Podcast: Orbán's "very important lessons”
Júlia Király recalls the fall of Hungary's last institutional domino
Listen to the podcast via Apple or Spotify
Like no one else in 80 years, Donald Trump is stress-testing the liberal-democratic order.
What his Team of Cromwells want is uniquely American but their governing strategy of institutional capture is Hungarian. After a clownish first term and a four-year interruption, Trumpism is moving quickly to insert loyalists with no base of their own into the “power ministries” – defence, intelligence, and law enforcement – and ignoring Congress to govern by executive order. But, while they have succeeded in bending competition regulators to the will of their tech sponsors, they are being forced to wait out Jerome Powell’s term at the Federal Reserve.
The parallels with Hungary are uncanny. After a vengeful Viktor Orbán and his Fidesz movement returned to power in 2010, they marched through the institutions – taking control of media, universities, regulators and the judiciary. The Magyar Nemzeti Bank held out for three years – protected by EU law and a leadership team with unbreakable mandates – but eventually the central bank too fell to Orbán. On 4 March 2013, the prime minister’s economic guru György Matolcsy swept into Liberty Square1, fired a third of the MNB’s directors and began a heterodox 12-year governorship that ended this spring in professional and personal failure. The man who promised his boss a new “golden age” left office with Hungary growing less and inflating more than its neighbours and facing accusations of corruption.
Could the Fed go the same way? For an inside view, I talked to Júlia Király, who served as an MNB deputy governor from 2007 until her resignation2 in 2013 immediately after Matolcsy’s first policy meeting. Orbán’s placeman started how he meant to go on, she told me in a New Books Network interview. From 2013 until he left the MNB in March, there was “no debate; very many times, the voting was unanimous, which is not normal in these kinds of organisations”. And this had real-world effects. “If the central bank loses credibility, it's the end of monetary policy,” she said.
In 2022 – the year Covid inflation peaked – Hungary’s rate averaged 15% and accelerated to 17% in 2023, while inflation decelerated by two percentage points in Poland and the Czech Republic. After mild disinflationary recessions in 2023, these two economies started growing again in 2024 and returned inflation to target. Orbán, by contrast, is starting to panic as inflation undermines his bid for a fifth term next year. “During the turbulent inflationary time, Czech inflation was over 10% but, after a big jump, immediately fell back,” says Király. “So, more or less, they preserved price stability … I cannot say that the maximum of Czech inflation was low, but it was really a one-off. It was not persistent and not permanent”.
“Matolcsy is an interesting guy; he really believes his visions. You can find similar guys in the actual American establishment, who believe in their own visions and do not care what actually is in the economy,” she says. Look at the global economic shock caused by Trump’s volatile tariffs policy. “The real problem is the centralisation of the government, the distortion of checks and balances and the lack of rational debate. Without rational debate, you cannot take rational decisions and then the consequences are increased uncertainty. I think, in that sense, what you feel now on a macro level, is just the same as what we felt on a micro level in Hungary … No matter whether the original idea is good or not, the increase in uncertainty now at the world level is the worst for the world economy. And from that sense, I think that the Hungarian experience really serves very important lessons”.
Assisted by two ambitious insiders: Barnabás Virág, who is now an MNB deputy governor, and Márton Nagy, who was later fired by Matolcsy only to replace him as Orbán’s economics right-hand man and minister for national economy. “I cannot say that they are traitors,” she says. “They simply served their own interests”.
Her 8 April 2013 resignation letter to the president had a market impact …
“The new organizational and operational rules of the bank, which had been modified at the initiative of Mr. Matolcsy, I believe have subordinated the staff which prepares the decisions of the Monetary Council under a deputy governor who does not have appropriate knowledge and professional experience in monetary and financial issues and in issues related to the operation of credit institutions. The new management has removed key people from top positions in the staff and from important areas.
At the initiate of Mr. Governor, the operation of the Monetary Council has also been transformed. At the meetings of the Council – which are now shorter based on the recommendation of Mr. Matolcsy – I believe there is no possibility for professional debate on merit. As a member of the Monetary Council I had received proposals of key importance only with a delay, beyond the deadline set out in the bank’s procedural rules and certain documents were only distributed at the meeting of the Monetary Council. In this manner, I believe the Monetary Council at the moment is not able to fully perform its role as the most important strategic decision making body of the central bank, and this new way of operation is less and less able to ensure that responsible decisions could be made in the Monetary Council.
One of the cornerstones of monetary policy is the credibility of the central bank. Only a transparent central bank can establish credibility, a bank that continuously and publicly provides information on the professional background of its decisions. From this aspect, the fact that the bank’s Governor is no longer holding press conferences after monthly rate decisions, and the unjustified cancellation of professional forums and conferences could lead to a deterioration of the external assessment of the central bank, and an erosion of confidence.
Over the past month I believe that in the central bank led by György Matolcsy, decisions have been made that could cause serious damage not only to the National Bank of Hungary but in the longer term also to the Hungarian economy. In my view the new management of the central bank, due to a lack of appropriate professional experience, is not capable of guiding the professionally competent staff of the central bank and cannot always appropriately judge why certain developments in the market happen and what kind of economic factors contribute to these developments. The new order of management could jeopardize the domestic and international reputation of the National Bank of Hungary that had been established over a long period of time. Taking all of this into account, I can see an increasing likelihood that decisions could be made that are not well-founded and mistaken, for which I do not wish to take any responsibility neither as a deputy governor, nor as a member of the Monetary Council”.