Zsolt Törőcsik: Collective cutbacks of 15 per cent across the EU, further cuts in Nord Stream [gas pipeline] capacity and record high natural gas prices on European markets. Energy policy has become practically the hottest area of decision-making in both the EU and the Member States, and with so much happening on that front this week we’ve been left dizzy trying to catch up with it all. I welcome Prime Minister Viktor Orbán to the studio. Good morning.
Good morning.
At the moment there’s a voluntary joint gas-saving proposal, in response to which EU ministers have pledged to reduce natural gas consumption by 15 per cent over the next six months. What does this tell you about the EU’s sanctions policy? Because all that Europeans see is that the war is continuing, while they have to save money in order to heat their homes this winter.
First of all, Hungarians tend to think that when there’s trouble, it’s best for them to rely on themselves. I’m pleased that Brussels is trying to find pan-European solutions. But since we’re talking about existential issues here, about whether there will be heating in winter, electricity and – in particular – gas, it’s better if we rely primarily on ourselves. So all in all, without denying their good intentions, I don’t think it’s a good idea to believe that someone in Brussels will solve the problem of Hungary’s energy supply. It’s up to the Hungarians themselves – to us – to solve it. So I’m directing the Government in a way that enables Hungarians to possess all the tools needed to ensure the security of Hungary’s energy supply, regardless of what happens on the front line, on the Ukrainian-Russian front – because the whole issue we’re talking about is the result of the war – and regardless of what’s being talked about in Brussels. By the way, in answer to your question, my reading of this decision [on 15 per cent reductions in gas consumption] is that our war strategy isn’t working. When the war broke out, 155 days ago, Europe – and in this we could include the Americans, so let’s say the West – had an idea of what we were doing in this war. So we had an objective, we had a strategy, and it rested on four pillars. Firstly, we thought that the Ukrainian army – reinforced with American advisers and trainers, but not reinforced with NATO military personnel – could defeat Russia. We see that this isn’t the case. The Ukrainians are losing a lot of men and territory, so in the upcoming period it’s unlikely that Ukraine’s sovereignty can be defended. The second idea was to impose sanctions on the aggressor – on Russia – that would undermine it, and perhaps even destabilise the Russian leadership. What we now see isn’t this, but the exact opposite. Our third idea was that we’d be able to deal with the consequences of this war – not easily perhaps, but without blighting people’s lives; we’d be able to deal with the sanctions imposed in response to the war, which would also affect us, the countries imposing the sanctions. The situation today is that the world has been turned upside down and Europe is drifting towards a wartime economy. The fourth idea was that the world would see that Russia is the aggressor, that we are right, and that the world would then stand by us: a united world would force Russia to reconsider its military attack. Well, the world isn’t with us. Now only the West is united – perhaps with the addition of Japan and South Korea. Large population blocks across the world aren’t with us – and indeed the world’s larger population blocks, in China, India, the Arab world and a substantial part of Africa aren’t with us. It’s true that they aren’t against us either, but their attitude is that they have their own problems, and the war’s making their problems more difficult. They don’t want to take sides in the war, but want to solve their own problems, and – rather than fighting a just war with us against Russia – want to put an end to the war as soon as possible. So as a whole this strategy on which our actions have been based has faltered, has failed: it’s defunct, and a new one must be devised. For the time being such a new strategy has been deferred, in favour of cuts in consumption and price rises. When the supply of an essential product has to be limited, this is the prelude to a wartime economy. This is where we stand now, and if Brussels doesn’t make the changes that I want us to be able to make together, then from October we can expect a wartime economy throughout the whole of Europe.
What might this mean in the future, and are there any plans for change ? Because for the time being all we see are proposals for savings. There’s the German city of Hannover, for example, where there will now be no hot water in public buildings, and showers in sports facilities will also only have cold water. So this is also something of an admission that we haven’t even achieved the goal of decoupling from Russian energy. Yet that was one of the objectives.
I remember meetings of the prime ministers – European Council meetings – at which several countries that initiated the sanctions were rather cocksure when talking about how this could be solved: “The oil embargo can be resolved, the consequences of the gas embargo can be resolved, and we’ll go and get gas from here and there”, and so on. At the time we said that we Hungarians have nothing against self-confidence, because without it it’s difficult to keep going and survive, but it also doesn’t hurt to do one’s sums. And we said that we didn’t have the capacity, so if we didn’t reach an agreement with the Russians we wouldn’t be able to collect enough energy from other parts of the world. And now that’s what’s happened. The most important thing, I think, is that a new strategy should focus on peace: a ceasefire should be agreed with the belligerents and there should be peace talks. So sanctions and arms deliveries won’t lead to results. I could also say that when one rushes to put out a fire one doesn’t bring along a flamethrower. We don’t know whether or not this will succeed, but here the Americans have a key role to play, because it’s no longer possible for this war to be brought to an end by negotiation between Russia and Ukraine. The situation has gone beyond that. In the international sphere this is called a proxy war. The West is already partly involved in this war, and it’s clear that this situation can only be brought to an end with comprehensive talks. A new European security system must be agreed upon, and since we don’t have a collective army in Europe and we aren’t strong enough, we must expect stability in European security to be provided by a Russian-American agreement, just as was the case after the Second World War. So until there are direct US-Russian negotiations, the chances of ending the war are slim. We should push for such negotiations.
