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On Hungary’s first 10 years in the new Europe

History

From the Budapest Business Journal print edition: It’s been 10 years since Hungary became a member of the European Union. Much has happened in that relatively brief period of time, during which Hungarians got a chance to enjoy free movement of labor, studying opportunities, easier business, not to mention vital project funding. But economic and political issues in the past few years mean there is also plenty of bitterness about what it is to be a member of the club.

It has been 10 years since Hungary took its milestone leap and joined the European Union, having waited more than 10 years for admission after submitting its application in March 1994. Lately, the matter of Brussels pops up as a political issue in the ongoing European election campaign as well as the ‘maybe-frozen’ money taps the have suspended the flow of funds due to questionable revisions in the allocation of EU money.

Various surveys conducted have found that, at best, 50% of Hungarians are satisfied with the EU thus far, a figure considerably lower than in most of the other nations that joined at the same time.

Differing opinions of the European expansion strategy are also starting to show in the West, as slowing economic growth is raising doubts about open borders to the east. A Raiffeisen survey of the past 10 years found that back in 2004 the overall enlargement round added just some 4.8% to the EU’s gross domestic product. Undeniably, there are new markets, but now the European Parliamentary elections carry the prospect that member states are reconsidering the 2004 process, which was by no means a smooth ride.

Tentative expansion
At the time, there were plenty of concerns about how the enlargement process would go and whether admission should even be granted to the less-developed Eastern European economies to join their wealthier neighbors in the west. Eventually, the decision was to go with a ‘big bang’ strategy as it was called at the time and take the bloc’s headcount from 15 to 25 nations.

For Hungary, once a member, it remained a crucial issue to promote further enlargement regardless of the political parties in power. This was a key matter in terms of the ethnic Hungarians that still number in the millions spread across the neighboring countries that were cut off after the peace treaties ending World War I.

Hungarian diplomacy has prime results to show for its efforts, since its advocacy for enlargement was instrumental in Croatia’s accession, laid out in the Treaty of Accession 2011 signed near the end of the year but ardently supported during Hungary’s EU presidency in the first six months of the same year.

Sidetracked
Hungary’s progress in the EU became somewhat negative as a result of bad policy decisions as well as weaknesses within the structure of the economy. The country’s closer integration into the realm of developed economies only amplified the effect of the financial turbulence when the Lehman Brothers crisis in 2008 nearly crippled the country’s economy in a matter of days, necessitating a bailout from international lenders.

The economy, already vulnerable, was subjected to even more pressure by the pre-crisis spread of foreign currency mortgage loans that were much cheaper than forint-based alternatives at a time when extreme currency fluctuation seemed impossible. Households, companies and municipalities are to this day suffering the effects.

Other government policies didn’t help either. Spending and building debt, then trying to compensate through austerity, characterized the socialist government’s rule from 2002. Viktor Orbán’s new approach to government that started in 2010 instead tried to bleed funds from the finance sector and other profitable, often foreign-owned business sectors while giving the public the impression that others were actually picking up the tab. The only common thing in these approaches is the lack of any workable structural reforms that would have needed several years to reach fruition.

The latter approach was more successful, at least in the books, to the extent that last year it was enough to pull Hungary out of an excessive deficit procedure that was launched at the time of the accession.

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