perspective, it made no sense from an economic standpoint.

Avoiding a wage-price spiral

In recent weeks, László Parragh, chairman of the Hungarian Chamber of Commerce and Industry, stirred a lot of confusion with his triggering statements. At a conference on raising the minimum wage, he said that the base of Hungary’s competitiveness was cheap labour. He also added that he would not support the European Union’s minimum wage plan.

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Mr Parragh used an argument that was refuting his previous statement in April, prior to the general elections. Back then, he was in favour of raising the minimum wage. This also shows the clear political incentives behind the government’s economic decisions. Following the elections, the chairman no longer promotes the minimum wage increment fearing that it might lead to a wage-price spiral.

Obviously, much depends upon the future and how the crisis pans out, but the forecast is far from promising. Even the slightest minimum wage raise would be necessary in order to prevent the worsening of the crisis. Employees, of course, aim for a wage raise that competes with inflation rates. However, this seems very unlikely. The main goal is to avoid the plummet of real wages, at least.

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Source: G7.hu