In this situation, however, the burning question now – at the end of July – is whether there will be enough natural gas in Europe this winter. According to yesterday’s announcement, the level of storage in Hungary is 29 per cent, compared to the EU average of 18 per cent; but there are only two and a half months left until the start of the heating season.
The decision to cut consumption by 15 per cent, which Brussels has decided to do, has also opened up another debate around the fact that if one country runs out of natural gas, it can take it from other countries. This is something we simply classify as an “Einstand” [a term taken from a Hungarian novel to describe the forcible confiscation of something by a stronger party]. We understand the Germans’ problems, but Einstand isn’t a nice tradition, and it’s something we’d like to avoid. Hungary will have enough gas. So we won’t have the problem of a lack of gas, because for a long time – for several years, I have to say – [Minister of Foreign Affairs and Trade] Péter Szijjártó has been sending out smoke signals and beating the drum in order to warn us that Hungary must develop alternative procurement routes. And finally he convinced us. If you’ve been following developments, you’ll have seen that in recent years – quietly, under the radar – national capacities have been developed with the construction of a pipeline route from Turkey, through Serbia, up into Hungary. This is capable of transporting large quantities of gas, and today a large percentage of Russian gas comes to Hungary through this southern pipeline. We’ve also concluded an agreement with the Croats. They have a maritime liquified natural gas terminal for the extraction of LNG, and from there, too, we import 1.5 billion cubic metres of gas a year. And our economic ministers have decided to increase our own domestic gas production. Hungary has natural gas; unfortunately our reserves are small, but they exist. We have to be economical with these stocks, so we don’t usually extract it at the maximum possible rate, but now we’ve obliged the extraction companies to increase their production. All this in combination is covering our needs. Now we’ve even gone to the Russians and we’re negotiating with them on the purchase of an additional 700 million cubic metres of gas. I think we’ll be able to close this deal in the summer, and then we’ll be completely fine. Our problem won’t be that we won’t have any gas – provided that the Germans don’t take it. But that’s another matter, and we’ll have discussions with them on our position on the Einstand – if you remember that term from “The Paul Street Boys” [A Pál utcai fiúk, a novel by Ferenc Molnár]. For us the real problem is one of price: the problem is that the price – especially the price of natural gas – has multiplied over the past few months. In the last six days alone it has gone from about $160 to over $200 [per MWh]; so it can show horrendous swings within a short period of time. Therefore we want to partially maintain the reductions in household utility charges – and I’d like to say a few words about that, if possible. And, wherever it’s technically possible, we need to help people to permanently reduce their gas consumption. This is why we’ve now appointed László Horváth – our Member of Parliament from Heves County – as Ministerial Commissioner for recommissioning the currently closed units of the Mátra Power Plant. We have a Member of Parliament called Gábor Riz, who’s from the Ózd area; he’s dealt with miners before, and with him we’ve been looking into whether lignite mines can be reopened. Now as Ministerial Commissioner he’s been given a mandate to speed this up, to see if we can reopen our lignite mines. We’ve banned the export of firewood, and we’ve obliged forestry companies to draw up plans to increase firewood production. And Minister Palkovics has been given the task of launching a stove and boiler programme to replace gas heating wherever possible. So we’ve already done a lot of things, and this work will bear fruit – if not tomorrow, then the day after tomorrow. But the task for tomorrow is to protect the reductions in household utility charges.
Let’s talk about that then, because since our last conversation the details have been released. Let’s first look at what the situation is for those whose consumption is at or below the average. The reduced rates will still apply to them. I’ve got a chart here, showing that the average consumer pays 7,560 forints a month for electricity; at real market prices this would be 56,500 forints, or seven and a half times as much. For gas the average consumer pays 14,700 forints a month, which at real market prices would be almost 147,000 forints, or ten times as much. You’ve also said that the problem is the price of gas, because it has indeed now reached 215 forints on the European markets. How much of a burden can the state shoulder in order to help families, and how long can that be sustained in this form?
