the politics of crisis beyond orthodoxy
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The Politics of Crisis Beyond Orthodoxy. Gábor Scheiring Védegylet. What has happened?. 2008 October: major drop in the value of forint 2009 March: another major drop 1 € = 317 HUF (a year before it was around 245) - PowerPoint PPT PresentationTRANSCRIPT
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The Politics of CrisisThe Politics of CrisisBeyond OrthodoxyBeyond OrthodoxyGábor ScheiringVédegylet
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What has happened?What has happened?2008 October: major drop in the
value of forint2009 March: another major drop
◦1 € = 317 HUF (a year before it was around 245)
◦Rumors that if it reaches 320 mass loan defaults will happen and the government is going to freeze bank accounts
Complete freeze at the market for government bonds - bankruptcy
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5 year sovereign CDS 5 year sovereign CDS ((bps)bps)
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Crisis management: Enter Crisis management: Enter IMFIMF25 billion loan
◦IMF: 15,7 billion $◦EU 8,1billion $◦WB 1,3 billion $
In return◦Constant monitoring from IMF◦Reducing wages of public servants by
7,5%◦Reducing pensions by 3%◦Keeping budget deficit below 2,5%
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Political responsesPolitical responsesGovernment (Socialists)
◦Cuts in personal income tax and social security contributions to boost competitiveness
◦Raising VAT◦But – lack of confidence, lack of
parliamentary majority◦Gyurcsány resigns as he cannot get
through his proposal
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Political responsesPolitical responsesReform Allience (HAS + leading capitalists)◦~ 1000 billion HUF, 3,3 billion € cut in
expenditures◦Tax and social security contributions cuts◦„Rationalizing schools”, cutting social spending
Free Democrats and Democraric Forum◦~ 2000 billion HUF, 7 billion cut in expenditures◦Far reaching tax cuts and restructuring of welfare
services, decreasing the number of local governments, closing universities, privatization of health care and the pension system
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Bad macroeconomic Bad macroeconomic management?management?
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Premature Welfare State?Premature Welfare State?
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LessonsLessonsNo direct relationship between
crisis and budget deficitNo negative relationship bw.
economic development and redistribution
What then?
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Semi-Peripheral Semi-Peripheral IntegrationIntegrationPrivatized and unregulated
banking sector◦Short term speculative money◦Early warnings: IMF, BIS◦Euro/Frank loans
Long term consumer loans financed through short tems cross border loans
Although international rates were dropping, Hungarian interest were on the raise
Continue to make substantial extraprofit
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Semi-peripheral Semi-peripheral integrationintegrationDualistic economy
◦ FDI not able to solve employment problems if not networked well into the local economy
◦ Direct state subsidies and tax exemption disproportionally favor FDI at the expense of local economy
◦ Liberalized banking sector allocated money towards consumer loans Current account imbalances and risks Harder to get access to capital for local firms
◦ Reduced the policy space for local counter-cyclical demand management
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Ways out beyond Ways out beyond orthodoxyorthodoxyBolstering state capacity
◦ Economic planning◦ Strenthening bureaucracy (higher wages, examinations,
identity)Re-regulating financial sector
◦ Internationally: peripheral countries interest◦ Reduce the possibility of short term speculative
investments Both at currency, capital and commodity markets
Strenghtening local economy◦ Slovenia, Czech Rep.
Self-financing Green New Deals: green collar jobs◦ Energy efficiency of public and privative buildings◦ Renewable energy◦ Sustainable agriculture
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Political lessonsPolitical lessonsStrenghtening labor and civil
society◦Carriers of transformation
Strenghtening CEE cooperation◦Braking tax competition
Building capacity◦Breaking the resilience of neoliberalism
needs alternative knowldge Research Institutions
Also the interest of „Old Europe”