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The afternoon sun was beaming, the air crisp. The carriage driver, neatly dressed and capped, sat comfortably, nodding off, a smile of contentment on his weathered and wrinkled face. When he noticed that I was about to snap his picture, his smile broadened. Then he returned to his dozing.

I had taken a ride in a horse-drawn carriage like his the day before, a short tour along the cobblestone streets of Budapest`s Castle Hill district. The carriages, usually lined up in Trinity Square just in front of the commanding Matthias Church, are available for rent (about $4 for a 15-minute ride).

Earlier that day I had come upon a wedding party in this square. The bride wore a traditional long white dress, the bridegroom a tuxedo. Surrounded by family, friends, well-wishers and onlookers, they, too, had been receptive to my picture-taking.

After some shopping, I ducked into a tiny, crowded cafe called the Ruszwurm, a 17th-Century coffeehouse, which has been declared a historic monument. I found a seat and ordered a pastry and an espresso. In leisurely coffeehouse style, I snacked while admiring a small antique Japanese incense burner I had bought for $40 in a shop nearby.

The cafe served several kinds of biscuits and tortes, and coffee, tea, espresso and alcoholic drinks. The highest priced offering on the menu was a martini for 98 cents. My bill came to under 50 cents.

When I returned to the square to catch a taxi back to my hotel, another bride and bridegroom appeared, this time riding in one of the carriages. These street scenes are typical of Budapest.

Captivating and comfortable best describe this old city. The Danube, seldom blue, splits the city in half. Dating from Roman times, Budapest developed as two separate settlements, Buda on the hilly west bank of the river and Pest (pronounced pesht) on the east and flat side.

My first night in Budapest made a lasting and favorable impression. It was a chilly autumn evening but clear. I was staying at the Forum, a modern hotel that sits on the Pest side of the Danube at the foot of the Chain Bridge.

Eight bridges span the Danube (”Duna” in Hungarian). The Chain Bridge is the oldest. Seven were destroyed in World War II and had to be rebuilt. Tonight the Chain Bridge was lit up like a carnival ride.

I left my hotel and began walking south along the wide stone promenade that bordered the river. In the distance I could see the outline of the Elizabeth Bridge, the youngest of the eight and the first cable bridge in Europe.

Though it was well past the dinner hour, I had plenty of company on my stroll. Not tourists but Hungarians.

Across the river from the Forum I could see the domed Royal Palace, glistening in the night. The Royal Palace, first built in the 13th Century, served as the ancient seat of the Hungarian kings. It has been destroyed twice, in 1696 by the Turks and during World War II by the Russians. Today it houses two of the more important museums in Hungary–the Historical Museum of Budapest and the Hungarian National Gallery. The palace`s terrace affords a wonderful panoramic view of the city.

To the right of the palace, the lighted spires of Matthias Church, 700 years old, pierced the black sky.

This was a view I became accustomed to, seeing it every night from my hotel window. Each morning I awakened to the hushed sounds of the trams that run adjacent to the wide walkway and of the river traffic–barges, small pleasure craft, boats from abroad delivering cargo to this international port. In daylight the city held more delightful surprises. I walked again. Older women sat on park benches doing needlework while men sat reading newspapers. Others were basking in the warm October sun. People were waiting for trains or taking their daily constitutional. Couples were embracing or walking hand in hand, some stealing a kiss or two.

Just before I reached the bridge, I saw that an old woman wearing a babushka was attracting the attention of several small children. On closer inspection, I found that the children were hovering around a small cage containing a parakeet, evidently the pet of the woman. All were engrossed in feeding the bird.

Turning inland from the river, I continued my walk. Budapest is a great city to experience on foot, though it also has a fine public transportation system, inexpensive as well as efficient (See page 13). This, the Pest side, is the commercial center of the city, where most of the businesses, shops and hotels are. The Buda side offers the historic Budapest, particularly the Castle Hill district (See story on page 12).

I soon found myself surrounded by a diversity of architecture–baroque, Gothic, Norman as well as modern buildings, none more than 10 stories high. Most of Budapest`s buildings were destroyed in World War II; so much of the city had to be rebuilt, which accounts for the hodgepodge of architectural styles. Even today construction and renovation continues. Everywhere you look, you see a crane.

