Sickness on the Danube

THE report card for the Hungarian government, which is halfway through its four-year term, makes grim reading. Unemployment is nudging 12% and inflation is close to 6%. The economy is the weakest in the region: GDP contracted in the year to the first quarter of 2012 (see chart). Investors are nervous, pushing ten-year bond yields up to 9%.

Viktor Orban, the prime minister, had pledged to create a million jobs by 2020. Perhaps 50,000 have been conjured up, but many are in workfare programmes that force claimants to dig ditches and clear fields or lose their benefits. Fidesz, the ruling right-wing party, is getting desperate. It churns out grandiose plans and, when they do not work, dreams up new taxes. After a levy on unhealthy food the government is now taxing telephone calls.

Eight years of Socialist sloth and corruption left Fidesz with a mess that has been made much worse by the euro crisis. But the excuses are wearing thin. Fidesz's budget plans were based on “wildly optimistic” assumptions, says Tamas Boros, of Policy Solutions, a think-tank. After months of arguments over the status of the central bank the government still has not begun formal talks with the IMF. Hungary needs $15 billion to roll over its foreign debt. Parliament this week delayed a vote on amendments to the central-bank law after the European Central Bank said the changes did not go far enough. The markets' reaction was swift: the forint plunged to more than 300 to the euro.

There is some good news. The European Union has lifted its threat to suspend €500m ($625m) of regional-fund money, after the budget-deficit forecast for 2012 was revised to 2.5% of GDP. Exports are healthy. But failure to do a deal with the IMF leaves Hungary dangerously exposed to outside events such as a bank crash in Spain or a disorderly Greek exit from the euro. The parlous state of the economy has political as well as financial roots. Investors are spooked by retrospective taxes, argues Peter Duronelly, of Budapest Fund Management. The government needs to reset its economic policy, he says. Yet the signs point to more of the same: a bigger, more interventionist state, a deluge of new laws, continued unpredictability.

Mr Orban promised to sweep away corrupt Socialist-era networks. But one lot of Magyar oligarchs has been replaced by another, who are allies of Fidesz. Corruption is now institutionalised, say watchdogs. And hardliners are ramming through their cultural agenda. Miklos Horthy, Hungary's wartime leader and an ally of Hitler, is now celebrated with statues and a renamed square. Three far-right writers will be brought back to the school curriculum this autumn. Relations with Romania soured after a farcical attempt to rebury one, Jozsef Nyiro, in his home town.

Hate speech and xenophobia are on the rise. Agnes Vadai, a left-wing MP, was howled down by right-wing and far-right opponents when she protested in parliament against the rehabilitation of Horthy. Fidesz MPs gutted a bill to set up a parliamentary committee against racism. According to a recent survey, almost half of young Hungarians plan to emigrate. Hungary's race away from modernity is fuelling an exodus by those it needs most.