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Editorial: Turning a blind eye to Russia and our back to the EU

The following editorial originally appeared in the October 3-16 print edition of the Budapest Business Journal.

It is one thing to be “open to the East”, and quite another to be turning your back on Europe.

While the government’s policy of building closer ties to Russia, especially when it comes to energy, has plenty of logic, there is no need to stand in such strong opposition to the foreign policy of most EU countries.

In late September, days after the head of Gazprom came to Budapest for talks with Prime Minister Viktor Orbán, the pipeline sending natural gas from Hungary to Ukraine was closed, for “technical reasons”. Now, as in the past, Russian President Vladimir Putin seems perfectly ready to use his control over Ukraine’s gas supplies to put political pressure on that country’s leadership. And here is Hungary, apparently ready to help him do so.

Orbán is also one of the few leaders in the EU to support the South Stream gas pipeline, which seems to be mainly designed so that Russia can bypass Ukraine completely, and apply political pressure against its neighbor more freely.

Of course it is important for Hungary to secure a steady fuel supply, but that does not mean it is necessary to give Russia a free pass on its heavy-handed foreign policy.

The EU is right to oppose Russia’s seizure of Crimea, its efforts to economically cripple Ukraine by charging above-market rates for natural gas and its continued support for rebels who are killing people in Ukraine. The EU is also right to insist that any new gas pipeline cannot be completely controlled by one supplier, which is what will happen if Gazprom is not forced to alter its plans for the South Stream project.

Yet the Hungarian leadership appears to be willing to ignore the EU’s position on these issues in order to ensure that it can maintain cheap gas prices. Orbán even boasted about those prices in a speech before the Christian Democratic party on September 27. The Prime Minister said that Hungary is not a “liberal democracy” but is instead a “Christian democracy”. He then went on to explain the difference, saying that only a Christian democracy can keep utility costs down.

The “liberal democracy” model that Orbán and his cabinet look down on is the kind that holds sway in most of the EU. And while Russia may keep Hungary flush with natural gas, it is the EU that is propping up this economy.

More than three-quarters of Hungary’s trade is with the EU, and on top of that, EU funding would appear to be the biggest driver of GDP growth in this country. Nearly every day, the Budapest Business Journal’s web site, bbj.hu, mentions another factory expansion undertaken with EU grants. Second quarter figures show that gross fixed capital formation has been the fastest growing component of GDP on the expenditure side for roughly a year. Without EU spending, it’s safe to say that fixed capital formation would be much lower, and Hungary’s GDP growth, which now looks ready to end 2014 at better than 3%, would be lower too.

If economics is not good enough reason to side with the EU on this one, the government might also look at Ukraine and consider what happens when a country is dependent on Russia for all its energy.

For now, Hungary is enjoying steady natural gas supplies and a EUR 10 billion credit line that comes with a promise to let Russian nuclear power company Rosatom build two new reactors at Paks. But we’ve already seen that Russian energy firms do the political bidding of their government’s leaders. If Hungary’s currently warm relationship with Russia should sour at some point, and Russia decides to shut off the lights, where would Hungary turn?