The Battle for Reduced Utility Prices will be fought in Brussels

Gábor István Kis: It's five past eight and good morning to everyone listening to "180 Minutes"! I have sitting next to me Prime Minister Viktor Orbán. Good morning to you too!

Viktor Orbán: Good morning!

GIK: There's yet another argument with Brussels, on the reduction of public utility prices, Hungarian regulations and, if I'm not mistaken, then the issue concerns the whole free price European Union energy market. But let's stick to the Hungarian perspective for the moment: it's possible that infringement proceedings could be initiated. Does that terrify you?

VO: Let me stop for a moment to think about whether we are terrified or not, but the truth is that nothing has happened that we hadn't been expecting. However, I would not like anyone to underestimate the inherent dangers of the situation. So perhaps worry isn't the right word, but resolve. We have already seen the fact that several other countries have transposed the idea since Hungary began to reduce public utility prices. We began doing it, and now this is also the practice in many other countries, and not just in former eastern bloc countries, but such proposals and bills have also appeared in some form or another in practically every western country from France to England. It is since then that we know: those with whose interests these measures collide will not allow this to happen without a fight. We are talking about private sector monopolies, and in fact the European Union is right in saying that there is no true competition on the European energy market, and these private monopolies, which in my view are much worse than state monopolies, have ruthlessly abused their market superiority, or at least with a very low ethical threshold. We have put a stop to this here in Hungary, but of course these companies have remained as huge as they used to be. We are talking about enormous companies whose budgets are on a par with those of some smaller countries. They are capable of mobilising huge sums of money, contacts and forces, and it would seem that this battle for reduced utility prices, which within the European Union can be most easily recognised in Hungary – but I repeat, it also exists in other countries – the battlefield of this fight for reduced utility charges has now moved from Budapest and other national capitals to Brussels, and will become increasingly heated during the upcoming months.

GIK: All right, but let's take a closer look at this opinion. So as things stand, the European Commissioner for Energy, and we need to again strongly emphasise that this is not just a Hungarian issue, because the price of energy is regulated centrally in some form in 17 EU member states, says that everyone needs to get back to allowing free market conditions, to go back to having a free price energy market. Except that the average listener's reply to this is to ask: where have I ever seen a free price energy market? Where was the competition? When have the service providers ever competed with each other to that I choose their services? And this competition was especially lacking with respect to prices, both here in Hungary and in all the other EU countries.

VO: That's exactly right. There is a weakness in the European Union's standpoint. And that weakness is that it is unrealistic, and the realities of practice are not in agreement with it. Because if you open any textbook on economics, then what you will read almost everywhere is that in an ideal situation, competition leads to a reduction in prices. In contrast, however, the reality is that where there was no central price regulation and the opportunity for competition was theoretically available, there was in practice no competition. And if some form of competition did occur, agreements on prices were made behind the scenes, and in reality prices that were not set by the state we always higher than those set by the state. And so practice contradicts Brussels' textbook way of thinking, which has also never been experienced in real life.

GIK: But the trouble isn't with the textbooks, but with a lack of legislation. What are Brussels' objections based on, then? You obviously have a lot more information than I do on this subject; you started the conversation by saying that it was no surprise and have already shared correspondence with the European Commission on this topic.

VO: Yes, but let us discuss the issue that you just mentioned, of whether there is a problem with the textbooks or not. Because the energy report published by the European Union, which was made available perhaps a week ago, includes a very important fact that in this case is not about households but concerns the economy, and especially the price of energy used by industry. What the report says is that energy in the United States is two to three times, i.e. 200-300 percent cheaper than in Europe. And it is also much cheaper in Russia, India and several other, emerging countries. The real question, irrespective of the textbooks, is: what do we need to do enable energy prices in Europe, not just in Hungary, but throughout the continent, to be at least as cheap as they are for our competitors. Because if we are unable to supply ourselves with energy that is as cheap as it is in America or in India or in Russia, for instance, then our products will not be competitive either. Because if manufacturing a product requires energy and we are not competitive in that respect, then our products will not be competitive either. We will end up losing our markets, so we should not be bothering with the textbooks now, but should instead be searching for novel solutions and developing a joint European standpoint on how we could reduce our prices to such an extent, to so low a level, as is enjoyed by our competitors. We have a proposal on how to achieve this, and it is the exact opposite of what the European Union recommends, because in our opinion we will never be able to achieve a price level on the continent that is as low as in America and our other rivals through competition. And so competition cannot be the solution, but rather a different course of action.

