C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 002531

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO NSC FOR ADAM STERLING

E.O. 12958: DECL: 12/28/2011
TAGS: PGOV KDEM HU
SUBJECT: ANNO HORRIBILIS: HUNGARY ENDS 2006 WITH RELIEF BUT
ENTERS 2007 WITH TREPIDATION

REF: A) BUDAPEST 2161 B) BUDAPEST 2505 C) BUDAPEST 2517

Classified By: POL/C ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D)


1. (C) Summary: Winter has imposed a temporary cease-fire in
Hungary's running political battles, allowing the parties to
regroup in preparation for what all anticipate will be a busy
year ahead. Prime Minister Gyurcsany is using the winter
months to reach out to the opposition and to shore up his
position within the MSZP before the full economic impact of
the austerity measures hits home. Allies as well as
opponents expect FIDESZ to return to the disruptive tactics
of the past months in the New Year. Both the junior
coalition partner SZDSZ and the center-right MDF will face
hard questions about their ability to survive in an
atmosphere dominated by the major parties, and all the
parties will have to confront a public that is increasingly
inclined to consider all politicians as part of the problem.
End Summary.

A SERIES OF UNFORTUNATE EVENTS


2. (C) The ruling MSZP will not miss 2006. Despite PM
Gyurcsany's solid victory in the April elections, the events
of the autumn took a significant toll on the government's
credibility. The PM is betting that time will heal these
wounds by allowing his austerity measures to work, but most
in the party recognize that things will likely get worse
economically - and hence politically - before they get
better.


3. (C) Professing confidence that he will "win back whatever
support we lose," Gyurcsany is moving forward on his reform
agenda with renewed - if not completely restored - confidence
(ref a). He has been careful to offer the opposition the
opportunity to discuss - but not derail - issues including
the allocation of EU development funds. If this has not won
him the moral high ground, it has at least helped level the
playing field.


4. (C) Gyurcsany is also reportedly using the winter months
to consider internal reforms (ref b). After repeated
indications of dissatisfaction with his government's

staffing, structure, and communications strategy, observers
now predict changes in the cabinet in the spring. As one
party official noted, "there has been enough time for some
cabinet ministers to demonstrate their incompetence."


5. (C) The PM has made his survival a strength, and now
seems poised to win the MSZP presidency in the spring.
Although continued grumbling from the party's more
traditional elements is expected, most see no better
alternative to Gyurcsany. Indeed, some see the advantage of
letting him take the heat for now ... and perhaps take the
fall before the next elections.

2010 ALREADY?


6. (C) The next elections are already looming large for the
MSZP's junior coalition partner, the SZDSZ. In many ways,
the past months have been the hardest on the SZDSZ, with the
October local elections bringing significant setbacks. 2007
will likely see the party debating its future direction and
preparing to fight for its future survival in Parliament in
the elections of 2010 (ref c).

NOTHING SUCCEEDS LIKE ... FAILURE?


7. (C) The government has been fortunate in its opposition.
FIDESZ proved unable to translate its significant successes
in the October local elections into a decisive victory, and
has now failed to defeat Gyurcsany as a weak candidate or a
wounded Prime Minister. Few doubt, however, that it will
continue its tactics to disrupt his governing agenda,
particularly after party president Viktor Orban's recent
advice to the party faithful to "rest up" for a busy spring.
Some other party leaders believe that "Orban knows no other
way," and friends and foes expect renewed efforts to bring
the people to the streets in the spring even though such
tactics have provided more heat than light in the past
months.


8. (C) Although its new influence at the local level should
be a source of new blood - and is already reportedly a source
of income for FIDESZ's depleted electoral coffers - Orban
appears intent on maintaining his personal control over both
policy and personnel decisions. Given Orban's recent record,
that may be worse news for Hungary than for Gyurcsany.
Indeed, MSZP MP Vilmos Szabo confided to us that FIDESZ's
victories at the local level will make it easier for the

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Prime Minister to do what he has wanted to do all along:
reduce the public sector by consolidating government services
at the regional level.

LONELY IN THE MIDDLE


9. (C) The small center-right MDF continues to cling to its
independence by opposing both the government and FIDESZ, but
has little realistic prospect of realizing its moderate
agenda in 2007. Although the MDF would likely win an
election within the diplomatic community, their public appeal
is still very much in question. The recent publication of an
internal strategy paper widely criticized as amateurish hurt
the party, and one political scientist who advises the MDF
admits to wondering "whether there's any there there."

PUBLIC MOOD: THE SAME ... ONLY MORE SO


10. (C) Comment: Although the MDF hopes to attract voters
from both sides of the spectrum in the longer term, polls
show that Hungarians are less inclined to turn to a new party
than to simply turn away from politics altogether. The
events of 2006 have done little to overcome the reflexive
pessimism of the Hungarian public, which saw its suspicions
regarding the system seemingly confirmed by lies at the top
and violence in the streets. The public debate has focused
less on the future than on the past, with heavy emphasis
placed on the legacy of 1956 and the "lost victory" of 1989
rather than the challenges of the 21st century. As one local
commentator noted, Hungary's entry to the European Union has
made it less united in its national priorities and less
European in its political norms. Both trends are likely to
continue in 2007. End Comment.



FOLEY