Hungarian Fiscal Policy: Wife-Beating, or Child Molestation?

Hungary, as you may have heard, had a bit of an economic health scare last week. Actually, it was more than a bit of a scare. In fact, it was sort of the macroeconomic equivalent of one of those "interventions" that goody-two-shoes Americans pull on their friends when they think said pals are drinking too much for their own good. (Or, given the way things are going in America these days, drinking at all.) Except in this case, the intervention involved the poor guy's entire family, all his friends and acquaintances, a team of doctors, the old lady from upstairs, six priests and a rabbi, and they all crowded in told him point blank that, unless he cleans up his act, he's a goner for sure.

I won't bother going into the icky details of the prognosis, because you either don't care, or would rather hear it straight from the docs. But in a nutshell, Hungary has been leading a financial lifestyle that is roughly comparable to smoking two packs of unfiltered cigarettes a day while eating only breakfast cereal and beef jerky washed down by bourbon and diet root beer. It's great fun while it lasts, but it doesn't.

As with most such interventions, the cornered self-abuser was first stunned into silence by the shock of being called out, then defiant, and finally acquiescent, no doubt realizing that all those experts and loved ones can't be wrong. And then, as soon as everyone finished hugging each other and went home, he got right back into the Capt'n Crunch and Old Crow.

But come to think of it, this self-abuse allegory isn't really appropriate, because it isn't Hungary so much as the Hungarian government that is to blame for the country's fiscal illness, while it is the complicit but still innocent population that will pay the price. So perhaps a better metaphor is an abusive spouse or parent, one of those horrible fat men in a greasy t-shirt you always see on police reality shows in America, staring at the ground and mumbling "I dunno" when the cops ask them why they keep getting called to his end of the trailer park on domestic battery complaints. This is our last warning, sir. Now you go back in there and you start treating your missus right like a gentleman, and maybe she'll make you a Capt'n Crunch and Old Crow, and we won't have to come on over here again, ya' hear?

Yes, that's more like it, but still not exactly right, because, unlike some poor women being thrashed in her mobile home by her hillbilly husband, the victims of the Hungarian government's fiscal follies are largely unaware of the abuse they are suffering, having been blinded by bribes and little gifts. So a better metaphor would be the notorious pedophile that a community has finally decided to expose, even though most of the local kids don't seem to mind being ogled at or even fiddled with a bit, as long as the candy keep coming.

If you fish around in my front pocket, you might find a nice little subsidy!

So what happens now that the Hungary's state finances have been shown to be the economic equivalent of Michael Jackson's "Neverland" ranch? Well, pretty much the same thing that happened when the Santa Barbara County cops finally indicted the Gloved One on various morals charges. Just as there were about three adults on Earth who didn't know that Michael had a reputation for being a twisted and potentially dangerous fruit, no one with a brain was particular shocked to hear the news that (for example) Hungary's fiscal deficit may end the year at 7.2% of GDP, rather than the 4.7% the government pledged.

For most sophisticated investors, lending money to the Hungarian state these days is like letting your kid spend the afternoon at Michael's: It's lots of fun for everyone, as long as you have a plan for when things go bad. But no one has the heart to explain to the kids and the hard-core fans - meaning the average Hungarian voter - that their idol is actually a creepy pervert, not to mention one who is frantically juggling his various lenders to avoid declaring bankruptcy. We'll probably just have to wait until the candy runs out.

I know what you may be thinking: what does all that have to do with the price of tea in China, or the price of residential real estate in Budapest? I don't know about the tea, but my guess is that, even though the smart money knew the government wasn't being clever about its money, some of the dumb money didn't, and may now wizen up. Does this mean you should hold on to that flat you bought in Budapest in expectation of monster gain and rental income, or go ahead and dump it? Neither: It means you should have dumped it the week before last.

While we're on politics and perversions, there was a delicious little story last week in town involving several leading politicians and a dirty movie, or at least a dirtyish movie. According to tabloid Színes Bulvár Lap, Ibolya Dávid, the president of the center-right Hungarian Democratic Forum, and parliamentary faction leader Károly Herényi walked out of the "premiere" of a film made by a well-known American transvestite living in Budapest, who goes by the name Desiré Dubounet.

Really strange bedfellows: Conservative Hungarian political leader Ibolya Dávid (top right, with friend in white costume) ended up feeling "cold" at the screening of a movie by cross-dressing Budapest bombthrower Desiré Dubounet (bottom right, with friend in white costume)

While the title of the film - "Vér a vízben" ("Blood in the Water") - probably led Dávid and some others to think that it was a straightforward retelling of the famous water polo match between Hungary and the Soviet Union at the 1956 Melbourne Olympics, it features a lesbian love scene and some other things that might prove cringe-making for politicians from family-values-oriented political parties. "I received an invitation and I attended, but it became clear within a few minutes that this movie doesn't reflect my sense of taste," said Herényi. "I don't want to evaluate the production… Let's just say that I didn't like it, so I chose to leave." For her part, Dávid went out of her way to say that she didn't leave because the director is a drag queen. Instead, she said she ditched because she was cold and didn't find the film "entertaining." Woah, Ibi, we had no idea!

Finally, conservative opposition leader (and prime minister-in-waiting) Viktor Orbán had RSVP'd for the event, but didn't show up, robbing us of what could have been an epic moment in recent Hungarian pseudo-scandal history. But apparently Orbán had something even dirtier and creepier to attend to: a meeting with visiting Russian Prime Minister Mikhail Fradkov.