Identifier
Created
Classification
Origin
07BUDAPEST1829
2007-11-13 15:07:00
CONFIDENTIAL
Embassy Budapest
Cable title:  

HUNGARY: KOKA ON TROUBLED COALITION, PARTY POLITICS

Tags:  PREL HU 
pdf how-to read a cable
VZCZCXRO4859
PP RUEHAG RUEHROV
DE RUEHUP #1829/01 3171507
ZNY CCCCC ZZH
P 131507Z NOV 07
FM AMEMBASSY BUDAPEST
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 2187
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 001829 

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/NCE
TREASURY FOR ANNE ALIKONIS

E.O. 12958: DECL: 11/08/2026
TAGS: PREL HU
SUBJECT: HUNGARY: KOKA ON TROUBLED COALITION, PARTY POLITICS

REF: BUDAPEST 1298

Classified By: Economic Officer John McGuire for Reasons 1.5 (b) and (d
)

Reforms Stall as Coalition Suffers

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 001829

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/NCE
TREASURY FOR ANNE ALIKONIS

E.O. 12958: DECL: 11/08/2026
TAGS: PREL HU
SUBJECT: HUNGARY: KOKA ON TROUBLED COALITION, PARTY POLITICS

REF: BUDAPEST 1298

Classified By: Economic Officer John McGuire for Reasons 1.5 (b) and (d
)

Reforms Stall as Coalition Suffers


1. (C) Summary: In a private meeting with Ambassador Foley
November 8, Minister of Economy and SzDSz Party President
Janos Koka expressed his pessimism over the prospects for
further reform and cast doubts on continued coexistence with
a fractured MSzP. He admits, however, that his party has few
practical options, with "no responsible partners on the
right." He will focus his energies on rebuilding the party
following his departure from the Ministry, but emphasized
that he will extend his tenure if necessary to make a trip to
promote energy partnership with Turkmenistan and Azerbaijan.
End Summary.


2. (C) Coming directly from a press conference announcing a
major investment in nation-wide broadband coverage, an
initially upbeat Koka grew visibly frustrated in discussing
the domestic political dynamic. Noting heavy-handed
criticism - and under-handed tactics - from the MSzP, he
couched his party's liberal commitment to reform as being
nearly "the only reason" that could justify their continued
presence in the governing coalition.


3. (C) Koka charged that the MSzP has repeatedly violated
its coalition agreement with the SzDSz, most recently with a
vote to defeat minor tax reforms in a stunning November 5
session despite prior intra-coalition agreement on the
measures. He complained that "no deal" with the MSzP is
sacred, noting that a detached Gyurcsany could only say
"sorry, Janos" as his party broke ranks in Parliament. Koka
concluded by admitting that he "simply can't explain what is
going on inside the MSzP."


4. (C) If the MSzP is a black box, the increase in spending
on the Prime Minister's Office (PMO) is clear - and in Koka's
view a clear contravention of the commitment to reform state
administration in favor of populist policies. Koka is
preparing for the next intra-coalition battle as SzDSz
president: language in the June Socialist-SzDSz coalition
agreement says that the coalition will vote on comprehensive
tax reform in January 2008. Regarding Ministry of Finance
press releases about unveiling long-term tax plans next week,

Koka expressed his surprise, noting that statements in such
briefings would certainly be "without my knowledge though
perhaps not without my consent." (Note: Minister Veres has
told us separately that comprehensive tax reform will not
happen until Hungary meets its convergence deficit targets,
likely in 2009.) Koka is floating a proposal to fund tax
reform, including some cuts, with better-than-expected tax
revenues.


5. (C) Koka Chief of Cabinet Csaba Kakosy, a possible
successor as Minister of Economics (reftel) and SzDSz Member
of European Parliament Istvan Szent-Ivanyi joined Koka in
painting a bleak picture of prospects for structural reform.
To Koka, Gyurcany won't "...or can't" implement needed
reforms, while to Szent-Ivanyi, the PM's "rhetoric on reform
always exceeded his performance." Koka commented that "you
can't fault Gyurcsany's speeches," but concluded that he
"says one thing and does another."


6. (C) Reminded of major business concerns, Koka argued that
Foreign Direct Investment has not eroded, despite high growth
in neighboring countries. Despite his misgivings about
reform, Koka argued that Hungary is still very competitive in
infrastructure and human capital, and that needed political
fixes are "easier" than building road networks or revamping
an educational system. He appealed to the International
Community not to lose faith in Hungary.

Fidesz: Weak Prospects for Cooperation


7. (C) On reports of a possible SzDSz-Fidesz alliance,
Szent-Ivanyi conceded that Fidesz might offer a better
economic program if they gained power, despite populist Orban
rhetoric. SzDSz would have ample reason to break the
coalition agreement in January - especially if there is no
agreement on tax reform, but Koka feels a "responsibility" to
remain in the coalition. He is troubled by Orban's
"inability to work with others," his populism, and his
attempts to forge a single conservative bloc extending to the
far right. Koka's responsibility is towards the liberal
value of tolerance and against the "archenemies of the
liberal agenda: populism and extremism." Orban aside, the

BUDAPEST 00001829 002 OF 002


SzDSz leaders agreed that it is possible to work with
reform-oriented conservatives in Fidesz who share many SzDSz
goals. Indeed, he remarked that it is "a more natural
alliance for reform than working with the Socialists."

Possible Turkmenistan Visit


8. (C) Disappointed that European Union energy
representative Van Aartsen declined his proposal to travel
together, Koka is still strongly considering a trip to
Turkmenistan to discuss the Nabucco natural gas pipeline. If
a clear opportunity presents itself, Koka is prepared to
extend his term as minister by a few weeks to accommodate a
visit.

Trying to Revive Support for SzDSz; Reform


9. (C) That will not be his only travel in the coming
months. He is interested in visiting Washington early next
year in his party capacity, but will focus primarily on the
home front. With SzDSz support consistently polling below 5
percent, the minimum threshold for parliamentary party
recognition, Koka and Szent-Ivanyi laid out comprehensive
plans for reinvigorating their party. They minimized
internal divisions within the party, emphasizing their plans
to expand their public outreach on the urgent need for
reform, primarily because of lackluster current economic
performance, with Hungarian GDP growth rates below that of
the eurozone as a whole and with its neighboring countries
adopting highly competitive economic regimes including flat
taxes. Koka looks forward to being able to speak freely once
he leaves the government, and plans to travel "50,000 miles"
next year to help buttress SzDSz support beyond its
traditional stronghold of Budapest.

Rather Be Right Than Be In Parliament?


10. (C) Comment: Koka's frustration regarding the stalled
progress of "half-reforms" is obvious. He is struggling to
remain above the fray as the friction between the parties -
and within the MSzP - continues. Despite his optimistic
assessment, his planned departure from the Ministry
underscores the fact that the party is also struggling for
its future. Although there is little love left to lose in
the coalition, there is little chance of the SzDSz surviving
if it leaves what members of both parties increasingly regard
as an arranged marriage. End Comment.
FOLEY