Financial Nationalism and its International Enablers:

The Hungarian ExperienceBy: Juliet Johnson & Andrew Barnes

Jill Richardson10/22/14

IR 500

Nationalist-Populist Politics

“We had had enough of the politics that is forever concerned with how we might satisfy the West, the bankers, big capital and the foreign press… Over

the past four years we have overcome that…subservient mentality… Hungary will not succumb

again.”

-2014 State of the Union Address

Prime Minister Viktor Orban

What is Financial Nationalism?

“An economic strategy that employs financial levers – including monetary policy, currency interventions, and other

methods… to promote the nation’s unity, autonomy and identity.”

Financial Nationalism in current discourse:

• “economically suboptimal”

• “protectionist character”

• “retrograde phenomenon to be overcome through pressure and coordination by right-minded international actors.”

Roots of Financial Nationalism in Hungary

Origins in 20th century history and recent experience with economic crisis.

• Post-Soviet de-legitimization of avowedly anti-nationalist communist ideology

• Hungary as a “key European society and culture,” with ethnic communities within and without borders

• Global financial crisis and imposed austerity measures during time of Socialist Party rule

“Orbanomics”

• A “supermajority” used to implement unorthodox financial policies aimed at orthodox goals of deficit and debt reduction

• Orban’s targets:• Foreign Banks• Independent National Bank personnel• The IMF• “Outsiders”(Minorities, political opponents)

“International Enablers”

• IMF/EU forced ruling Socialist Party to adopt unpopular (and ineffective) austerity policies, paving the way for Nationalist supermajority.

• The EU effect: reassured bond traders, kept European markets open to Hungary, billions of Euros in funding via EU Cohesion Funds program.

• Tolerant international bond markets: junk ratings meaningless, “anti-business friendly atmosphere” doesn’t matter if macro-indicators are strong, global search for yield due to US Fed policy.

The Implications

• Countries deeply embedded in international financial systems can still pursue nationalist agendas

• Financial Nationalism as increasingly attractive option; lack of confidence in IMF, World Bank

• Foundation rests upon borrowing money via bond markets instead of IMF. Problematic. Bond markets are fickle creatures.

• Hungary (EU Member outside Eurozone) had more policy flexibility and autonomy than Greece/Spain

Policy Lessons

• Pave your own way! Don’t swallow all policy advice from international institutions blindly.

• Prepare for changing conditions! Circumstances beyond your control can shift rapidly.

• Use your distinct advantages! Utilize maximum allowed policy flexibility AND maximum allowed institutional benefits (ie. EU member but outside Eurozone).

Points for Ponder

• The article seems largely critical of Hungarian Financial Nationalism. But it (by-and-large) worked! Is Financial Nationalism not so bad as it seems?

• With the impending rise of US interest rates, are Hungary and other emerging economies at risk of losing their easy access to debt financing? How might this impact the Nationalist movement?

• The US also eschewed standard policy prescriptions in response to the financial crisis (through policies such as quantitative easing and fiscal stimulus). Why aren’t we tarred and feathered as unorthodox and/or Financial Nationalists?

• Have the IMF/World Bank/WTO completely lost credibility?