In Hungary we set up an intelligent system that’s worked well for more than ten years. The idea underlying this has been to fix electricity and gas prices in order to help families; this was the reduced charge for utilities, and this is what people paid for their gas and electricity. The prices on the world market moved, but we were always able to keep this fixed price. When the price was higher on the world market, the difference between the amount paid by families and the actual price was covered by the central budget, by the Hungarian state. This involved spending hundreds of billions of forints every year. In 2021, for example, this amount could have been around 250–260 billion forints; but in 2022 it’s jumped, and – if I extrapolate from current prices, and compare 2021 with 2022 – by the end of 2022 it will be more than 2,000 billion forints. So we can say that this cost as jumped from 250–260 billion to over 2,000 billion. The Hungarian economy’s humming, and even though there are plenty of clouds on the horizon it’s doing well at the moment, overall it’s still doing well and showing high growth; but it’s unable to produce that level of funding. So the Hungarian economy can’t make up the difference – it simply can’t afford it. So something had to be done. We’ve decided that in the future every Hungarian family will continue to receive electricity and natural gas on a reduced tariff basis, but only up to the level of average consumption. This means that from the autumn every Hungarian family will continue to benefit from the reduced price for electricity and gas up to the average consumption level, and thus – compared to the market price – every Hungarian family will continue to save on their electricity and gas bills. Now there are all kinds of forecasts and calculations, and it’s almost like a war of numbers. I also have estimated data, which we compiled at the Government meeting. As I see it, today a Hungarian family saves 56,000 forints on their electricity bill and 146,000 forints on their gas bill, up to the average level of consumption. So I’d like Hungarian families to know that up to the level of average consumption they receive 181,000 forints every month in the form of reduced-price energy. And this is received by everyone. Those who consume above this level must either ensure that they reduce their consumption, or earn enough money to pay the market price – the retail market price, the non-subsidised price – of the energy component above the average consumption level. This is the Hungarian reality at the moment. This system can certainly be maintained this year. I see October as a watershed, when we’ll see whether or not the European economy will then drift into a war economy: whether or not wartime inflation will be prolonged, whether or not energy prices will be high; and whether or not the European economy will be reshaped according to a logic which is completely different from the one in which we received the first unusual wartime decision – this 15 per cent cut in consumption – with which we started our discussion. Whether or not this will happen will be decided some time around October or November, so the next time that Hungarian economic policy will be forced to respond will be at the end of October.
We’ll talk about the European economy in a moment, but a retail market price has been built in between the subsidised price and the real market price. This retail market price is still better than the true market price. Why was this necessary?
It was necessary because we didn’t want a situation in which Hungarian energy suppliers earn even a single forint on the electricity they supply to the population. Whether they earn money through the price supplied to industry is a business issue, let’s say a market issue, and it isn’t a matter for the Government – or at least there the Government’s responsibility is much smaller. But we definitely wanted to prevent people from feeling that, while their own burdens are increasing, Hungarian state-owned or private companies would still be making a profit on their consumption, on the increased cost of their consumption. We didn’t want that, and so we’ve cut out that profit with this retail market price.
You’ve said that October and November will be a watershed for the European economy, but there are already reports from Germany – and even the United States – that an economic downturn is inevitable. Nevertheless, the Government’s seeking to make Hungary what you’ve called a local exception in this global recession. We know that we have an open economy. Given those circumstances, can this be done?
I’d also like to know the answer to this question, but what can I do? We must defend ourselves. Of course, it’s also possible to make policy – and in the past we’ve also seen it in Hungary – whereby the Prime Minister and the Government go before the public, open their arms and say, “Well, people, you see this is the situation, let’s suffer these calamities together.” And then energy bills would skyrocket, economic growth would stop and unemployment would start to rise. That’s what we had in 2007, 2008 and 2009. What the Government did then was try to explain to people why it couldn’t do anything. Obviously it’s also a question of temperament: I don’t like that sort of thing; if trouble comes, let’s do something, and at least defend ourselves. And we’ve developed a series of measures to try to shield ourselves from approaching trouble. It’s a realistic plan, so it can be done. I can’t tell you that it will happen with 100 per cent certainty, that it’s mathematically certain that it will be successful. I can only say that we shall fight. So we shall fight against the recession, we shall fight against the economic downturn, we shall fight to protect every job, and we shall fight to ensure that people have enough income to continue to support their families. We shall fight against utility bills eating up all the income that families have, we shall fight against any decline in their standard of living. So people can be sure that we shall take decisions which seek to help in this situation. And we’ve already taken one: we’ve set up a cabinet to protect growth, a cabinet for economic growth, which has already decided – or on their recommendation the Government has already decided – to extend the VAT reduction on residential construction. We temporarily reduced this from 25 per cent to 5 per cent, on the understanding that this reduced VAT rate would expire at the end of this year. Now we’ve decided that the reduction will not end on 31 December. We’ve extended the VAT reduction on residential construction for a further two years, because we’ve seen that many people have accelerated their housing construction plans and have started to rush to submit their applications for permission in the hope that they can still meet this deadline. There’s now no need to do that, there’s no need to rush: the Government guarantees its continued support for the residential construction market – which is unfortunately slowing down – with this 5 per cent VAT level over the next two years. So decisions like this can be expected.
