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March 31, 2020

Orbán's power grab

Victor Orbàn used the Covid-19 pandemic to justify the concentration of his power with a new emergency law that passed the Hungarian parliament yesterday. The new bill extends the state of emergency without limit, suspends parliament and cancels elections. Parliament can still sit, but is only allowed to discuss matters related to the pandemic. 

Parliament as well as the constitutional court have the right to revoke the state of emergency. This is the central line of defence against international criticism. But this assurance has no bite in practice. The alliance of Orbán's Fidesz and the KDNP has a two-thirds majority in parliament, which implies de facto an open-ended carte blanche. The constitutional court as an institution will not provide much of a check either, as it is full of Orbán loyalists.

What will the EU do? There will have to be a clear and decisive response at EU level. The EPP will have to expel Fidesz if they want to preserve any moral integrity. Member states have to back up with action their lukewarm protests against the continued erosion of checks and balances in Hungary. Matteo Renzi came out yesterday tweeting that many European liberals feel that Orbán threatens the values of the EU, and that Hungary thus merits expulsion from the bloc. There is no procedure for punitive action, nor is there unity, as Orbán has supporters in the EU too. And member states seem all too busy fighting the pandemic themselves. This makes Orbán's power grab even more creepy. We believe that, if the EU cannot mount a coherent stance in line with its professed values, it will sooner or later be destroyed from the inside or rendered irrelevant.

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March 31, 2020

Why we would like to share the optimism on eurobonds, but can’t.

There is a lot of wishful thinking around at the moment. It goes like this: The situation is so grave that Germany and the Netherlands will in the end have no choice but accept a one-time coronabond. Melvyn Krauss makes this argument in a Bloomberg column, where he writes that the protests of northern European politicians should be taken with a grain of salt. Europe will get the bonds, but not before the northern states have gone through their usual ritual of denial, he writes. 

We said the same in 2012. But then ECB came to the rescue. Mario Draghi’s programmes had the effect of killing off that discussion. There are Dutch and German economists who agree that this time there is no alternative. What we don’t see is how a coronabond comes about, unless a group of member states in favour of them forces the issue. 

We don’t think they will. We were not surprised to hear Paolo Gentiloni declaring that this cannot be done without Germany. This comment squares with our own experience with Italy’s policy elite. When push comes to shove, they avoid confrontation. They rather make themselves invisible. When we write that Italy should form a coalition of the willing, we are expressing a strategic preference, not so much in Italy’s own national interests but in the interest of the eurozone as a whole. 

But this is not a forecast. Our expectation is that this will not happen, and that Germany and the Netherlands will block a coronabond, or agree only to something symbolic. It will certainly fall short of the €1tr size demanded by a group of German economists. As we reported yesterday, in Germany the Greens are in favour of a eurobond, but the SPD is cautious. Olaf Scholz has expressed opposition. There is no majority for a coronabond in the German parliament right now because Germany does not perceive an existential threat. But we have no doubt that the CDU would react if France, Italy and Spain formed a coronabond alliance. Unless that happens, we should treat the debate about coronabonds for what it is, a cry for help.

We also take note of a story in the FT this morning quoting Klaus Regling from the ESM than it would be complex and time-consuming for the EU to set up a new debt issuing agency. We think this is right. If you want to do this at EU level, the only two institutions that can actually do this are the ESM and the EIB. This, however, is not true of an inter-governmental debt issuing agency. It would be possible, for example, for the French treasury to become the issuer of a mutualised coronabond. 

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