THE RESIDUE OF DESIGN: FOREIGN VISITS, MUTED

C O N F I D E N T I A L BUDAPEST 001579 SIPDIS SIPDIS DEPARTMENT FOR EUR/NCE; PLEASE PASS TO NSC FOR ADAM STERLING E.O. 12958: DECL: 09/20/2012 TAGS: PGOV PREL ECON KDEM HU SUBJECT: THE RESIDUE OF DESIGN: FOREIGN VISITS, MUTED PROTESTS, AND CLOSE CONSULTATIONS COMBINE FOR A GOOD WEEK FOR THE GYURCSANY GOVERNMENT REF: BUDAPEST 1534 Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D) ¶1. (C) Confronting a week fraught with political risks during the anniversary of last year's demonstrations, the Gyurcsany government has rebounded strongly. ¶2. (C) This week's demonstrations have been non-violent, with attendance dwindling with each passing day. Demonstrators themselves have worked to isolate extremist elements at various events, and the Ministry of Justice and Law Enforcement is pursuing criminal charges against individuals allegedly responsible for an abortive plan to occupy selected ministries. Press reports suggest that a large FIDESZ rally September 18 was intentionally held outside downtown Budapest to discourage extremists from attending, and the opposition's rhetoric continues to focus on next year's referendum as the principal means to oppose the government. ¶3. (C) With French President Sarkozy's visit to Budapest, Foreign Minister's Goncz's trip to Washington, and the success of its Nabucco conference (septel),the Gyurcsany government has raised its international profile and thus reinforced its domestic legitimacy (reftel). ¶4. (C) The government's good fortune is in part the residue of design. The Prime Minister's Chief of Staff, Zoltan Gal, tells us candidly that the GoH has made a conscious effort to "avoid misunderstandings" through proactive engagement on issues such as energy security (septel). He and other senior officials have pledged themselves to improved consultations with us to avoid future disconnects, and have warmly welcomed communication initiated from Washington. ¶5. (C) Turning to domestic politics, Gal draws three conclusions from the year since Gyurcany's infamous "lies" speech and the ensuing demonstrations: "We're still here and we're staying": Despite admitted conflicts within the coalition, Gal maintains that the government "has plans and projects in place" to move forward on issues ranging from health care to education reform. He believes that lower growth is "the cost of readjustment" but believes both the economic indicators ) and with them the MSzP's approval ratings ) have bottomed out and are now on the rise. "The opposition is still here and they are staying": While lamenting the reflexive disagreements that dominate public life, Gal denounced the opposition for having "no programs other than playing on popular tensions." Without FIDESZ's insistence on seeing the far right as a source of electoral support, he alleges, demonstrations would be smaller and isolated hooliganism would be "a simple (criminal) matter for the police." "The country is still here and it is staying": Gal believes the first round of reforms has been accepted, albeit grudgingly. He reports positive feedback from International Financial Institutions and Allied capitals re the government's reform agenda, and believes the coming months will see "peaks and valleys" but predicts "an upward trend." ¶6. (C) Comment: Despite Gal's upbeat assessment, the road ahead is still heavily mined. Recent economic indicators have been mixed, with real wages down over six percent year-on-year and growth stagnant. An ongoing investigation into the alleged diversion of funds from the Ministry of Youth and Sport to the MSzP under Gyurcsany's tenure as Minister has the potential to snowball into a broader scandal. Every element of the government's reform agenda is likely to prove controversial, and the cumulative impact on the public ) and on the MSzP itself - is difficult to predict (septel). That said, a week that had the government bracing itself for the worst has turned out unexpectedly well. Much of that represents the culmination of hard work over the past months to take our concerns into account, to expand our consultations, and to focus on common interests. End Comment. FOLEY