Identifier
Created
Classification
Origin
08BUDAPEST1021
2008-10-28 11:12:00
SECRET//NOFORN
Embassy Budapest
Cable title:  

SOUTHERN COMFORT: ECONOMIC VULNERABILITY,

Tags:  PREL ENRG ECON HU 
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VZCZCXYZ0002
OO RUEHWEB

DE RUEHUP #1021 3021112
ZNY SSSSS ZZH
O 281112Z OCT 08
FM AMEMBASSY BUDAPEST
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3503
INFO RUEHMO/AMEMBASSY MOSCOW PRIORITY 0649
S E C R E T BUDAPEST 001021 

NOFORN
SIPDIS

DEPARTMENT FOR EUR/FO AND EUR/CE; PLEASE PASS TO NSC FOR
ADAM STERLING

E.O. 12958: DECL: 10/26/2018
TAGS: PREL ENRG ECON HU
SUBJECT: SOUTHERN COMFORT: ECONOMIC VULNERABILITY,
POLITICAL PRESSURE AND SOUTH STREAM

Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D)

S E C R E T BUDAPEST 001021

NOFORN
SIPDIS

DEPARTMENT FOR EUR/FO AND EUR/CE; PLEASE PASS TO NSC FOR
ADAM STERLING

E.O. 12958: DECL: 10/26/2018
TAGS: PREL ENRG ECON HU
SUBJECT: SOUTHERN COMFORT: ECONOMIC VULNERABILITY,
POLITICAL PRESSURE AND SOUTH STREAM

Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D)


1. (S) Information developed by other agencies and passed to
the Department via their channels indicates renewed and
covert contacts between senior GoH officials and Russian
intelligence officers.

VERES IN THE LEAD


2. (S) As the GoH works to finalize an extraordinary
international financial stabilization package, we are
concerned that the nation's economic straits (reftel) and
the Prime Minister's political vulnerability will prompt the
GoH to conclude an agreement with Moscow in exchange for
Russian financial support. Given Finance Minister Veres'
leading role in the discussions with Russian representatives,
the GoH could be taking the next ) or even the final ) step
on South Stream. Veres has taken the lead in recent contacts
on South Stream, and in light of the complete lack of
transparency in this latest approach we fear in particular
that he could be putting strategic assets such as Hungary's
electricity parastatal on the table.

HUNGARY IN THE DARK


3. (S) Whatever they are doing, they are keeping it from us
and from their own public. Although press reports indicate
that Prime Minister Gyurcsany spoke with Putin last week to
"reaffirm" their economic and commercial relationship, even
the National Security Advisor professes not to know the full
extent of their conversation. Largely marginalized from
decisions on South Stream as the government has elevated
short-term survival over long-term strategy, Banai has
complained that he is not fully aware of what "others" in the
government are doing.

GYURCSANY STAYING IN POWER


4. (S) In a discussion October 27, Banai told Ambassador
Foley October 27 that a Hungarian commitment on South Stream
could be imminent. Asking if the USG might look more
favorably on a Hungarian commitment to South Stream if it
were far removed from their planned Nabucco Summit in
January, Banai warned "saying yes might mean that they
announce the deal tomorrow." He went further still in a
private pull-aside, confiding that Hungary's position on
South Stream is linked to "Gyurcsany staying in power."

NOT IN OUR INTERESTS (


5. (S) Hungarian officials will doubtless argue that other
Allies have done much the same with regard to South Stream.
But we must recognize that any further steps would be
contrary to the specific requests made in President Bush's
letter to Prime Minister Gyurcsany, to our broader appeal to
Allies to suspend "business as usual" with Moscow, and to
Hungarian officials' repeated assurances that Nabucco is
Budapest's priority. In sum, such a step could not be
explained as a "misunderstanding."

OR IN HUNGARY'S


6. (S) Indeed, we believe the markets would understand only
too well the signal being sent: that Hungary is prepared to
mortgage its future rather than deal with its long-standing
problems. Although Banai was at pains to emphasize the
government's commitment to sending the right signals to the
market, he conceded that "some will regard any foreign
invstment as positive right now." Although the government
may feel that desperate times call for such desperate
measures, we believe the long-term impact of any further
steps toward Moscow would leave an already unstable situation
further suspect in the eyes of the international investors
they need now more than ever.


7. (S) We recognize that the information available to
Washington could support alternative conclusions. We do not
believe, however, that any of these alternatives could be
viewed as benign, much less positive. Nor do we believe that
the GoH will reverse its course absent senior engagement from
Washington. We accordingly request the Department's guidance.

Foley