GIK: I would like to understand the Energy Commissioner's standpoint, and this is why I am asking you about all this, because you obviously have much more information on the subject than I do. Those 17 member states clearly regulate this important field and determine and official price in their own countries so that the population, the citizens of the given country, can pay less for their energy. And the Energy Commissioner's reply to this is to balance tens of millions of EU citizens against a few service providers who represent large countries, and whose interests are totally different from those of the EU's citizens. Am I viewing this fault-line correctly?

VO: Yes, this is the situation. We are talking about two issues at the same time. One is what you have just mentioned, that in many countries the price of electricity is so high, or it would be so high without state intervention, that it would place families in an impossible situation. And what the EU says to this is okay, okay, but we could also solve this problem by introducing some kind of price protection system for only the really disadvantaged families, but not for the others. Practice, however, shows that the families of the middle class are heavily affected by the abuse of market superiority, and if the European Union only allows price regulation for its poorest citizens, then the middle class will eventually become poor, because money is being taken out of their pockets. Meaning they won't have enough money left at the end of the month. And so one of the problems we need to solve is that our efforts shouldn't only concentrate on the poor, but instead a general low energy price for families is the solution. But there is also another issue that I mentioned before that has to do with unemployment. If we cannot provide industry with cheap energy then they will close down their factories and move to places where energy is cheaper, or if they manufacture more expensive products, then they will eventually be forced to shut down because those who can manufacture similar products cheaper will push them off the supermarket shelves and out of the markets. This means that the people who work there will lose their jobs, and so the price of energy is party linked to utility charges and families' monthly utility bills, but from another perspective it is also linked to unemployment, and both problems can be solved using the same solution: Europe must produce and supply cheap energy.

GIK: Now let's look at the same issue from a technical perspective, then. You will obviously be replying to this letter, to this opinion, but what needs to be done here at home? Will the unified public utility act be included in the Fundamental Law to protect the utility price reduction? And, of course, as we have discussed previously, there are negotiations in progress, you said previously that you are in negotiation with six or seven large public utility service providers, utility service providers that were previously privatised, with regard to whether they will once again be state-owned or not.

VO: Yes, that's right. A few days ago the Municipality of Budapest came to a decision, an understandable decision in view of their lack of money, and voted to relinquish its right of first refusal with regard to Főgáz [one of the country's major gas providers operating in and around the capital], and so the way was opened for the state to repurchase Főgáz. And we have come to an agreement with the owners, who are German by the way, and so I can now say that we have come to an agreement with the former owners, the required funds are earmarked for this purpose in the budget, and so the state will soon replace the Germans as one of the owners of Főgáz, meaning that the country will have a large gas service provider that is one hundred percent public property and owned by the Municipality of Budapest and the State. And we are planning similar steps and are in fact in serious negotiations with other companies. This is one issue, and the other is that our proposal for the whole of Europe is to make the provision of energy services a non-profit activity.

GIK: In the household sector.

VO: And in the industry sector. In my view, if we want to protect European jobs then we must find an answer to the question of how can we achieve competitive energy prices in Hungary and in Europe, and I see no other solution for Europe other than stating that we should attempt, and this will require several years of hard work, to make the provision of energy services a non-profit activity. And to remove all energy provider and producer profit from the economy, thus enabling prices to become lower. I cannot imagine any other solution if we want to maintain our competitiveness within the global economy. And we Hungarians will attempt to achieve this.

GIK: Can such a standpoint win the backing of other member states?

VO: It will require several years; the idea is so unusual and the idea moves us in a direction that is so exactly the opposite of the status quo so far, that just accommodating the idea will require months or even years, and its realisation will take even longer. But what we can do to help the continent is to introduce a system of this kind here in Hungary. And since I believe that we will be able to successfully prove here in Hungary that non-profit energy supply leads to lower manufacturing industry prices and a higher standard of living for the country's people, we will gain followers in this field.

GIK: My question also had an initial part regarding the protection of the utility price reduction, about whether there will be an amendment to the Fundamental Law during the short Parliamentary session this spring.

VO: There will be no amendment of the Fundamental Law; there could be one following the elections, but there is no need for it at the moment, because we must first work on developing the act on non-profit energy supply, with which we are making headway, but there are a few important questions with regard to which there is still significant debate even between ourselves. I would not like to go into these now, but rather, I would like to inform the public after these debates have been concluded, but the point is that there will be an act on non-profit energy supply because we are convinced that Hungary needs non-profit energy supply services. This is one way of leaving more money in people's pockets and this is also how we will be able to supply industry with cheap electricity.