Over the past twenty minutes it’s become quite clear that the war in our neighbouring country is plunging Europe into an economic crisis. Why isn’t there an increasing number of voices calling, if not yet for peace, then at least for a ceasefire?
Because the Americans still believe – or, I should say, the “Anglo-Saxons” still believe – that the strategy we’ve been pursuing so far can win this war. And Europe doesn’t have significant military power, and even its financial capacities are limited. The war is being financed by the Americans. In the past six months – I’m giving you an estimate now, as I’ve tried to add up the figures being released as we go along – they’ve poured $50 billion into Ukraine. That’s a huge amount. I don’t know who will be providing it in the next six months, and I certainly don’t know who will be providing it in 2023, but Europe doesn’t have that kind of money. So it’s impossible to expect Europe to be able to provide such an amount to finance Ukraine and the war, to finance that section of the Ukrainian economy that’s unviable without European or external money, and perhaps even to set aside money for some kind of reconstruction. Europe has no money for that. America may have the money; this is why today, in the whole Russo-Ukrainian war, the dominant player on our side – on the West’s side – is the United States. And they won’t change as long as they believe that the military strategy now being pursued by the United States can lead to results. But I’m counting on this changing – if for no other reason than the fact that there will be what is called a “midterm election” in the United States. This is a kind of general election in the middle of a presidential term, in which senators and representatives are elected. This is always a momentous time, when it’s possible to change direction, and the result of that election could influence US foreign policy – including on the question of war and peace. I’m counting on this happening.
Another disaster is hitting Europe, and it’s a natural one: drought. Hungary is no exception to this. Yesterday a drought emergency operational group was set up. Anyone in the Hungarian Great Plain can see that the maize crop hasn’t even reached knee height. The Minister for Agriculture has said that the wheat yield is down by 25 per cent, and that the maize crop in the Great Plain is effectively lost. Two questions arise in everyone’s mind. On the one hand, will there be enough food at home? And on the other hand, what will happen to those farmers who in essence have lost most of their assets?
I travel around the country, and am confronted with this situation. I’d even add to the list of problems by saying that sunflower heads are only the size of the palm of one’s hand, so I see that we can write off that crop as well. This is a big problem. Hungary, the Hungarian economy, earns a great deal of income from agriculture. Historically speaking, we’re essentially an agricultural country, and that’s what we’re good at. So we’re good farmers: we can get out of the land what we need to get out of it. We have a culture that’s hundreds of years old, which gives us a competitive advantage. Even the Hungary of today can feed as many as twenty million people, and there are ten million of us. We’ve assessed the drought damage and we see that Hungary’s food supply isn’t in danger. So Hungarian agriculture, which has been hit by drought, still has the capacity to provide food for ten million people – and in fact there will be exports, but on a much smaller scale than usual. So now we aren’t producing for twenty million people, with the produce for ten million kept, and that for ten million sold; now we’ll be exporting much less. This is a loss of revenue for the Hungarian economy, but our security – the security of our own supply – isn’t at risk. The second question is the one relating to farmers. Now this is a more difficult one. In Hungary there’s a system called the agricultural loss mitigation fund, into which farmers pay contributions. If there’s a problem, we use it to compensate them – in a way that’s similar to insurance. Now this fund has been completely exhausted. So if farmers only had this fund to rely on, a lot of people would be ruined. The Government knows this. We listened to a presentation from the Minister for Economic Affairs and we’ve set up a working group to enact measures to help farmers. At least a dozen such measures have been discussed. We haven’t yet finally voted for either one or another, as it will take a good week to finalise these decisions; but the farmers will of course receive assistance. It wouldn’t be good – either for them or Hungary’s national economy – if viable family farms and agricultural companies established on the basis of work were to go under. Not only would we suffer losses this year, but in the future we wouldn’t have the players – the good farmers in the Hungarian economy and Hungarian agriculture – to cultivate the country’s land and bring in income for the Hungarian national economy. Their survival is in our national interest – not only their personal interest, but also in our shared national interest.
In the last half hour I’ve been talking to Prime Minister Viktor Orbán about the European energy crisis, reductions in household utility charges and the drought affecting Europe.