Hungary looking for other sources too should deal on EU funds fail - PM Orbán
Europe threatened by a crunch
In recent months, Europe has been hit by severe shocks as energy prices have risen. The global economy is facing a downturn and Europe's economy is at risk of collapse,
Orbán kicked off his address.
The war between Ukraine and Russia would be a local war, but Western sanctions have turned it into a global war. Today, we are facing both a local armed war and a global economic war. it is now clear to everyone that we should expect a protracted war, he said .
We must be prepared for war in our neighbourhood to continue this year and next,
stressed Orbán.
He said the west favours the war, while Hungary is for peace talks and peace.
Inflation
In the global economic war, every country has its own interests, but for Hungary security and economic and security stability are the most important, said the Prime Minister. He says it is crucial to strengthen the defence and national security services, and the country must also be protected from the disinformation war.
Families today are most affected by the economic consequences of war, with inflation being the first,
Orbán said.
Hungary's inflation is the highest in our region, central banks have started to raise interest rates sharply, and country risk premiums have risen.
It is not the first time, I have seen many economic crises,
he underlined.
Sanctions are to blame, says Orbán
Orbán said that the current harsh energy prices are not caused by economic processes, but clearly by sanctions, and political decisions in Brussels. In his view, it was a sensible position initially not to extend sanctions to energy, an area where Europe is a dwarf and Russia is a giant.
In April, we were right to think that the economic outlook would be predictable but with rising energy prices. But in June, the sanctions on oil and adding punitive measures on natural gas to the agenda changed that, added Orbán.
European countries are now paying a sanctions-related extra for oil, gas and electricity,
said Orbán. This also affects food prices, he noted, adding that a 100% increase in energy prices in Hungary immediately adds 3-5 percentage points to inflation, and without sanctions prices would halve and inflation would fall by at least half.
Sanctions have made European people poorer, and Russia has not fallen to its knees. This weapon backfired, Europe shot itself in the foot,
he added.
Here's Portfolio's view on Orbán's sanctions-related remarks:
Europe wants answers
The whole of Europe is waiting for answers from Brussels to the question of how long we are going to do this.
If it goes on like this, the whole of Europe will be fed up. It's time to talk to our American friends about this, before it's too late,
said Orbán. He added the sanctions were not imposed in a democratic way, "decided by Brussels bureaucrats and European elites", without consulting the European people.
We will address Orbán's claims later on, but let's stop right here for a minute.
Those Brussels-based bureaucrats the PM is talking about are representatives of European Union Member States, including those delegated by Orbán's very own ruling Fidesz party (who follow the party line without question by the way). They, ergo Hungary as a member state, voted in favour of the sanctions on Russia. So that's that. There are democratic executive bodies in place for a reason. Once again we are witnessing Orbán speaking strictly to his home audience, portraying the EU decisions as if they had been coerced and as if Hungary had nothing to do with the sanctions. It's as if he was suggesting the European Commission should have held a referendum every time the question of how to weaken Putin's war machine further was raised.
Gas consumption must be reduced
The government is capable of securing Hungary's energy supply, and we have already done so with the decisions we took in the summer, the Prime Minister stressed. He said that we must reduce the use of natural gas in Hungary, and that the state, families and companies must do the same. He then listed the steps the government is taking:
- Reducing the share of natural gas in energy consumption from the current 35% to 31% by the end of 2023 and to 30% by 2025.
- We will increase Hungarian natural gas production to 2 billion cubic metres from 1.5 billion cubic metres.
- We will restart the Mátra Power Plant.
- We will extend the operating life of the Paks nuclear power plant and finally start the Paks II project.
New energy strategy
The government has updated Hungary's energy strategy. In the long term we expect to continue to rely on oil imports. For the electricity mix, €16 billion or HUF 6,400 billion of development will be needed, excluding the cost of Paks II. This means a total of 32 large investment projects, without which the Hungarian electricity system cannot be modernised.
The necessary financial resources have been promised by the European Union, and if they are not forthcoming, we will raise the necessary funds from other sources. We have started negotiations with the EU and other partners to this end,
Orbán stressed.
Public investments
There are currently some HUF 9,400 billion of public investment under way, and we are seeing them through, but we are not launching any new projects for the time being because we cannot guarantee that we will complete them. When the situation in Europe becomes predictable again, we will restart the public investments that have been suspended, the PM said.
Windfall taxes cover the partial abandonment of the overheads reduction scheme
The money raised from the tax imposed on 'extra profits' is enough to cover this year's price subsidies and we have good chances for 2023, Orbán said. But for businesses, the power of entrepreneurs will also be needed to fight high energy prices, and the government can help with three measures announced last week.
The action plan consists of several sections:
- a programme of more than HUF 200 billion to help energy-intensive small and medium-sized enterprises, supporting productive companies by covering part of their energy costs and supporting investments that save energy,
- a factory rescue programme, and
- a new action plan for the service sector to protect jobs.
