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February 2012

Prognosis - Hungarian Politics

In our last analysis we could not yet be certain as to the future of the policy of consolidation launched by the government in January. By the end of February, however, it seems that the government is committed to the policy of easing tensions with the European Commission and other organisations formerly critical of Hungary. At least three important actors have implicitly confirmed that this change in direction is both understood and appreciated. The first of these is the market reaction: analysts overwhelmingly expect a deal between the government and the IMF. The second is the European People's Party and the international allies of Fidesz. Thirdly, even the domestic opponents, the Socialists are now unable to criticise the government on this issues - in fact, they were forced to vote with Fidesz on a crucial matter.

All this means that the government reached a turning point: the period of occupying institutions, of making the permanence of Fidesz-rule a priority over. This implies a change of style as well: Fidesz is likely to portray a more moderate, friendlier image. While this will not directly lead to material benefits to voters, a more compromising attitude is certain to help the battered standing of the party.

February marks a change not only in style and rhetoric but also in content - especially with regards to economic policy. The economic policy of Fidesz in the last two years has been the result of a combination of three, often contradictory elements: it combined nationalistic, populist and liberal approaches. What the party termed 'unorthodox' economics meant that it attempted to create a unified policy out of these often inconsistent measures. However, this resulted in a spectacular failure as the divergent approaches proved impossible to reconcile. In practice, the 'unorthodox' policy simply meant inconsistency as the populist measures were always - sooner or later - inevitably followed by more 'orthodox' and market-friendly steps.

By February, Fidesz seems to have realised the futility of its previous policy and reconciled itself to following the conventional economic wisdom. By choosing this option Fidesz is making a virtue out of necessity - it is highly unlikely that the government could have continued its previous, hectic economic policy while negotiating with the IMF. The simplest option for Fidesz at this point is to give up the populist and nationalistic elements of the previous mix and try to concentrate on the classic right-wing, conservative-liberal parts of its agenda. This means that Fidesz is beginning to clearly favour the higher income, middle class voters - through tax and social policy - while introducing austerity measures designed to disproportionately hurt the lower-income segments of society.

This new middle-class centred approach was apparent in at least four decisions or statements in February. First of all, the notion of helping the middle classes was strongly featured in the prime minister's rhetoric, especially in his state of the country speech. Additionally, economically liberal arguments appeared in the government's discussions of public sector companies' debts. More importantly, the government was willing to engage in conflicts even with crucial voting blocs to be able to introduce austerity measures: the introduction of tuition fees clearly hurts the government among young voters. If Fidesz were not committed to a more fiscally responsible agenda, it is very improbable that it would have been willing to take on its own core supporters just for show.

This new economic policy, despite having some advantages, is a risky one. The most significant obstacle lies with voters' general attitudes: the Hungarian society is overwhelmingly egalitarian and economically left-leaning. In addition, this new strategy draws a clearer connection between the performance of the economy and support for the government, meaning that Fidesz will be more dependent on factors essentially outside its control. Nonetheless, should this change in policy prove both genuine and sustainable, it has the potential to transform the structure of the party system as well as the nature of the most important political debates.