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March 23, 2020

Orbán seeks to extend his powers

The Covid-19 crisis has strengthened the role of the state. Many countries used existing state-of-emergency procedures to limit freedom of movement, secure supply chains or prepare for nationalisations of key industries. In Hungary Victor Orbán is using the crisis to expand his powers with a new bill that would make the state of emergency open-ended. There are also provisions in the bill that would allow him to clamp down on information providers and on those who defy confinement orders, even without a state of emergency.

The Hungarian parliament is discussing today the draft bill, which would allow Orbán to rule by decree for an unlimited time. Parliament can still end that state of emergency with a majority rule but, given that the alliance of Orbán's Fidesz and the KDNP party has a two-thirds majority in parliament, the law means de facto an open-ended carte blanche.

Orbán is using the same rulebook to extend his powers as fascist dictators have used since time immemorial. The new rules will allow him to suspend the application of individual laws, deviate from legal provisions or take other extraordinary measures. According to FAZ the new bill also introduces two provisions that are to remain in the criminal code even if the state of emergency were to end. Those defying ordered isolation or quarantine face imprisonment of up to three years, and under tough conditions even up to eight years. Those who spread false or distorted facts that could alarm or incite the public could face up to three years in prison, extended to five years if such allegations prevent the government from protecting the population. 

The Hungarian army has dispatched uniformed control teams to selected private companies over the past week. According to the defence minister the military is to ensure production in key industries such as telecommunications, transport and healthcare. Orbán said on radio that, if nationalisation became necessary, police and military would need to be present in the board of those companies. Opposition party Jobbik protested that companies may be obliged to produce, but that the law does not foresee military presence. 

Will the bill pass? The government requires a four-fifths majority to push the legislation through this week. But, if it does not win the support of opposition parties it can pass it a week later with Orbán's two-thirds majority.

There are currently only 131 Covid-19 cases confirmed in Hungary and six deaths. The low numbers are likely due to low testing. Orbán already linked the epidemic with one of his favourite targets, migration. He said both are logically linked as the virus spreads with people's movement.

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March 23, 2020

UK as the double counterfactual

The UK response to the crisis is in many respects the counter-factual: they didn’t lock down, and their economic response has been more comprehensive, more co-ordinated, and faster. 

We argued back in January that European countries should have taken early lock-down measures, including a ban of flights from China, the closure of the Schengen borders, and a ban on large gatherings. And, on the economic side, we agree with the strategy of Rishi Sunak, the UK’s finance minister, last week: to go beyond the automatic stabilisers and dish out a potentially very large discretionary stimulus to support employment. In this regard, the UK has now gone further than France or Germany, though the UK is still lagging in their support for the self-employed. We understand that the government is working on a package.

The UK will pay 80% of wages up to £2500 a month for workers who would otherwise have been made redundant. The scheme goes for an initial period of three months, but it could be extended. These are actual subsidies. The Germans achieve de facto the same result through the long-standing short-time working laws, but the UK wage subsidy scheme is more direct as it constitutes a generalised wage subsidy with no ifs or buts. It is unlimited in size. We have seen estimates of £10bn, if it pertained to 10% of employees. But it could be a lot more if the take-up is higher and the period longer. If a country goes into total lock-down, as the UK could do from this week, the temporary hit to GDP and employment could be massive.

One strand of the story to watch out for has been the EU’s attempt to ban part of Sunak’s rescue package. This is a subsidy to companies in the form of various tax and fee holidays, plus a general framework for granting selective tax advantages to the sectors most affected by the crisis. The UK is formally still subject to EU state-aid laws but, if the EU succeeded in frustrating some of the UK's measures, we believe that it could impact the Brexit trade negotiations. Our working assumption is still that Johnson will apply for a six-month Brexit delay, if only to get the transition shock away from the winter flu season.

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