BEST SERVED COLD: ORBAN ON REFORM, ENERGY

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000135

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO NSC FOR ADAM STERLING

E.O. 12958: DECL: 01/30/2017
TAGS: PGOV PREL ECON KDEM
SUBJECT: BEST SERVED COLD: ORBAN ON REFORM, ENERGY
SECURITY, AND RELATIONS WITH THE GYURCSANY GOVERNMENT

REF: A) BUDAPEST 100 B) BUDAPEST 105 AND PREVIOUS

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


1. (C) Summary: As guest of honor at a dinner hosted by
Ambassador Foley January 30, a charming and measured FIDESZ
President Viktor Orban criticized the Gyurcsany government's
implementation of its austerity package, questioned its
commitment to reform, and called for EU action on energy
security. Orban noted recent friction within FIDESZ (ref a)
but asserted that he is still "the only one" capable of
uniting its disparate elements. Orban is test-marketing a
mix of populism and trans-Atlanticism as FIDESZ discusses
more substantive engagement in the public debate. This would
be an important step in the long term. In the short term,
however, Orban still predicts - and perhaps anticipates -
tests to the Gyurcsany government's survival in the coming
months. End Summary.

THE ECONOMY: BLACK AND WHITE ... AND GRAY


2. (C) Orban opened discussion by addressing the economy,
asserting that Hungary should focus on incorporating the gray
market, reducing the tax burden on Hungarian businesses, and
combatting corruption. He reiterated his commitment to
increasing employment opportunities, and maintained that
lower taxes would increase state revenue by bringing
unreported economic activity into the mainstream.
Separately, he added, the government must "crush the black
market."


3. (C) Orban believes that Prime Minister Gyurcsany is
backing off his reform agenda. He views the PM's recent
references to mistakes in his plan's preparation and
presentation as a self-indictment, and continues to criticize
the government's plan as a reduction in spending without
fundamental structural reform. Ultimately, he believes the
government will fail due to Gyurcsany's "an enormous agenda
... and lack of focus." He specifically dismissed
Gyurcsany's "belated" efforts to organize bipartisan round
tables to discuss the reform agenda as an effort to "bring
the opposition down with him." (Note: Even as PM Gyurcsany
was meeting with the opposition MDF to discuss the reform
agenda, FIDESZ officials were formally challenging the
constitutionality of the government's proposals on local
administration, taking yet another issue to the courts rather
than the bargaining table. End Note.)


4. (C) Orban reserved particular criticism for the Prime
Minister's approach to disbursing EU funds. He accused the
government of channeling money to "non-productive elements of
society" through a government body beyond parliamentary
oversight and regional commissions controlled by political
loyalists. Their goal, he concluded, is to maintain the
trappings of a welfare state in order to retain the support
of the MSZP's aging demographic. This charge echoes the view
of one businessman, who notes that many failed MSZP
candidates from the October local elections have "been thrown
out the door ... only to come back in through the window"
through regional development commissions stacked with party
members. Orban charged that even worthwhile concepts such as
plans to develop high-tech centers in Szeged and Debrecen
will fail due to plans that border on the incoherent.

ENERGY SECURITY: SPEAKING SOFTLY


5. (C) Turning to energy security, Orban underscored his
concern regarding the preponderance of Russian influence and
expressed hope that the issue could galvanize the European
Union (ref b). He is trying to work with like-minded
colleagues in the European People's Party, but his visible
discomfort in discussion telegraphed his uncertainty
regarding Hungary's ability to influence EU institutions.
Orban also claimed that Russia has intervened to keep the
forint artificially strong through an agreement between PM
Gyurcsany and President Putin, thus providing a safety net
during the government's austerity program. That said, he
still cited Russian moves to develop pipleline options that
would exclude Hungary as evidence that Russia's favor is
fleeting. He also noted his intention to tone down his
public rhetoric while working the issue given the political
risks of incurring Russia's wrath.

FIDESZ: "TWO OR THREE PARTIES" ... BUT ONLY ONE LEADER


6. (C) Although Orban clearly fears Russian intentions, he
candidly admitted that FIDESZ includes many who are more
concerned by Washington's status as the sole superpower than
they are by Moscow (or, for that matter, Tehran, Pyongyang,
and Caracas). He also insisted that there is nothing he can

BUDAPEST 00000135 002 OF 002


do to influence the anti-American strain in the
FIDESZ-affiliated press.


7. (C) Orban underscored FIDESZ's strong support among
younger Hungarians, describing the party as a "broad-based"
organization committed to "human dignity, christian values,
and the Hungarian national identity." He conceded, however,
that it "could easily be two or three parties." Conservative
commentator Sebasteyn Gorka, who has indicated his interest
in starting a new center-right party, also believes that
FIDESZ is subject to increasing strain among its principal
factions. Although Orban commented that "there will always
be criticism," he concluded that only his own leadership can
unite FIDESZ's "many branches."

RITES OF SPRING


7. (C) Orban did not preclude renewed confrontation with the
government. He predicts the upcoming FIDESZ convention will
be a "defining event," and will respond to PM Gyurcsany's
"state of the union" address in a public speech the week of
February 12. He promised to publish a rival governing
program in March, and FIDESZ parliamentary faction leader
Tibor Navracsics told an AmCham audience last week that the
party will form a shadow cabinet in the spring to better
present its policy recommendations. Orban also remarked that
calls for new elections should be expected in the near term,
and remarked that Gyurcsany "might not be able to survive"
either the March commemoration of the 1848 revolution or the
public referenda on elements of the government's austerity
package possible in the fall.

WHAT MAKES VIKTOR RUN?


8. (C) Comment: This was a vintage Orban performance:
confident, in command of the facts, and calibrated to his
audience. He has gradually recognized that reform is
necessary, but is now deftly focusing the debate on the
government's commitment and its competence. With equivocal
signals from the PM on the timing of future steps and a
faltering start on health care reform, FIDESZ officials
foresee a "third wave" of opposition to the government.
Orban's comments also reflect his latest (if not his last)
attempt to find a resonant theme, this time by melding
populism and trans-Atlanticism into a coherent - or at least
marketable - message. The challenge will be presenting
solutions to the problems he is (rightly) highlighting.
FIDESZ is professing its desire to engage substantively on
the issues, and Parliamentary Speaker Katalin Szili tells us
she is working to encourage bipartisan cooperation in
Parliament. By contrast, MDF leader Ibolya David tells us
FIDESZ is already hard at work preparing to "make March worse
than October." FIDESZ has the opportunity to take a step
back toward the constitutional fold and perhaps take an
important step toward Hungary's next elections if they are
prepared to serve their revenge cold. Although Orban noted
at one point that he "sometimes wishes I could just turn down
the volume (of Hungarian politics)," he later admitted that
it is still "the pressure that makes me run." Under
criticism within his own party but still intent on opposing
Gyurcsany at every turn, he will continue to respond to
pressure - and to generate it - in the months ahead. End
Comment.

FOLEY