New budget on its way
The system of family subsidies will be further expanded, and the final form of the 2023 budget will be drawn up at the beginning of December, with new family support measures already included, said Orbán. The government will also speed up university development and the development of the armed forces.
Imagining the future as a member of the EU
Despite our debates with Brussels, I confirm that Hungary envisages its future as a member of the European Union, Orbán stressed, adding that Europe will only be strong if it preserves its diverse views.
Q&A
Sanctions policy and Hungarian interests
In the Q&A section, Viktor Orbán reminded that EU sanctions against Russia must be renewed every six months, and that this is why the national consultation is timely, he explained. He added that the reason why he had not vetoed the sanctions on Russian oil was that the Polish prime minister had asked him to do so. The exceptions finally succeeded in ensuring that only 8% of the previous Russian oil imports to Hungary, the Czech Republic and Slovakia remained, while the sanction was put into effect on 92%.
On the next round of sanctions, he stressed that "we will not allow nuclear sanctions to be on the agenda", and the same goes for gas sanctions, which is why these proposals will not be on the table.
On criticisms of the regular Hungarian vetoes, he said:
There is a balance to be struck between European unity and the protection of the most important Hungarian interests. This is the responsible policy and we will continue to pursue it.
VAT reduction and wealth tax
Asked about a possible reduction of the value-added tax rate, the Prime Minister said that it was "not a reasonable proposal" because part of the money from VAT is put into the overheads reduction fund. In addition, the VAT cuts of the last 30 years show that it does not really reach the people because traders swallow it.
Hungary's 27% VAT rate is the highest in the European Union, and second-highest in the world, after Bhutan's 50%.
We are not in favour of a 'wealth tax' because the first step in introducing any such tax would be to set up a public wealth register, so a register of every person's wealth.
One of the European Commission's main concerns with Hungary (besides rule of law issues such as checks and balances, judicial and media independence, etc.) is corruption.
In its 39-page report issued in July, the EU executive said
Concerns remain regarding the lack of systematic checks and insufficient oversight of asset declarations as well as the lack of conflict of interest rules for the public interest trusts.
Portfolio reported in late June that the cabinet was changing the asset declaration system, saying the new practice would be identical to the German rules. It has since become clear what this actually means: the most important parts, such as movable and immovable property, which could have been used to track the wealth of MPs (if anyone had taken their official wealth accumulation seriously) were simply removed from the declaration.
In its September report, the EC said:
"Concerning the argumentation provided by Hungary on the asset declarations, the Commission notes that long-standing concerns remain as regards the effective and transparent supervision, verification and enforcement of rules of codes of conduct conflicts of interest and asset declarations for members of Parliament and other high-risk officials."
Not sure there will be a turnaround in the area of wind energy
In response to comments on a wind energy turnaround, Orbán said:
We are not yet convinced that a wind energy turnaround is necessary. There are strong arguments not only for but also against.
Attila Steiner, the state secretary in charge of energy, told Portfolio in an interview published today that the government was considering the issue, but did not say anything more specific.
Wind power is also playing an important role in non-fossil-based power generation in Europe, while the installed capacity in Hungary is 330 MW and the rules have not allowed new installations for years.
Minister of Technology and Industry László Palkovics recently visited Turkey and hinted in an interview that the €16 billion energy investment package that is being prepared will include wind energy. Asked if this should be interpreted as the first sign of a turnaround in the government's current stance on the matter, and if it would allow net new capacity, or Palkovics had only referred to the investment needs to maintain capacity, Steiner replied:
The question is under consideration. I think that in this energy situation, all worthwhile options should be evaluated.
Orbán recalled that there is currently more than 3,000 MW of installed solar capacity in Hungary and more than 5,000 MW of licensed projects, which "we hope will be built by contractors".
Note that about 43,000 applications have been submitted in the first round of a two-phase residential solar tender where 100% of the costs are to be borne by the state, effectively by the European Union. The second round was first put off to next spring then brought back / forward to November. Yet, not a single forint has been paid to the winners, although Steiner previously said HUF 89 bn billion had been disbursed to nearly 22,000 households. Also, project support decisions add up to HUF 82.24 bn (it was HUF 71.19 bn about two weeks ago, so there's some kind of progress.) The milestones and the sponsorship documents all need to be renewed, they are meaningless at this point, and prices have gone up substantially since the applications were submitted and the subsidies awarded. Contractors are now ditching these projects by the thousands. With Hungary in the middle of a dispute with the European Commission on EU funds, there's practically no hope that these projects will be funded from Hungary's yet-to-be-approved Recovery and Resilience Plan any time soon (official estimates put it to next spring at the earliest). No money, no construction, no installation, no hooking up to the grid, no smaller overheads. Not this winter at least.
Cover photo: MTI/Prime Minister's Office /Vivien Cher Benko
