SCENE-SETTER FOR THE VISIT OF DAS JUDY GARBER

C O N F I D E N T I A L BUDAPEST 000537

SIPDIS

DEPARTMENT FOR EUR DAS GARBER AND EUR/NCE

E.O. 12958: DECL: 05/29/2013
TAGS: PGOV PREL ECON HU
SUBJECT: SCENE-SETTER FOR THE VISIT OF DAS JUDY GARBER

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


1. (SBU) Your visit comes as the parties run out the clock
on Parliament's spring session before the long summer
"cucumber season." With the dissolution of the MSzP-SzDSz
coalition following the national referendum on elements of
Prime Minister Gyurcsany's reform agenda, the government is
now feeling its way forward without a Parliamentary majority.



2. (C) It will do so with a reshuffled cabinet but with
little political leverage. With FIDESZ enjoying an enormous
lead in all recent polling, the government will likely
restrict its political agenda and reduce the public's
expectations, reserving its activism for key priorities such
as the 2009 budget. They also hold out the hope that the
SzDSz party elections June 7 will open the door for their
junior coalition partner to return.


3. (C) Bad news notwithstanding, Gyurcsany's associates
dismiss calls for early elections and downplay rumors of his
intention to step down, assuring us that he will be
"difficult to remove." The party has demonstrated its
capability to go on the offensive in the past week with a
concerted campaign to highlight controversial statements by
FIDESZ Leader Viktor Orban re the potential suspension of
public works and reduction of public subsidies. In sum, the
Socialists' long-term strategy appears to be to hold on until
the tide of EU assistance funds lifts all boats.


4. (SBU) That tide cannot come quickly enough for Hungarian
consumers or foreign investors. Despite continued progress
on deficit reduction, growth remains stagnant, transparency
suspect, and unemployment slowly inching toward eight
percent. Higher fuel and food costs have kept inflation over
six percent, and there is the constant risk that the
government will revert to form and increase spending as the
2009 European Parliamentary and 2010 Hungarian national
elections approach. Economic uncertainty and political
gridlock, in turn, have contributed to a climate where
extreme "solutions" have gained currency and frustration with
the system itself has gained traction.


5. (SBU) Foreign policy issues remain largely firewalled
from the domestic political debate, with consensus holding on
Hungary's engagement in Afghanistan and its (belated)
recognition of Kosovo. All parties continue to press for
closure on arrangements to secure their entry into the Visa
Waiver Program.


6. (C) That said, Energy Security remains a flashpoint. The
government remains defensive over what it persists in
characterizing as our "misperception" of its Russia policy,
and can perceive our interest in the issue as an intrusion
into Hungary's internal affairs. Although the opposition is
doubtless eager to burnish its trans-Atlantic credentials,
FIDESZ officials view the issue in terms of Hungary's
sovereignty and solidarity with the Euro-Atlantic community.
The way forward on South Stream is a particular concern, and
we have seen few details regarding the government's deal with
Moscow. We continue to emphasize that the sequencing of
pipelines does matter, and will look for them to follow
through on their professed commitment to Nabucco )
particularly by concluding a purchase agreement with a
Central Asian supplier and creating a "Nabucco committee" in
Parliament.


7. (SBU) Your schedule begins with Fidesz MP and Party Vice
President Mihaly Varga. Varga recalls your last discussion
in December warmly and will look forward to reviewing
Hungary's political prospects and economic indicators.
Highly regarded as the opposition's chief economic
spokesperson and recently named Orban's deputy, Varga has
moved up steadily in the party's popularity polls as well.


8. (SBU) Your meeting with MFA State Secretary Szent-Ivanyi
is an opportunity to cover the waterfront. Recently returned
from discussions in Washington, Szent-Ivanyi is a former MFA
spokesperson and is regarded within the Ministry as a capable
and collegial professional. He will be interested in your
thoughts on the region, particularly on Missile Defense. He
may also raise the Balkans and Hungary's relations with its
neighbors ) particularly in light of the cancellation of the
planned Gyurcsany-Fico meeting.


9. (SBU) In Minister Draskovics' absence, the Ministry of
Justice and Law Enforcement has suggested that you meet with
State Secretary Dezso Avarkeszi. Your schedule allows for
only a brief meeting, which we believe should focus on
transparency and on the Ministry's perceptions of intolerance
and extremism. After only two weeks as Draskovics' deputy,
Avarkeszi will be accompanied by subject matter experts on
these issues and on the VWP.


10. (U) We have made arrangements for a brown bag lunch with
Embassy staff. American and local staff will welcome your
views from Washington on the bilateral relationship and will
likely have questions on both substantive and management
issues.


11. (C) You will join Special Envoy Gray, DAS Mann, and
Ambassador Foley to meet with Foreign Minister Goncz. Goncz
seems to have weathered frequent rumors regarding her
imminent dismissal and has been markedly better staffed )
and more assertive - of late. She will likely press for more
consultations on Russia in general and energy in particular,
but we've found Hungarian officials more eager to raise this
issue than to respond to our invitations. The Foreign
Minister may defer on the details to Ambassador Mihaly Bayer,
the GoH's recently-appointed Nabucco Ambassador, to review
GoH efforts to secure agreement on an IGA for the project.
Bayer is an experienced diplomat but not a political player;
he is operating at a considerable disadvantage both within
the Hungarian bureaucracy and among EU members who regard
Budapest as "opaque and untrustworthy."


12. (U) We've asked the MFA's Consular Bureau to arrange a
follow-on meeting with their staff and interagency
counterparts to review the state of play on the Visa Waiver
Program. We expect that MFA Americas Director Szilveszter
Bus, Consular Affairs Director Krisztina Bertha, and Ministry
of Justice and Law Enforcement Petra Jeney will likely attend.


13. (U) We've invited professor and political commentator
Tamas Magyarics to join you for coffee to conclude the day.
An expert on the U.S. associated with FIDESZ, Magyarics is a
close embassy contact and can offer his perspective on the
full range of foreign and domestic issues.


14. (SBU) Your schedule should allow for some down time
before the welcome dinner for the CoM Conference.


15. (U) We look forward to welcoming you in person.

Foley