The city is crisscrossed by wide boulevards and narrow streets, each busy and each with a personality all its own. The scents of simmering goulash and pungent paprika tantalize the senses. Vendors sell flowers, newspapers and sundries. Geraniums decorate the window shelves of residential buildings. Talk and laughter flow from pubs and cafes. Elderly, polite owners stand quietly in the doors of their small shops. There are no hawkers, and no beggars.

There`s no need to do any comparison shopping here. Hungary being a socialist state, everything has a fixed price. One of my finds, quite unexpected, were eight crystal goblets, made in Hungary. They were exact copies of my Irish crystal pattern. The big difference: They were only $5.20 apiece; the ones at home had cost $25.

There is at least one beauty salon in every block. And almost as many antiques shops. There`s also an abundance of pastry shops.

When an aquaintance of mine asked a European friend, presumably an Austrian, where she could find the best pastry shop in Hungary, he said

”Vienna.” The situation is by no means so forlorn.

The Gerbeaud on Vorosmarty ter (street), founded in 1858 and formerly known as Cafe Vorosmarty, is considered the creme de la creme pastry parlor in Budapest, perhaps in all of Hungary. And in the years before nationalization, the Gerbeaud was in the same class as Vienna`s famous Demel`s. Master confectioners Henrik Kugler and Emil Gerbeaud helped establish its reputation. Today more than 100 flavors of creams and ice creams, as well as sandwiches, are prepared daily.

Lucky for me, if not for my waistline, the Gerbeaud was only a couple of blocks from my hotel. Crystal chandeliers, two French marble fireplaces in Regency style, parquet and carpeted floors, brocade wallpaper and small marble tables give the Gerbeaud an authentic Old World atmosphere. Its clientele is made up largely of gossip-hungry matrons and of students from Europe and the Middle East.

The Gerbeaud`s prices, too, are Old World. Coffees range from 45 to 62 cents; tortes 36 to 62 cents; marzipan 22 to 36 cents; ice cream cups, more like sundaes, $1.23 to $2.46; a slice of chocolate cake 27 cents.

One evening I had a chocolate attack; so I made a quick trip to Gerbeaud`s to satisfy my craving. I carefully selected four generous, luscious, chocolate pastries for carryout. That appeasement cost me only $1.20. I doubt that $1.20 would have covered even one such pastry in Chicago. ”The craftmanship of pastries in Budapest is the best in the world,”

says George Lang, a well-known Hungarian restaurateur who lives in New York,

”but not in taste, because the quality of the ingredients available is not so good.” Lang, a food columnist and author, entrepreneur and restaurant consultant, owns New York`s Cafe des Artistes and is the author of ”The Cuisine of Hungary” (Atheneum, 1971).

A number of famous people share Lang`s Hungarian roots, among them composers Franz Liszt, Bela Bartok and Zoltan Kodaly and Chicago Symphony music director Sir Georg Solti. Add to those Zsa Zsa Gabor and her sisters, and Joe Namath and Tony Curtis. You may not run into any of the latter in Budapest, but there`s a fair chance of seeing Erno Rubik, the man who baffled the world with his famous cube. The 41-year-old millionaire tootles around town in an unprepossessing Volkswagen Rabbit.

The People`s Republic of Hungary, as it is officially known, has a population of almost 11 million, of which 2.1 million live in Budapest. Roughly the size of Indiana, Hungary is situated in the heart of East Central Europe, bordered by Czechoslovakia on the north, the U.S.S.R. and Romania on the east, Yugoslavia on the south and Austria on the West. Tourists swell the population by another 11 million each year.

Hungary has a turbulent past. The country has been invaded, devastated and war torn for most of its 1,100-year history.

After World War I Hungary came under German influence and became Nazi Germany`s ally in World War II. In the spring of 1945 the advancing Red Army drove out the last of the Germans. In 1949, Soviet-occupied Hungary became a socialist republic, reluctantly an Iron Curtain country.

Hungarians` rage over the radical economic, political and social changes handed down by the repressive Communist regime culminated in a massive uprising in 1956, with Budapest at its center. The bloody conflict was crushed by Russia and resulted in the emigration of some 200,000 Hungarians and the death of more than 2,000.

Major economic reforms were undertaken in 1968, so that now much of the production is controlled by market forces and profit control. Developing as both an industrial and agricultural country, Hungary trades with 150 countries, and half of its national income comes from foreign trade. Its foreign policy is based upon peaceful coexistence. Of all the Communist states, Hungary is considered the most tolerant of religion, cultural freedoms and small private enterprise.

