Hungary’s Central Bank governor: Corner and overtake 2.0

Hungarian economic policy has its work cut out for it, writes Central Bank Governor György Matolcsy

editor: REMIX NEWS
author: György Matolcsy

While Hungary failed last year to use it chance to “overtake while cornering”, the race is far from over, Central Bank Governor György Matolcsy writes in his influential column on business portal The article is a follow-up to a similar one published just about a year ago:

In a contemporary context, Hungary fought three wars in 2020. There is a political struggle for the future of Europe, a health system fight against the epidemic and a war against the economic downturn. On the first front, Hungarian Prime Minister Viktor Orbán won a decisive battle with the support of Poland and Slovenia. After the victorious battle, the war between the visions of a Europe of nation-states and the United States of Europe continues. However, the significance of the former’s victory is similar to the 1956 Hungarian revolution. Whatever the battles of the future bring, the construction of the European empire has stalled and by 2030 nation-states could already have a possibility of winning.

The fight against the epidemic was successful in 2020 because despite the two waves, the virus did not break through. Society, healthcare and government have stood their ground well. Hungarian epidemic management was at the forefront of Western countries last year.

Economic warfare has yielded mixed results. It excelled in job protection, performed well in maintaining consumption levels, and was reliable in the running of the financial system. However, crisis management is more a failure than a success in expanding investment, including public investment.

We missed our chance and were unable to overtake while cornering last year. According to the final data, the decline of the Hungarian economy will be in the mid-range among EU member states. True, due to the second wave in Hungary, it was not possible to maintain the 2019 GDP level. However, others — Germans, Poles, Romanians — were better at investing, building, and sustaining community consumption. We could have achieved better performance if we had been able to increase the level of public investment by a fifth, as well as the performance of construction and especially housing.

But the race is far from over: the brunt of it is still ahead. The bend is longer and the terrain more rugged than it first seemed. It can be seen that, like the Spanish flu epidemic that raged between 1918 and 1920, the bend could last for years. So, there is still the possibility of overtaking in the coming years.

One of the most important achievements of 2020 is that we know much more about the conditions of overtaking than before.

Firstly, it turned out that we have accumulated very significant reserves between 2010 and 2019 and are able to mobilize them in times of trouble. The net financial wealth of families, savings in government securities, the 850,000 new jobs created, the confidence of domestic and foreign investors, re-industrialization, and many more positive trends protected us in 2020 like so many concrete walls.

Second, the government, the central bank and the financial system have stood the test again. The government introduced a 9 percent budget deficit, the MNB a 17 percent balance sheet expansion, and the banking system introduced the digital switchover into the common financial safety net, which worked well.

Thirdly, we realized why we were not ahead in 2020: because of investment. It turned out that a completely new, accelerated, centralized public investment model with immediate access was needed. Furthermore, the business sector and families must be given the opportunity to latch onto large-scale public programs with their own investments.

The bend is still going on, the overtaking time window is still open.

Title image: Hungarian Central Bank Governor György Matolcsy. (source: MTI/Zsolt Szigetváry)


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