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Constitutional tensions

April 20, 2011

Budapest says a new constitution will help ensure long-term economic prosperity. Businessmen aren't so sure - and they're still smarting from a crisis tax, which they say unfairly targets foreign-owned companies.

The Hungarian parliament building
Things in Budapest are not as calm as they may seemImage: J. Sorges

Hungary's government is facing harsh criticism over the new constitution approved by parliament on Monday.

Opposition parties argue it destroys the country's system of checks and balances by increasing the government's influence over previously independent institutions such as the central bank and the constitutional court. Some say it will also help the center-right Fidesz party maintain its grip on power.

Multinational concerns

Members of Hungary's business community have also criticized the new constitution, saying it will make it more difficult to eventually adopt the European Union's common currency because it enshrines the forint as Hungary's legal tender.

On Tuesday, Zoltan Csefalvay, the state secretary at the Economy Ministry, used a speech at a conference organized by the Budapest Business Journal to defend the document.

Euro notes
The adoption of the euro could now be more complicatedImage: bilderbox

Csefalvay brushed off the euro concerns, arguing that even if the two-thirds majority needed to amend the constitution could not be achieved at a later date, other solutions, such as a referendum, were available.

Csefalvay told the multinational company executives in attendance that the new constitution would enhance Hungary's long-term economic well-being by limiting public debt to 50 percent of the previous year's gross domestic product - except in extraordinary circumstances or a prolonged and significant recession. The country currently holds the highest level of debt in the region, at around 80 percent of GDP.

Lack of transparency

The state secretary also came under fire for the government's earlier move to introduce a crisis tax that several multinational firms say unfairly targets foreign-owned businesses in particular.

Some multinational companies operating in Hungary have even asked the European Commission to intervene.

Among those unhappy about the tax is the chief executive officer of Magyar Telekom, which is controlled by German telecommunications giant Deutsche Telekom.

Hungarian Prime Minister Viktor Orban
Prime Minister Viktor Orban's party drafted the constitutionImage: AP

Christopher Mattheisen told Deutsche Welle that he was concerned about a perceived lack of transparency from Fidesz and its coalition partners, the Christian Democrats, which currently hold a two-thirds majority in parliament.

"If you take an action like that and you stay silent about your motivations, that can lead to all kinds of speculation," he said. "It is really the environment of uncertainty that is the killer of confidence."

Batara Sianturi, Citibank's country officer for Hungary, said his business was already suffering under the crisis, adding that banking taxes imposed on his company only further compounded the burden.

"It has negatively impacted our business," he said. "It is discriminatory in nature. It is not compatible with crises in other European countries. And it is also the duration that is a problem."

Local companies also hit

Csefalvay rejected the charge that the law unfairly targets multinationals, arguing that given the financial crisis Hungary found itself in, the government had been left with little choice.

He also reiterated the government's pledge to revoke the crisis tax by 2013.

"We understand that this has hard consequences for foreign and Hungarian companies," he said. "But what are the alternatives? If we don't meet the deficit targets, the consequences will be worse."

Author: Stefan Bos, Budapest / pfd
Editor: Martin Kuebler