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. BUDAPEST 00000592 002 OF 002 ¶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