Accordingly, Budapest is not the typical Communist capital; it is a refreshing departure from gloomy, oppressive Moscow or drab and depressing Bucharest, capital of Romania.

For a firsthand glimpse of a Budapest lifestyle, one evening I visited the home of a Hungarian newspaper woman, Zsuzsanna Gai. Zuzha, as she is known, is 51 and has worked for Neps (Word of the People), Budapest`s second largest daily newspaper, for 25 years, except for a brief period in the mid-60s, when she lived in New York City with her husband, who was there on a fellowship. In addition to becoming fluent in English from that experience, on her return to Budapest she wrote a successful book, ”I Was a Wife in New York City.”

For the last 10 years, Gai has been assigned to the newspaper`s economics department, where she writes about the effects of tourism on the economy, prices and the living standards of the people. Neps has a daily circulation of 300,000. Because Gai is experienced and competent, she is paid about $160 a month. She owns a car and an apartment.

”I can work more than my paper needs me,” said Gai, now divorced,

”because I am alone.” So she does freelance writing, raising her total income to more than $300 a month. Because she owns a car, the newspaper pays her an additional $30 a month for providing her own transportation.

Gai and her former husband bought the apartment in which she lives 25 years ago. Today it would cost more than $20,000, she said. The small one-bedroom apartment has a foyer, kitchen and living room and is modestly furnished. In the living room there is a small color television set, a luxury that cost about $612.

You pay a high price for technology here. A black-and-white TV set costs $80 to $125, an automatic washing machine $200. That`s a lot to the average Hungarian, who makes only about $100 a month.

Gai said it is not important today to be a Communist party member in Budapest. ”This was not so 20 to 30 years ago,” she said. About 60,000 Soviet troops are stationed in Hungary, but Gai said that doesn`t bother her. ”I am a Jew. I was a small child–10 years old–when the Fascists came,” she said. ”I was waiting for the Russians or Americans to come. The German Fascists were here until February of 1945. I am glad the Russians came because the Fascists would have killed me. Hungarian Fascists as well as Germans took things from us. If the Russians hadn`t come, I would have been part of the holocaust.”

The Soviet influence is scarcely apparent to the visitor in Budapest, but Gai complained that there are not enough shops, and they`re always crowded. In 1948, she said, the government took over most of the private shops. ”There are very few private companies left, and very few supermarkets, but little or no space to build new buildings,” Gai said.

Russian, together with Hungarian, is an official language, taught in the schools. Hungarians have limited travel privileges, except to other Communist countries. According to Gai, the Hungarian government gives each citizen $300 every three years for foreign travel. The money cannot be saved. It must be used for travel.

Gai said she could run for office but doesn`t because, like most journalists, ”I like to see my name in print.”

As we talked, a man was speaking on her color TV. Gai explained that he had been the Hungarian press attache in Washington in the early `60s. He was talking about American-Hungarian relations in the 1950s, which were not very good.

”Do Hungarians today like Americans?” I asked.

”There are 10 million Hungarians, and I think there are 10 million opinions,” she said, diplomatically.

Maybe she should run for public office.

Ninety-two percent of Hungary`s population (including Gai and the Gabors) are Magyars, or Hungarians, the once nomadic people who settled Hungary around 895 and gave the country its language. Gypsies account for but 3 percent of the population but have contributed more than their share of folklore, legends and music to play a significant role in city`s joie de vivre.

Almost every Hungarian restaurant has its resident gypsy band. And in my two weeks in Budapest, I never heard a bad violinist or a poor rendition of any of the Hungarian rhapsodies.

For no other reason than to make my visit to Budapest complete, I consulted a gypsy fortune teller.

An attractive young woman with inquisitive eyes, she was ensconced in the Hyatt Hotel and worked without benefit of tea leaves or crystal ball. Instead, she placed a deck of Tarot cards on the table in front of me.

”Please shuffle the cards,” she said.

I did, and a single card fell out.

”That`s very unusual,” she said. The bangles at her wrist jingled as she picked up the card.

”This card,” she declared, ”represents you.” Then she took the remaining cards and began laying out my future in tidy little stacks, turning over each top card.

She knew nothing about me except my name and occupation. Yet, uncannily, she was able to pick up on aspects of my life that only a friend would know.

My future, she said, looked very promising. With luck, that will include a return visit to Budapest.