GYURCSANY STAYING PUT AND GOING PUBLIC ON REFORM

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 001723 SIPDIS SIPDIS DEPARTMENT FOR EUR/NCE; PLEASE PASS TO NSC FOR ADAM STERLING E.O. 12958: DECL: 10/12/2012 TAGS: PGOV KDEM HU SUBJECT: GYURCSANY STAYING PUT AND GOING PUBLIC ON REFORM REF: BUDAPEST 1679 Classified By: P/E Counselor Eric V. Gaudiosi: Reasons 1.4 (b) and (d) ¶1. (C) Summary: Anti-corruption efforts remain at center stage as the opposition has tabled an 8-point program in response to PM Gyurcsany's controversial proposal to "bleach the black economy." Coalition insiders report considerable discontent with PM Gyurcsany as the Zuschlag scandal (reftel) continues to play out and the government contemplates taking further reform proposals directly to the public as a referendum. That said, they indicate that the PM has rebuffed the suggestion that he step down and assess that the MSzP is unlikely to "do more than complain" in the near term. That leaves the PM likely to continue managing the delicate coalition dynamic in which the SzDSz demands progress on reform and the MSzP rank-and-file resists dramatic changes. End Summary. BLEACH AND BACKLASH ¶2. (C) Although the Zuschlag scandal continues to percolate (reftel),debate has increasingly focused on rival proposals by the Prime Minister and the opposition to combat corruption. While admitting that he had known of the allegations against Zuschlag "this spring," the PM has denied all wrongdoing and continued to advocate his 7-point program to "bleach the black economy." His proposed measures range from the restriction of reimbursements of parliamentariams expenses to the prohibition on MPs holding other offices. (Note: By our rough count, approximately 80 members of the coalition and an equal number from the opposition are "dual-hatted" as local or regional officials in addition to their parliamentary positions. End Note.) ¶3. (C) Response to the PM's latest recommendations within the MSzP has been tepid at best, and the government has not formally submitted the package to Parliament for consideration. Cabinet Minister Peter Kiss has conceded to us privately that the government underestimated the backlash within the MSzP, and former SzDSz leader Gabor Kuncze tells us that many in Parliament feel that "Gyurcsany is blaming 386 MPs because 1 man (Zuschlag) stole." They will doubtless be further irked by the government's concurrent announcement that it is considering a 300 percent increase in senior civil service salaries to "keep pace with the private sector." I'LL SEE YOUR SEVEN POINTS AND RAISE YOU ONE ( ¶4. (C) Even without strong support from the party, Gyurcsany has indicated his willingness to table the package as a public referendum. In contrast to his own party's ambivalence (or antipathy),his proposals have polled well, receiving over 60 percent support in initial pubic opinion surveys, prompting one MSzP MP to accuse the PM of daring to "involve the public in politics." Many note that "going public" would have the consequence ) and political benefit ) of undercutting FIDESZ's efforts to organize a referendum on key elements of Gyurcsany's austerity measures. ¶5. (C) FIDESZ has counter-punched with an 8-point program, including a proposal to reduce the number of MPs to 200 and several recommendations designed to restrict political advertising and to make public the tax declarations, salaries, and benefit packages of public officials. (It also proposes to freeze MPs' salaries until Hungary adopts the Euro, prompting some to joke that the measure "would be permanent.") THE PROBLEM BENEATH THE SCANDAL ¶6. (C) In a private meeting with the Ambassador October 9, Kuncze remarked that the Zuschlag scandal had highlighted the fact that "we do not separate political parties from civil society and we do not track money from political parties to civil organizations." Although much of the attention to date has focused on Zuschlag, in Kuncze's view the system of opaque funding and politicized prosecutions "that produced him invites abuse by all parties." The result, he noted, has been "criticism on individual cases but no consensus to fix the underlying problems." NEEDLING THE MSZP ( AND THREADING THE NEEDLE WITH THE SZDSZ ¶7. (C) Kuncze credits Gyurcsany's latest reform package in principle as an attempt to break with the status quo and "escape forward." He was candid in criticizing the PM's political tactics, however, noting that "insulting the Parliament" will drive his popularity even further down with the MSzP rank-and-file. It will also, he cautioned, further BUDAPEST 00001723 002 OF 002 alienate a party caucus "more committed to trying to make a broken system work than making necessary reforms." ¶8. (C) That said, Kuncze minimized the prospect of an internal move against Gyurcsany, remarking that "the MSzP has "the courage to complain ( but not to act." Nor does it have a viable replacement at hand, as "(Parliamentary Speaker) Szili is incapable, (Defense Minister) Szekeres is not credible, and (Cabinet Minister) Kiss is a caretaker at best." Although Kuncze admitted that there was talk of Ptere Kiss as Prime Minister and FinMin Veres as party president, he believes the party will "let Gyurcsany shoulder the burden" into 2009, and predicts that the PM will offer the party rank-and-file concessions with regard to health care or tax policy in return. ¶9. (C) Former PM Megyessey ) who was himself forced from office by the MSzP and SzDSz ) confirms the disquiet within the party. He confided to Ambassador Foley October 11 that he had personally advised Prime Minister to step down now as Prime Minister (in favor of Treasury Minister Veres) but retain the party presidency in order to keep open the option of seeking reelection in 2010, but reported that Gyurcsany is "not at all interested." ¶10. (C) As Kuncze warned, however, Gyurcsany must also pay attention to the SzDSz. By not going far enough to follow through on reforms, he could force his junior partner to "face the difficult decision" of leaving the coalition. "The MSzP has been a difficult partner," he admitted, but he concluded that the SzDSz is "not dissatisfied ( yet." COMMENT: ACCIDENTAL CONSENSUS? ¶11. (C) SzDSz leader Koka has described the latest round between the Prime Minister and the opposition as a "referendum tsunami," and both sides are indeed taking their respective ) and ironically often complementary ) proposals to the public as they race to take the high ground on corruption. As Kuncze noted, there is growing public dissatisfaction with a political elite that Kuncze described as "once being our father figure but now acting like a child." Electoral advantage may be motivating the parties where principle has failed. Although his tactics in taking the issue to the public rather than to his own party risk further alienating many within the MSzP, so far Gyurcsany appears to be managing a complex dynamic that demands sufficient progress to satisfy the SzDSz but sufficient patience to placate the MSzP. End Comment. FOLEY