HUNGARY: CODEL LUGAR SCENESETTER

UNCLAS SECTIN 01 OF 02 BUDAPEST 000836 CODEL SENSITIVE SIPDIS DEPARTMENT FOR EUR/CE AND H; H PLEASE PASS TO SENATE FOREIGN RELATIONS, KMEYERS E.O. 12958: N/A TAGS: PGOV PREL ECON GG RU HU SUBJECT: HUNGARY: CODEL LUGAR SCENESETTER ¶1. (SBU) Welcome to Budapest. Your visit comes as the Hungarian Government slowly re-engages following the long summer "cucumber season" and offers an excellent opportunity for discussion of Georgia and energy security. While Hungary remains a committed partner in the trans-Atlantic relationship - providing forces in Afghanistan, Iraq, and Kosovo - its economic problems, reform fatigue and sharp political divisions have resulted in a stalemated society. Prime Minister Gyurcsany is on the defensive personally and politically: the opposition (Fidesz) continues to press him on all fronts, and he is increasingly embattled and isolated even within his own socialist party, (MSZP). With the dissolution of the MSzP-Free Democrats (SzDSz) coalition last spring, the government is now feeling its way forward without a Parliamentary majority and faces it most important test of survival this fall when it presents the annual budget. As a minority government, its major preoccupation will be remaining in power until the 2010 elections. ¶2. (SBU) Foreign policy issues remain largely fire-walled from the domestic political tension, with consensus holding on Hungary's engagement in Afghanistan - despite the recent deaths of two bomb disposal troops in Baghlan Province - and its recognition of Kosovo. All parties also agree on the importance of visa-free travel for Hungarians to the United States. We are concluding the final agreements necessary for Hungary to enter the Visa Waiver Program and are hopeful they will be nominated for the program before the end of this year. Georgia, however, has opened a sharp rhetorical rift between the government,s moderate response (the Prime Minister has made no statements about Georgia; the Foreign Minister has stuck tightly to the EU-NATO statements) and Fidesz,s strong condemnation of Russian activities (which has engendered sharp attacks by Hungary,s Russian Ambassador.) ¶3. (SBU) Energy security for Hungary remains a crucial issue and your schedule begins with Foreign Minister Kinga Goncz and recently appointed "Nabucco" Ambassador Mihaly Bayer. Russia supplies over eighty percent of Hungary,s gas, providing opportunities for both subtle and blatant influence on Hungarian policy. The way forward on South Stream is a particular concern, and following the government's preliminary deal with Moscow, we continue to emphasize that the sequencing of pipelines does matter. We need to press them to follow through on their professed commitment to Nabucco. Their designation of Bayer as Nabucco Ambassador is a step in the right direction, but they should be encouraged to do more - particularly by concluding a purchase agreement with a Central Asian supplier. During the meeting, you may also wish to thank the Foreign Minister for Hungary,s offer of humanitarian aid to Georgia - the offer is currently being worked through State Department channels - and share your views on the issue. The Foreign Minister has publicly supported the sovereignty and territorial integrity of Georgia but believes communication with Russia must be maintained. ¶4. (SBU) Prime Minister Gyurcsany will host you at lunch, joined by his Foreign Affairs Advisor, Karoly Banai and MFA State Secretary Laszlo Varkonyi. According to Banai, the Prime Minister,s recent trip to potential Nabucco supplier countries, Azerbaijan and Turkmenistan, July 7-9, was designed to demonstrate that Hungary is committed to "do more than talk about Nabucco." While the government has told us it plans to host a Nabucco summit in early 2009, it would be useful to inquire when they plan to publicly announce the event and extend invitations. It would also be helpful to encourage improved transparency with regards to South Stream. Hungary is currently negotiating a more substantive South Stream contract that may or may not include murky intermediary companies. ¶5. (SBU) On Georgia, a strong message to the Prime Minister encouraging unequivocal support in international and multilateral fora for Georgia's independence, sovereignty and territorial integrity would help reinforce our encouragement for Hungary to be more vocal on this issue. ¶6. (SBU) Following lunch, you will meet with the CEO of MOL (Hungarian Gas Company) Zsolt Hernadi. Austria,s OMV recently dropped a hostile takeover bid for MOL. The disposition of OMV,s shares of MOL has created speculation that Gazprom may try to gain an ownership stake in MOL. Over the past two years, we have focused on positive outreach to the GOH and MOL, offering assistance whenever possible. However, with the GOH concerned more with Moscow's reaction