Banking on goulash democracy

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7 January 2012


The Hungarian Government is reported to have taken steps to lessen the independence of the country’s central bank by assuming the power to make its own appointments to the bank’s board of deputies.


The move has been roundly condemned by the European Commission, which, according to Le Monde (29 December 2011) has insisted that the measure be withdrawn.


This is understandable as the independence of central banks is a cornerstone of financial regulation in the European Union.


The last thing Brussels wants is for central banks to be responsible to democratically elected parliaments. Banking is far too important a matter to be left to decisions by representatives of the people.


This key area of the economy must be safely in the hands of technocrats “who know what they are doing” and who, unlike unpredictable members of parliament, are unlikely to rock the boat.


This is also why we now have governments in two other European countries that are led by unelected technocrats – Mario Monti (a former European Internal Market Commissioner) in Italy and Lucas Papademos (a former vice-president of the European Central Bank) in Greece.


The European Commission’s criticism of Hungary has been staunchly supported by the Washington-based International Monetary Fund, while the US Government has expressed its concern over the possible erosion of democratic “checks and balances” in the country’s constitution.


Unfortunately for Hungary’s opponents, however, the Government in Budapest has a solid majority in the country’s parliament. At the last parliamentary election in April 2010, the main government party Fidesz and its ally, the Christian Democratic People’s Party, won a combined total of 263 of the 386 seats in parliament – a majority of more than two-thirds and thus sufficient to make radical but legally valid changes to the Hungarian constitution.


Democracy, it seems, can produce inconvenient results.


Fortunately, help is at hand. The possibility of having recourse to Article 7 (2) of the Treaty on European Union is now being considered. This permits Member States which violate the European Union’s fundamental values – such as democracy – to be stripped of their voting rights.


Work it out for yourself.


To be fair to Hungary’s critics, other radical changes said to be in the legislative pipeline do give cause for concern. Media freedom is said to be under threat, journalists having been sacked, supposedly, at the behest of the government. The independence of the judiciary is also said to be threatened.  Moreover, according to Le Monde, the government has adopted an electoral law which redraws constituency boundaries so as to benefit Fidesz.


This is a country to keep an eye on.


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