TRYING TO HEAD NORTH: NEGOTIATING THE POST-SOUTH

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000225 SIPDIS SIPDIS DEPARTMENT FOR EUR/NCE; PLEASE PASS TO NSC FOR ADAM STERLING E.O. 12958: DECL: 02/28/2018 TAGS: PREL ENRG PGOV KDEM HU SUBJECT: TRYING TO HEAD NORTH: NEGOTIATING THE POST-SOUTH STREAM LANDSCAPE REF: BUDAPEST 195 AND PREVIOUS Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D) ¶1. (C) We are bracing ourselves for another rough patch with the GoH in the aftermath of Prime Minister Gyurcsany's latest trip to Moscow. ACTIONS AND REACTIONS ¶2. (C) Having secured the EU's acquiescence with Commissioner Piebalgs' tepid public statement of "understanding," the GoH will move forward on its South Stream deal in the months ahead. As with the negotiations over the past weeks, transparency will be a key concern in the implementation phase. Despite a briefing for the leaders of the five Parliamentary parties on the agreement signed in Moscow and its subsequent posting on the Foreign Ministry's website, details on the new state-owned company slated to represent Hungary will likely be hard to come by. Moreover, we put little faith in the current line that "it's just a transit agreement." Still, we'll hear much more of it, along with the frequent refrain of "we support all pipelines." ¶3. (C) Ultimately, Budapest seemingly feels content that the political cover provided by Rome, Vienna, and Sofia will be sufficient to weather any negative reaction from the U.S. Their hope is that Washington ) like Brussels ) will "understand" since, as is their frequent refrain, they "are only doing what other EU members have already done." Indeed, they are prepared to take liberties in order to give that impression, as in Ambassador Banai's publicized comments during a carefully staged briefing for NATO and EU Ambassadors February 29 that State Department officials had expressed "agreement" with Hungary's plans during his recent meetings in Washington. His remarks have played in the Hungarian press as U.S. "support" for Hungary's decision. ¶4. (C) But support for South Stream is not unanimous even within the MSzP. There are those who see advantages to the South Stream deal and those who simply see no alternatives. Even the most ardent trans-Atlanticists continue to express frustration with Nabucco's slow progress and with what they see as impossible conditions imposed by our Iran policy. For many, the South Stream decision is a choice to go with the possible over the preferable. Gyurcsany advisor Klara Akots assures us privately that the GoH does not want to see a bad week lead to a bad relationship. ¶5. (C) If the pattern of strategic oscillation continues, the GoH will look for (modest) ways to reiterate their commitment to Nabucco, most notably the draft IGA they have circulated to members of the consortium. SzDSz President Koka is working with the opposition leadership to promote a five-party parliamentary resolution supporting Nabucco and to form a standing Nabucco Committee in Parliament. Both Koka and FIDESZ leader Viktor Orban have indicated their support in principle for Hungary's appointment of a "Nabucco Envoy." (Note: Contrary to Koka's interest in the position, the PMO tells us that the job will be filled by Ambassador Mihai Bayer, a career diplomat with prior service in Chisinau and in Asia. Bayer will reportedly take up his new responsiblities on April 1. End Note.) MSzP MP Attila Mesterhazy tells us that the PM is planning a trip to the Middle East, with energy as his first priority. Mesterhazy also emphasized to us his willingness to consider "any other ways" Hungary can make clear its trans-Atlantic commitment. COLLATERAL DAMAGE ON KOSOVO? ¶6. (C) But South Stream is not only a bad decision: it is a bad decision which comes at a bad time. Following the events at Embassy Belgrade, the Gyurcsany trip to Moscow, and a wave of editorials from across the political spectrum counseling caution, it now appears that the GoH will likely remain in neutral for the time being on Kosovo in order to "carefully assess all the risks and consequences." This move surprised Orban advisor Karoly Dan, who remarked that "the South Stream deal should have made Kosovo recognition MORE likely in order to keep up the government's balancing act." ¶7. (C) Our sources have made much of recent Embassy comments regarding our "expectation" that Hungary will recognize Kosovo, casting them as interference in Hungary's sovereign decision-making. This strikes us as being at least in part a convenient and calculated overstatement, especially since our comments reflected only our trust that Hungary would live up to its public comments and its private commitments. We've worked hard to clarify our position, and working-level sources at the MFA advise us that "the paperwork is ready to BUDAPEST 00000225 002 OF 002 go." They believe, however, that the GoH is waiting for a clear majority of EU member states to recognize before it moves forward. FRAYED TEMPERS ¶8. (C) Dan and Mesterhazy admit that the approaching referendum has tempers fraying on both sides of the aisle. ¶9. (C) From FIDESZ's perspective, declining projections regarding voter turn-out threaten to reduce their margin of victory and thus undermine the political impact of the referendum. There is already some finger-pointing regarding the organization of the referendum campaign, and Dan believes the party needs a major overhaul before the 2009 European Parliamentary Elections. "Losing was funny in 2002 and sad in 2006," he concluded, "but it would be tragic next time." That sense of urgency may explain the opposition's public characterization of the South Stream deal as a "coup d'etat." ¶10. (C) Although its public focus has been on minimizing the significance of the referendum as a "technical exercise," Mesterhazy admits privately that "as much as we say it doesn't matter ) it matters." (Note: He met with us on the margins of a press conference hastily called to condemn FIDESZ's "call to radicalism." End Note.) The MSzP hopes the Prime Minister's latest policy initiatives (reftel) may give them some long-awaited traction with voters, and would like nothing more than a referendum which is either underwhelming ) or better still ) invalid due to low turn-out. TURNING FRICTION INTO ENERGY ¶11. (C) Comment: Both parties are playing to the grandstands and seizing on any potential advantage. With the Prime Minister and Orban already denouncing each other as "buffoon" and "monarch," the South Stream decision has further increased the government's defensiveness and the opposition's accusations. Both sides are more ready than ever to drag the U.S. into their conflicts ) and more sensitive than ever to the others' perceived efforts to do so. The end result is that every issue quickly becomes a domestic political issue ( and that we run the attendant risk of perceived "interference" as we engage. An appreciation of that risk should guide ) but not stay - our hand in the weeks ahead. The government will likely become less hypersensitive about South Stream and more sensitive to Western perceptions as time goes by. Our goal will be to use both the government's desire to keep all options open and the opposition's ire over the South Stream decision to accelerate further progress on Nabucco. End Comment. FOLEY