With long queues at gas pumps, teachers blocking the streets of Budapest during a pay strike and small business owners demonstrating against tax hikes, Hungary’s economic woes and anger The resulting public debate has taken right-wing Prime Minister Viktor Orbán on the wrong foot and threatens to escalate his dispute with Brussels over frozen funding.
“I’m taking a second job and giving private lessons,” said Budapest teacher Bence Tóth, who joined his profession’s ongoing strikes after struggling amid runaway inflation. “I work, I commute or I sleep. It is unbearable. »
Despite measures such as retail price caps introduced even before the war in Ukraine triggered an energy crisis, food and electricity prices in Hungary rose by around 50% in December compared to previous year, according to government data. Headline inflation rose 24.5% year-on-year in December, the highest in the EU. The block average is 10.4%.
Economists blame part of the blame on a weak forint, the phasing out of price caps and a retail sales tax. According to them, the price caps themselves had a distorting effect, causing shortages of fuel and commodities such as sugar, as importers and retailers refused to sell below cost, as well as fuel shortages. price increases for uncapped products as they sought to offset the cap on other goods. Last month the government was forced to remove the fuel cap after supplies collapsed, sparking panic buying.
Lajos Török, chief analyst at Equilor, the Budapest brokerage, warned that the situation would get worse. “Household spending is rising, so domestic consumption will fall, higher financing costs will set back business investment, government investment will be reduced,” virtually erasing growth, he said.
Economic turmoil will limit Orbán’s scope to appease public opinion with costly populist measures, a tool he has deployed in the past, just as his Fidesz party prepares for municipal and European elections in 2024.
“Inflation in Hungary is bad news for everyone,” said Dániel Hegedűs of the German Marshall Fund, a US-based think tank. The Prime Minister would be forced to abolish the price caps, he said, which in itself would add cost pressure to his electoral base. “It will have a massive impact on a much broader and lower social class, which can hurt Orbán,” he added.
Public discontent is mounting. Teachers, who are demanding a pay rise of around 45% and also protesting high workloads and central control of the education system, started another week-long strike on Monday. Wider protests erupted last year over a sudden hike in taxes for small businesses and cuts in energy subsidies.
Although recent polls suggest that Orbán, who won a fourth consecutive term last year, and Fidesz have no serious political opponents, local elections in central Hungary earlier this month left foresee potential problems for the government.
In the city of Jászberény, opposition candidates for mayor and city council swept the board with large majorities, beating their Fidesz rivals less than a year after the ruling party easily won the district in the legislative elections.
Analysts said Orbán would likely try to deflect blame from the economic pressure, hardening his political stance ahead of next year’s election and making him an even tougher partner in the EU than before.
In recent months, Hungary’s prime minister has delayed EU sanctions against Russia imposed over the war in Ukraine and suspended the bloc’s financial aid to Kyiv as it seeks to release around 30 billion euros. euros from EU structural and pandemic recovery funds.
Brussels blocked the money due to a perceived risk of fraud and democratic backsliding from Budapest as Orbán expands government control over the judiciary, media, arts and education.
The government this month launched an ad campaign claiming that a majority of Hungarians oppose EU sanctions against Russia, which Orbán blamed on the country’s economic ills.
“This bloody sanctions regime is driving up inflation,” Orbán told state broadcaster MR1 earlier this month. “If the sanctions were to end, energy prices would fall immediately, as well as general prices, which means inflation would be halved.”
He also linked the fate of teachers to EU intransigence, saying the government would offer a 10% pay rise but could take that to 20.8% if Brussels released the Covid funds.
Orbán’s lack of economic tools “leaves him in front of dangerous choices”, Hegedűs said. “Deception or repression [at next year’s elections] retain unchallenged authority; a return to a world with genuine opposition; or protests [that weaken the government significantly].”
Since coming to power in 2010, Orbán has gone through several crises. His handling of some, like his hardline approach during the 2015 refugee emergency, even boosted his popularity. But critics say he may have misjudged his strategy this time.
“The government hasn’t found the keys,” Hungary’s central bank governor György Matolcsy told a parliamentary committee in December. “We cannot overcome this energy price explosion and this inflation crisis by the old ways.”
“Communism has already shown that price caps don’t work,” said Matolcsy, whom Orbán once described as his “right arm” in economic planning. “This system has collapsed. Let’s not go back to [it] with such techniques.
Orbán remains defiant, telling MR1 earlier this month that Hungary’s foreign exchange reserves were near a peak after recent borrowing, meaning the country was solvent.
Hungary’s debt fell from 78.6% of gross domestic product at the end of 2021 to 75.3% at the end of last year, below the EU average of 85.1%, according to EU data. In 2022, its budget deficit reached 5.3% of GDP, around double the EU average of 2.7%.
“Hungary can do without [the EU]“said Orban. “Of course, we do better with them. . . but tell Brussels that the sun will not rise without them. . . it is completely wrong.
Meanwhile, the Hungarian government responded to teachers’ protests with a crackdown, tightening strike rules, firing some for “civil disobedience” and bringing education under the control of the Interior Ministry.
Tamás Palya, a mathematics teacher in Budapest, was fired in September. He has since found work at a private school, but said teachers in the public system were repressed and intimidated.
“They are under constant surveillance – what they post on social media, what they like, if they wear plaid shirts [the uniform of the protesters],” he said. “That’s nonsense. But that’s the reality.