THE PARTY LINE: WHAT PM GYURCSANY'S SUPPORTERS ARE

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000195 SIPDIS SIPDIS DEPARTMENT FOR EUR/NCE; PLEASE PASS TO NSC FOR ADAM STERLING E.O. 12958: DECL: 02/24/2013 TAGS: PGOV PREL ENRG KDEM HU SUBJECT: THE PARTY LINE: WHAT PM GYURCSANY'S SUPPORTERS ARE SAYING REF: A) BUDAPEST 155 B) BUDAPEST 83 C) BUDAPEST 122 D) BUDAPEST 182 Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D) A WINNING COMBINATION? ¶1. (C) With his personal popularity ratings still mired well below 20 percent as he nears the half-way point of his term, Prime Minister Gyurcsany appears to be playing small ball in an effort to gradually recoup his standing with the public (REF A). Key elements of his public message will likely include: Playing up the economic impact of further EU-funded development projects; Downplaying the March 9 referendum as a "technical exercise" rather than a "political event"; Rehabilitating his image with international investors by discussing "tax relief" as a goal for 2009; Reaching out to wayward MSzP supporters with a "Public Ownership Initiative" designed to offer citizens subsidized shares in publicly-held corporations ... thus blunting the appeal of the opposition's populist rhetoric; and, Ratcheting back on austerity measures, including by quietly lifting hiring and salary freezes in the public sector. THE VIEW FROM GYURCSANY'S CORNER ¶2. (C) Vocal Gyurcsany loyalists are harder and harder to find, but Tibor Desszeweffy of the liberal think tank DEMOS made a vigorous case for the PM at a briefing for the diplomatic corps February 21. His assertions - and our assessments - follow: - Gyurcsany's low numbers are bad but not unprecedented. Ruling parties have tended to bottom out at the half-way point of their mandates, he notes, and the MSzP is the only party to win reelection in Hungary's post-transition history. Desszeweffy and others firmly believe that Gyurcsany is a better campaigner than a chief executive, and profess confidence that he will win back the MSzP base. Our Take: The cure may be worse than the disease. Gyurcsany's numbers have been lower longer than anyone expected. Although even the opposition regards Gyurcsany's ability to work the public with grudging respect, the PM's February 18 speech to Parliament was widely viewed as a lackluster attempt to protect his flanks from populist attacks. Our principal concern is the prospect that fiscal restraint will be the first casualty of any such political offensive (REF B). - The opposition's talk of early elections will yield diminishing returns as the public tires of "rhetoric and referenda" without results. "We know we'll lose on March 9," Desszeweffy concludes, "and we know that it won't matter on March 10." Our Take: The risk of popular disillusionment strikes us as real. Although rumors are once again in circulation regarding Gyurcsany's imminent departure, the referendum itself cannot compel him to step down. Lopsided losses in the referendum may motivate Gyurcsany's rivals to make a move within the MSzP in the near term, but some voters - particularly potential swing voters - will likely tire of a seemingly permanent campaign (REF C). - The SzDSz will see no alternative but to remain in the coalition, as Gyurcsany still represents "the best bet for reform." Our Take: With the media focusing on allegations of fraud in Party President Koka's election last year, the SzDSz has been further on the defensive in the past weeks. With their projected election returns still below the 5 percent required for representation in Parliament, the SzDSz has few alternatives to using what leverage it has within the coalition. That will likely mean swallowing its complaints that Gyurcsany has taken the credit for "their" reforms, and overlooking slights such as the PM's reported failure to inform them of his planned tax reductions. - After years of constant "adjustments," Desszeweffy argues that Gyurcsany finally has the staff he needs in the PMO to BUDAPEST 00000195 002 OF 002 develop and implement his policy initiatives in the run-up to the next elections. Our Take: Although the clear intention is to make the PMO the real locus of decision-making, constant turn-over there has taken its tol. The result is a young staff - led by newly-appointed, 28 year-old, Chief of Staff Adam Ficsor - which often sacrifices professional experience for political loyalty. Thus far they seem to have made more headlines and bureaucratic enemies than progress. THE RISK OF UNPLEASANT SURPRISES ¶3. (C) Comment: Personally close to Gyurcsany, Desszeweffy's defense outlines the key tactics and themes GoH officials will likely employ in the months ahead as they try to paint a bad picture in the best possible light. The role of foreign policy in this calculus remains unclear. The relative freedom of foreign affairs may have growing appeal for Gyurcsany given its contrast with Hungary's domestic political gridlock. But a more activist Hungary may be a less predictable partner. The GoH may still find itself, in the words of one observer, "torn between doing nothing ( and doing the wrong thing." Especially on key issues such as energy security, Hungarian policy-making has often been myopic in its conception and opaque in its execution (REF D). The temptation to score domestic points will further reduce the GoH's strategic focus and further increase the risk of unpleasant surprises. End Comment. FOLEY