GIK: Anyone who needed to buy euros yesterday could observe that exchange rates were fluctuation significantly, by up to 1-2 percent, with the forint gaining strength during the day, then weakening, and if I look at my monitor now, it is at around 310 this morning. There will be an international conference today, organised by the Central Bank, at which you will also be holding a lecture. I think that investors throughout the world will be listening to what you have to say with notepads in their hands.

VO: Not to my words, but to those of the Governor of the Central Bank.

GIK: To yours too, I think.

VO: Yes, but I am only a poor Prime Minister with a limited scope of authority; the real top dog with regard to exchange rates is the Central Bank's Monetary Council, and within that the Governor of the Central Bank. It is a fundamental principle that governments should not comment on exchange rate issues and should not set exchange requirements for central banks, and that this is the sole task and scope of authority of the central bank, who is responsible for the security of the financial system. I always conform to this fundamental principle. My belief is that life has proven its necessity. So I don't think it is a good idea for governments to begin talking about exchange rate issues, because in that case the decisive criterion would not be the security of the financial system, but instead criteria relating to treasury income would win over and, as is the case with all sacred cows, the government would end being biased towards its own interests. And so I suggest that you do not ask me for an opinion about the exchange rate situation at this time. If you want my opinion on the phenomenon, I can give you that. We all know that we are living in a world in which states, not even the strongest states, are not masters of their own currencies' exchange rates; extremely complicated international dealings and transactions determine the exchange rate of specific currencies. This is also the case in Hungary, where it is clear that not only is the Hungarian economic stable and strong, but the foreign analysts are more optimistic about our prospects for growth that even our own cautious forecasts predict. So the Hungarian economy is stable, is in good condition, and in addition our current account balance, which is a key factor with regard to the exchange rate, has been positive for several years, and is continuing to gain strength. And so what is also clear to everyone is that the changes that are affecting the Hungarian currency have nothing to do with the Hungarian economy, but have occurred because of international currency dealings. And accordingly, in contrast to yourself, I am not looking at the exchange rate of the Hungarian forint on the monitor, but I am primarily looking at the exchange rate for the Turkish currency, and at how the exchange rate of other currencies in the region, such as those of the Czech Republic and Poland, are developing. These days, one must look at the international environment and not at the Hungarian economy, if one wants to understand fluctuations in the forint exchange rate.

GIK: But this exchange rate shows exactly that; this data shows just that. It works like a thermometer. And what is must provide continuous information, a continuous reminder, to the Hungarian Government about is to what extent the Hungarian economy is vulnerable to changes in the world economy.

VO: And in fact there is another thing that it brings to our attention, or rather keeps in the focus of our attention, and that is that the uncertainty of the global economy, or rather the period that brought this uncertainty with it, is not yet over. And looking at Europe it shows that the crisis of the European economy is not yet over. What we, European leaders have done in the interests of finding a solution to the crisis was not enough, and as a result currencies on the European continent will remain this fragile.

GIK: Let us now look at some other important figures, which were released just recently. The full employment and unemployment figures for 2013 have been published. They are more positive than in previous years. Unemployment is at 9.1 percent, correct? More people are in employment, over 4 million people are working, and the number of job seekers is falling. People who criticize these figures and these achievements always say: of course, it's because public work improve these statistics. Perhaps they sometimes even use phrases like: public work artificially enhances the employment figures. 

VO: I don't want to go overboard, but I am decidedly enthusiastic; I am a believer in calm, collected and rational speech and government, but when I saw the employment figures I became decidedly enthusiastic, because after all, the point of our work is to enable as many people as possible to have jobs. Our whole politics, and I don't just mean the Government, but the whole of politics, meaning the decisive moment in governing the life of the country is after all the issue of whether we will succeed in giving more people work opportunities. There is an old piece of wisdom, which is not entirely true, but there is certainly a lot of truth in it, according to which if there is work, there is everything. From a moral perspective, and please allow me to speak in such strong terms from a moral perspective, so not from an economic perspective and not from a political perspective, but from a moral perspective I have a very bad opinion of those politicians who are continuously insulting the people who perform public work. How can one say that it is the artificial enhancement of the figures if, instead of sitting at home and waiting for their benefit payments, people finally have a chance to go out to work somewhere? And why is it wrong, if the economy and the market are incapable of providing these people with work, for the state to take the matter into its own hands and organise the work that these people can then undertake to perform?

GIK: They don't say it is wrong.

