Prime Minister Viktor Orbán announced recently that Hungary will not adopt the euro before 2020. The statement went down without a public outcry, but that is likely to be because Hungarians have already grown weary of the issue of euro accession, which competes with Metro 4 for the title of the most procrastinated project in the country. In fact, Orbán himself stressed that he is unwilling to specify a target date in order to save the country from another embarrassment. The first target date of Hungarian Eurozone accession had been 2006.

In spite of the lack of public interest in the issue, we might ask ourselves whether the fading of the Hungarian euro into the distant future is a national tragedy, a neutral fact of life, or perhaps even a blessing in disguise. In a study carried out before the global financial crisis, the Hungarian National Bank estimated that euro adoption would add around 0.5–0.75 percentage points to GDP growth per year. Some would say this is considerable, others would warn that a number of external and internal shocks can have an effect far greater than that. At least it is a starting point for discussion.

In light of the global crisis, however, the central bank has underestimated the negative effects of the loss of monetary sovereignty. In practice, this rather abstract phrase means being able to react adequately to bubbles in your domestic economy when they form. The people of Greece would agree that the introduction of the low interest-rate euro in 2001 in place of the high interest-rate drachma created such a bubble. Cheap money led to borrowing by firms and households, overinvestment, and finally a crash that saw the government having to bail out the biggest banks of the country (Piraeus Bank, Alphabank, Eurobank, Ethniki Trapeza). A sovereign hike in the interest rate of the drachma could have prevented the bubble.

This was repeated in Ireland, where the euro interest rate that was set low by Frankfurt to prevent stagnating large European economies from falling even further, contributed to a mad property boom on the Emerald Isle. The result was a bailout for the banks that financed the boom, most notably Anglo-Irish, costing the taxpayers an unprecedented amount of capital. A sovereign hike in the punt interest rate would have been an adequate monetary response. It was prevented by the loss of monetary sovereignty, much like in the case of the Spanish coastal property boom.

There is no right interest rate that would be fitting for a Eurozone with both laggards and tigers. What would fit the high-growth economies would kill the sloths.

And the danger for the Eastern Europeans is obvious. They are expected to be high-growth economies. Less developed economies almost always are, and after all, they entered the EU in order to catch up with the West. If they do not grow fast, their populations will be disillusioned, disappointed and hostile to the European project. If they do grow faster than the West, the low interest rates will inevitably lead to a bubble.

Thus Eurozone entry is not the magic new world it is often made out to be. In fact it is just another one of those carrots that are hung from a stick in front of the Eastern European donkey, much like NATO accession, OECD accession and EU accession. Always wait for a Big Bang, never take a good look at yourself and examine your very own shabby state of affairs . . .

The indefinite postponement of euro accession is a blessing in disguise. It gives Hungary the opportunity to concentrate on what really matters: the reduction of the debt burden, job creation, reform of the state and a move towards higher value-added, better paid jobs. Ironically, the Eurozone is for countries that need it the least. Stable, fiscally prudent economies that are competitive enough even without it. Then and there it is a valuable extra push.

Zoltán Pogátsa is an associate professor of Western European University (Nyugat-magyarországi Egyetem)

 

What do you think?

Should Hungary try to introduce the euro as soon as possible, or should it wait for the perfect conditions?