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Monday, February 27, 2012

The World's Worst-Paid Central Bank Director in the World

Should the Director be Changed?

New Actions against the EU's democratic principles:

I am posting the entire article from Financial Times, January 24, 2012. The PM is not thinking much of the repercussions of his actions against the Central Bank of Hungary.

It is an acerbic analysis of major mistakes of the actual PM in Hungary:

Hungary’s central bank head offers to work for a forint a month
February 27, 2012 5:02 pm by Kester Eddy

Hungarians love to tell you about their innovators in science, engineering and maths. Now, it seems, we have a new Magyar trailblazer – the world’s worst-paid banker.
And not just any banker, but the head of the National Bank of Hungary (MNB) – the central bank itself.
András Simor, who’s been in the wars with Viktor Orbán’s Fidesz government from the start, has offered to work for Ft1 per month – that’s about 1/3 of a euro cent, which wouldn’t get you the skin off a salami past its sell-by date in even the remotest part of the puszta.
And what’s more, in modern Fidesz tradition (the government is fond of retroactive measures), he’ll make back-date the deal, donating all the money he has made since September 2010 to help support economics+ students from under-privileged families.
The offer, made in a letter to Orbán last Friday and since made public is designed help break the deadlock with the European Union and get talks on a standby loan with the EU-IMF sooner, rather than later, says Simor.
And how come this is important?
Well, Orbán and his key henchmen were sharpening the knives for Simor even before the elections. Simor, appointed during a previous Socialist regime, failed the Fidesz test at several hurdles.
He was criticised for owning a stake in an off-shore company and accused of “doing nothing” to prevent commercial banks flogging controversial foreign currency loans to the Magyar public. But more to the point, in the Fidesz view, he earned far too much money; at approximately Ft8m – close to €30,000 – a month, it amounted to nearly 40 times the average Hungarian salary.
It didn’t matter that the formula setting the governor’s pay had been introduced in 2001, under the previous Orbán government (and applied to Zsigmond Járai, an Orbán appointee); after early political pressure failed to shift the stubborn Simor, the government slashed his salary to Ft2m from September 2010.
Unsurprisingly, the move did not go down well in Brussels or at the ECB – who, like Simor himself, saw it as blatant interference with the independence of the central bank.
Had he stopped there though, Orbán might have got away with it. Instead, from the EU’s point of view, he ploughed on – to the point where the EU famously walked out of preliminary talks on a new EU-IMF loan in December after the government had pushed a controversial new central bank law through parliament – against the express wishes of both Brussels and the IMF.
The result is that Brussels insists that as one precondition to begin loan talks, Orbán must remove the salary cap.
And since that seems a bit hard for prime minister to swallow, Simor has stepped in – insisting that for him the issue is “not about money” but about central bank independence – to help Orbán save face.
As Simor’s letter reads:
It is Hungary’s vital interest to amend the provisions on the remuneration of the MNB’s decision-makers, adopted in violation of the Central Bank Act, and respect central bank independence. Although the Magyar Nemzeti Bank is the object rather than a party of the legal dispute between the Hungarian Government and the European Union, as a central banker and a citizen whose primary consideration is the best interests of Hungary, I would like to support the Government with my own contribution in resolving the current situation.”
Simor’s announcement is “clever PR” that now puts the pressure on the government to make compromises with the EU and IMF in order to reach the much-needed agreement, András Bíró Nagy, co-director, of Policy Solutions, a Hungarian think-tank, told beyondbrics.
“Debates about his salary cannot be blamed by the government as an obstacle of any EU-IMF deal anymore. His willingness to work for free and support talented young economists allows him to show it as the example to follow: if the stakes are high, generous moves are needed,” says Nagy.
Simor, however, is not so generous as to let Orban off the hook scot-free. As he notes higher up in the letter, the move on the governor’s salary was discriminatory:
“I would like to emphasise that the change to the remuneration of the MNB’s decision-makers is also discriminatory, as the employees of the Magyar Nemzeti Bank are neither public servants nor civil servants, but rather the senior officers of a limited liability company owned by the Hungarian state. The measures adopted to introduce a cap on decision-makers’ remuneration do not apply to senior officers of other state-owned companies or state-owned banks.
As Mujtaba Rahman, of Eurasia Group says, this is another smart move on Simor’s part, revealing the real motivation behind Orban’s legislation.
“By emphasizing the issue of discrimination vis-à-vis other state institutions, Simor has been able to highlight how Orban’s moves against the central bank are politically, and not substantively, motivated.”
Simor is now awaiting Orbán’s reply.
Related reading
Orban and the EU, FT

This publication of this material on my blog is intended only for educational purposes.

I know most eastern Europeans do not have money to subscribe to the Financial Times; therefore I decided to inform the public, by posting the entire article here.

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