VO: Excuse me, we are not talking about forced labour here, because these people can choose between benefits and wages, and most people are choosing wages. I think it is an encouraging circumstance that people who have been trained to live off benefits for years and years in Hungary are choosing, now that they finally have an opportunity to do so, to get up in the morning and go to work, and also to take part in training. This, in my view, is the driving force, the moral driving force on which the future of Hungary can be built.

GIK: People who argue with this standpoint don't say that it is a bad thing, but that what people receive for this work, their wages, is very low.

VO: They are right, that is true. And if Hungary were a richer country, like Germany for example, them of course the wages paid for public work would be higher too. But public work can only pay as much as the Hungarian economy generates. As the economy grows stronger, so we will be able to move forward. Nobody can argue with the fact that not only wages for public work, but all wages and salaries are low in Hungary. Nobody is claiming that a Hungarian doctor, a Hungarian skilled worker or a Hungarian labourer doesn't deserve more for the work they perform. We all agree on that. That isn't the issue. The issue is, how can we practice an economic policy that results in a normal, meaning both qualitative and with regard to purchasing power, increase in wages. And so to bring up the argument that wages are too low with relation to the public work scheme is a criticism that is true of the whole Hungarian economy, but, how should I put it, towards whom should we direct this criticism? Perhaps what will lead to Hungary having no wealth, no jobs and no higher wages is if we continue shaking our fists because wages are low. What we should be thinking about is how we can increase wages. I have been sweating blood for years to find a way to achieve this with a relatively low level of growth, because things have only just got started, we have only recently succeeded in really getting the economy on the right track. Our task during the first three years was to put the financial situation in order while, in the midst of a huge global economic crisis, and especially a crisis within the European Union, trying to develop an economic policy that would lead to more jobs and higher wages. This is all the leaders of the governing parties have been thinking about for years. And we have achieved results. What you are saying, and I will repeat again: these are the achievements of the economy and of the country, even if the Government did invent some special measures. Here is the Job Protection Action Plan. Have a look; we introduced in January and we put a lot of work into developing it. It is an unorthodox, meaning and unusual…

GIK: Last January.

VO: …an innovative and novel solution that does away with the principle that regulations on wages must be generally valid for all wages. This is a law within the market economy, except that in times of crisis it is a law that can perhaps be disregarded, and this is what we did when we said that there are especially vulnerable groups, women, young people and the long-term unemployed, and we are going to apply different rules and regulations to them. And as a result, we have succeeded in protecting the jobs of 700 thousand people. This is why more, significantly more women and young people are working than previously. I think that although minor, these are among Hungary's most important achievements. If politicians can receive any encouragement at all from reality, then it is figures that show falling unemployment and an increasing employment rate.

GIK: The data on youth unemployment and the youth employment rate you are referring to is in fact very obvious from the diagrams, especially in comparison to member states of the European Union who are experiencing serious difficulties; for instance the unemployment rate in Spain, the unemployment rate for first time job seekers is almost 60 percent, and is currently almost 40 percent in Portugal. The percentage of young people who cannot find work is this high there.

VO: Yes, the south of Europe is experiencing serious difficulties.

GIK: But this is not what I want to ask you know, Prime Minister, because the public work programme is just a slice of the criticism that has been voiced with regard to the unemployment statistics. What is also involved, is it not, is that the private sector has not moved forward enough, they are taking on less new employees, and many people have gone to work in other countries, and they are also improving the statistics.

VO: This is true, but the vast majority of the increase is the result of the public work programme and expansion within Hungary's market sectors. There is also much debate in Hungary these days about people who have gone abroad [to work]. And it is unfortunately not a calm and collected argument, but rather a targeted and politically motivated argument. Although everyone, or at least many of us, has children, so this is not simply a political issue but also involves personal issues. And we all have our own experiences in life. I don't want to bring up my own case particularly, but I too went abroad in '89, when there was finally an opportunity to do so, to study abroad for a few months. And so I regard it as a natural thing, and I see it as a positive thing, for young people to want to find out what their knowledge is worth elsewhere or to expand their knowledge; perhaps it was Attila József who wrote: measure yourself against the universe. It has always been characteristic of Hungarians to want to find out not just what their knowledge is worth here at home, but also what the scales show in comparison to the whole world. And so the question isn't whether they are going to go abroad or not, but whether they have a place to come back to. And we shouldn’t be complaining about the fact that young people go and test themselves abroad, just as we did ourselves twenty or thirty years ago. We should instead be working on ensuring that our homeland is one to which it is worth coming home to from even the farthest corners of the globe. I believe that today, Hungary is moving in that direction.

GIK: You have been listening to Prime Minster Viktor Orbán.

(Prime Minister’s Office)