CAMPAIGNING WITHOUT AN ELECTION: THE PARTIES SHIFT

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000592

SIPDIS

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

E.O. 12958: DECL: 06/11/2018
TAGS: PGOV ECON HU
SUBJECT: CAMPAIGNING WITHOUT AN ELECTION: THE PARTIES SHIFT
THEIR SIGHTS

REF: A) BUDAPEST 550 B) BUDAPEST 270 AND PREVIOUS

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


1. (C) As the MSzP and FIDESZ meet in closed session this
week to map out strategy for the months ahead, both parties
find themselves, in the words of FIDESZ VP Mihalj Varga,
"campaigning without an election."

SUMMERTIME BLUES


2. (C) In comments following the MSzP party leadership's
meeting in Dobogoko, Prime Minister Gyurcsany ruled out
further cuts in social spending but emphasized his commitment
to encouraging growth and maintaining fiscal discipline. The
party took the rare step of inviting a local financial
consultant to recommend further reforms ... only to rule out
the measures he proposed.


3. (C) The MSzP's various leadership bodies will continue to
meet in the coming week as the Prime Ministry continues to
work on the 2009 draft budget behind closed doors. New
Minister of Social Affairs and Labor Erika Szucs tells us
that key priorities in a "transformation of the social
benefits system" will include an increase in labor
participation, a decrease in employer contributions, an
expansion of job training programs, and targeted programs to
improve education and health care for Roma communities.
Echoing comments made by MSzP Parliamentary Faction Leader
Ildiko Lendvai, Szucs noted that the government will have to
"look closely and move cautiously" in the months ahead in
order to balance "economic reform and social pressure."


4. (C) Disbursement of EU funds will also remain a priority
for the government. Szucs believes the government must be
prepared to "go beyond the convergence plan with new
reforms," but noted that the MSzP will not see the dramatic
results it is counting on until "the second half of 2009."
Economy Minister Bajnai was reportedly criticized at the
Dobogoko meeting for delays which would "let a FIDESZ
government take credit for the MSzP's decisions."


5. (C) There are other indications of continued acrimony
within the party. Deputy Chief of Staff Zoltan Kisfaludy
confesses that the recent cabinet reshuffle has been "just
terrible," and commentator Laszlo Keri assesses that
"Gyurcsany can neither admit his mistakes nor implement any
of his plans." Even Szucs, who serves on the board of one of
Gyurcsany's companies, commented that "the Prime Minister's
political skills are well known ... and we in the cabinet
want to help him make his judgment even better."


6. (C) As she points out, however, the problem is more than
just the Prime Minister. Keri has cautioned friends in the
MSzP that "the party is dying out at the local level," a
realization he believes the national leadership has been slow
to grasp given the "artificial sense of control of the
government and the party's media organs." "The balance
between the right and left in Hungary has fundamentally
changed," Keri concludes, leaving a dynamic in which "only
one-quarter of the public is for the Socialists and the rest
with FIDESZ ( and the far right."

MINORITY GOVERNMENT IS HERE TO STAY (IN POWER)


7. (C) Despite these strains, the party line remains that
"victory is possible" and "minority government is here to
stay."


8. (C) That may be literally true. Observers increasingly
suggest that the goal of minority government is simply to
stay in power. Conservative commentator Istvan Stumpf has
described PM Gyurcsany as "a wounded boar leading a lame duck
government," and Varga sees little chance of far-reaching
reforms from the minority government.


9. (C) Indeed, FIDESZ President Viktor Orban believes the
MSzP's strategy is to "have the government do nothing and the
party promise everything." "That is a reasonable tactic for
an election," he concludes, "but not a strategy for
governing."

PREPARING FOR CRISIS MANAGEMENT


10. (C) In response, FIDESZ is working to "identify the
crisis before we inherit it." Orban's April 30 speech (REF
A) is viewed by many, including MDF spokesperson Szabolcs
Kerek-Barczy, as an initial attempt to walk back from the
populist tone of the referendum.


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11. (C) Varga believes the solution lies in "preparing to
govern" while insisting on "the credibility and the
legitimacy only elections can provide." Orban continues to
put the chances of an early election at 50 percent. On the
economic side, Varga and others are preparing for "12 ) 18
months of economic crisis management." Although he believes
that the situation "isn't bad enough" to demand reforms in
the near term, he regards the limitation of expenditures and
the reduction in tax rates as ultimately necessary to address
Hungary's stagnant growth, steady inflation, and higher
interest rates.

1-2-3 WHO ARE WE FIGHTING FOR?


12. (C) As FIDESZ moves to lower expectations with
discussion of belt-tightening measures, the MSzP is likely
to target pensioners and public sector employees as key
constituencies. Although retirees voted overwhelmingly with
FIDESZ in the spring referendum (REF B),the MSzP's immediate
response to Orban's comments on a potential freeze in
pensions suggests that the Socialists will fight hard to win
them back. Similarly, the latest increase in public sector
salaries ) combined with statistics showing that only .02
percent of the government's deficit reductions have come from
reduced public sector expenditures ) suggest that the MSzP
will work to keep Hungary's government employees on their
side.

WILL THE TRIAL BALLOON FLOAT?


13. (C) Comment: The MSzP may need these votes, but Hungary
cannot afford the burden of their further demands on the
budget. If Orban's recent comments are indeed a trial
balloon, FIDESZ may be positioning itself to run on its own
reform agenda of reduced spending, increased employment, and
lower taxes. This will be a delicate reversal given clear
public resistance to reform, which may explain their calls
for a "cabinet of experts" to help implement any austerity
measures. But this trend will likely be welcome news with a
business community that is increasingly dissatisfied with the
government's lack of commitment to the reforms that will
restore Hungary's competitiveness. End Comment.
Foley