DANCING ON THE JETTY: HEALTH MINISTER OUT;

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000341

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/NCE: PLEASE PASS TO NSC FOR ADAM STERLING

E.O. 12958: DECL: 03/31/2013
TAGS: PGOV KDEM HU
SUBJECT: DANCING ON THE JETTY: HEALTH MINISTER OUT;
COALITION ON THE OUTS

REF: BUDAPEST 270 AND PREVIOUS

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

TOIL AND TROUBLE


1. (C) Summary: Toil and trouble continues within the
coalition as the MSzP and the SzDSZ continue to head toward a
divorce they may not want but may not be able to avoid.
Prime Minister Gyurcsany's decision to dismiss unpopular
Health Minister Agnes Horvath of the SzDSz has sparked a
confrontation with the junior coalition partner that was
predicted in coming but remains unpredictable in its
consequences. Following tense exchanges in Parliament March
31, including SzDSz President Koka's criticism of the PM's
"retreat from reform," the party's executive board announced
that its Ministers will leave office on April 30. Although
the timing does leave room for a compromise (likely involving
a redistribution of ministerial portfolios),the current
schism has opened the door to scenarios ranging from the MSzP
governing in minority to FIDESZ's press for a "government of
crisis management" to prepare for new elections. The
government is focusing exclusively on the near term, but
neither the MSzP nor the SzDSz appears to have a clear
strategy to control or contain the schism as they continue to
improvise solutions ... and contend with unintended
consequences. At the moment, their differences appear
irreconciliable. End Summary.

HEALTH MINISTER UNDER THE BUS


2. (C) In remarks during a closed weekend meeting of the
MSzP leadership, Prime Minister Gyurcsany reportedly conceded
the need for broader consultation with the party and the
public, going so far as to signal his willingness to step
down as the leader of the party.


3. (C) But Gyurcsany's self-criticism was only the
beginning. In a long-anticipated move, the PM also announced
his decision to remove Minister of Health Agnes Horvath, one
of the three SzDSz ministers in his cabinet. The SzDSz
reacted swiftly. Although both Horvath and SzDSz President
Koka were reportedly informed of his decision just before the
PM's speech, Koka charged publicly that Gyurcsany's decision
violated the coalition agreement's provision for
"consultations" on personnel decisions. In a tense session
of Parliament March 31, Koka denounced the PM for "retreating
from reform" and announced that the SzDSz would withdraw its
ministers from the cabinet as of April 30 - the effective
date of Horvath's dismissal. SzDSz MP Ivan Peto tells us
that the party's executive board endorsed the decision at an
extraordinary session on the evening of March 31, with
Minister of Environment (and Koka rival) arguing for
compromise with the MSzP shouted down.

GOING THROUGH WITHDRAWAL


4. (C) Although the time frame leaves room for compromise -
and talk of a new distribution of ministries is already
widespread - the stylistic differences between the MSzP and
the SzDSz have become an open schism. Bitter SzDSz members
believe the Prime Minister has sacrificed Horvath in an
attempted "flight forward" to escape from pressure within the
MSzP, commenting that Gyurcsany "may have won today's battle
... and lost tomorrow's war." Party elders including former
SzDSz President Gabor Kuncze - who stuck by Gyurcsany in the
aftermath of the PM's infamous 2006 "lies" speech - now
predict that the coalition will split.


5. (C) The government is certainly acting as if that is a
possibility. In a conversation on the evening of March 31,
The Prime Minister's Foreign and Security Policy Advisor
described the Prime Minister's Office as being in full crisis
mode. The state of the coalition is the only topic of
conversation at the PMO, and the Prime Minister has decided
to cut short his time at the NATO Summit to return to
Budapest after Thursday's dinner.

LET ME SHOW YOU THE DOOR


6. (C) Addressing a gathering of foreign diplomatic and
corporate representatives March 31, FIDESZ President Viktor
Orban noted that Hungary's "state of crisis" could no longer
be solved by Gyurcsany's removal. He suggested that "the
best of the bad options" would be a "government of crisis
management" to replace the Gyurcsany government for "no more
than six months" in order to prepare for new elections. He
added, however, that the nation would have to "recognize the
economic crisis" by taking action to reduce the budget
deficit, reform the public sector, and revise the tax system.

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7. (C) If the government does not take steps toward a new
election, he continued, then a referendum on health care
would proceed this fall, "splitting the coalition" and
causing the MSzP's public support to "evaporate."


8. (C) Curiously, other FIDESZ leaders still predict a hard
road ahead despite the current disarray in the government.
MP Gabor Tamas Nagy commented that the coalition would likely
"stick together," positing that the SzDSz could end up either
with the MFA or the Ministry of Culture and Education in
exchange for the Ministry of Health. Conservative
commentator Tamas Magyarics remarked that "the SzDSz has
grown far too comfortable and far too dependent on its 5,000
patronage positions to walk away," and others believe that
"two parties in crisis" will ultimately be able to maintain
their unity if that is their only source of strength. As one
Orban aide concluded grimly, "the coalition may get sicker
but it may not die ( yet."


9. (C) If it does, however, few can venture a guess as to
what will happen. MSzP members had confidently maintained
that they would be able to govern as a minority, but
Gyurcsany has denied that this is his intention. Even if it
were, he - or any other Prime Minister - would still require
support from the SzDSz for the handful of votes necessary to
reach a majority on a case-by-case basis. Although Koka has
stated that his party will not "do FIDESZ any favors," the
SzDSz will be in no hurry to cooperate with the MSzP's
harder-line elements.

DEAD MAN WALKING?


10. (C) Comment: Given their respective vulnerabilities,
neither the MSzP nor the SzDSz should want a divorce. That
said, both appear unable to control what they've set in
motion. Terminal or not - and the April 30 deadline provides
time for reconciliation - the government's straits are
preventing their focus on more than the next day's (bad)
headlines. Both parties are down, and they are now openly
kicking each other as the bad news mounts. At this point,
both Gyurcsany and Koka seem to be improvising, avoiding one
catastrophe but not anticipating the next. Their running
conflict has vied for space with coverage of the Afghan
ammunition scandal, continued attention to alleged voting
fraud within the SzDSz, and new allegations that a company
owned by the PM received electricity from the state at
below-market rates. As FIDESZ Faction Leader Tibor
Navracsics has charged, "the government is not governing."
Gyurcsany entered the MSzP meeting facing a Hobson's choice:
proceed with an overhaul of the health care system in the
face of widespread political criticism and public opposition;
or walk back on his accord with the SzDSz at the risk of
breaking an increasingly fragile coalition. He chose the
latter option and is now paying the price. There will be
other bills yet to come, including the costs of derailing
health care reform. Although a reversal now will help dodge
the first bullet, foregoing the potential savings from the
reforms - estimated at up to USD 1 billion - may come back to
haunt the government in the near future ... assuming it has
one. End Comment.



FOLEY