Peter Medgyes defines his life as a senior Hungarian university official as increasingly schizophrenic.

As vice chancellor of Hungary's oldest university Eotvos Lorand (ELTE) in Budapest, he understands only too well the need to tackle the university's 650 million forint (Pounds 3.25 million) deficit.

But the obvious solutions - fighting legal challenges from 650 staff sacked last year following budget cuts of 15 per cent and proposals to sharply increase tuition fees, introduced last September - leave him feeling uneasy.

"The legal challenges from those aggrieved academic and clerical staff have to be fought on a case by case basis and it will be very costly for the university if they all win. As a university official I hope they do not, but as a colleague, I hope they do."

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The pressure he is under to find a way out of the university's financial hole is translated into more personal pressures throughout the university community. It resulted from government cash cuts under a tough public sector austerity programme, rampant inflation, and a switch in the way universities are funded, from an annually negotiated amount to cover their budget to formula funding.

Heads of departments are expected to find ways to make the activities of their staff pay; lecturers are facing teaching appraisals for the first time; students already paying a minimum of 2,000 forints a month towards their tuition could face bills five times as much from next September.

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The university's reaction, as in the other 24 universities in Hungary, which share a combined debt of more than 2 billion forints, has been a mixture of pragmatism and moves towards the implementation of long overdue reforms.

Widespread moonlighting by university teaching staff who are unable to survive on salaries as low as 25,000 forints a month has long been tacitly condoned. Now staff are being encouraged to find ways of bringing fee-earning work into the university which allows the administration to take a cut for providing services.

Professor Medgyes, head of the centre for English language training within the university, is already doing this by contracting to provide inservice teacher training for the ministry of education. He is also working with staff on teacher appraisal knowing that if staff cuts become inevitable, choosing who will go must be based on transparent and fair formulae.

A shake-up of the university's property portfolio could provide part of the answer to ELTE's financial worries. An audit conducted last year by a leading Western firm of accountants, as part of an agreement with the finance ministry to seek an arbitrated solution to the debt, found that many of the university's 120 buildings were surplus to need. The problem, as in other parts of eastern Europe, is the legacy of the communist regime: the university does not actually own the buildings, merely the right to use them and the duty to maintain them.

The solution to the university's cash crisis, Professor Medgyes believes, will probably be found in a mixture of the government writing off some debts, legislation to allow properties to be sold or leased, increasing student tuition fees, as allowed under new laws, and - the last option - more redundancies among the 2,000 academic staff.

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L sl" Dinya, deputy state secretary for higher education, lays much of the blame for the financial crisis squarely at the door of university leaders.

"Universities complain that they are underfunded, but they are also inefficient and have made inappropriate decisions or no decisions at all in the face of this current crisis. Most institutions have not got beyond the stage of public protest about their situation. I would not call this very professional leadership or responsible management."

Dr Dinya, the former rector of the College of Food Industry in Szeged, south of Budapest, who was appointed in January, believes universities must grasp the nettle of change and conduct a rigorous management analysis of their finances and internal structures, drawing on professional outside help where necessary. They must thin overcrowded management structures, appointing professional administrators, and ensure they are in a stronger position to tackle future challenges.

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He concedes that a large part of the debt can be attributed to annual inflation of 30 per cent but questions why it is that the universities have huge debts when the nation's 36 college and polytechnic level higher institutions are in much better financial shape.

Ultimately he believes the answer to the higher education funding crisis lies as much in a complete shake-up, with mergers high on the list, as in better management.

Tibor Frank, director of the school of English and American studies at ELTE, is one of the university department heads who is having to run just to stand still in the face of the funding crisis.

He agrees that in the longer term Hungary has too many universities and colleges and too much academic duplication. But radical reform is both resented and mistrusted in universities and the government's approach has been clumsy and insensitive, he says.

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"Last year they cut 6,000 jobs in higher education without allowing for any evaluation process."