3 years in the EU: Hungarians grumble about economy and Slovak success

By bne IntelliNews May 4, 2007

Robert Smyth in Budapest -

Three years on from joining Europe's elite club, Hungary’s stumbling economy and a lack of tangible benefits for the majority are the main factors behind Hungarians' increasingly negative attitude towards EU membership.

Hungary was singled out by the IMF as a laggard among its otherwise buzzing fellow EU entrants and veteran BBC foreign correspondent John Simpson picked it as a place to watch in 2007 from the standpoint of something really bad happening. Violent protests have become the norm since a tape was leaked last year showing Prime Minister Ferenc Gyurcsany appearing to admit that his party "screwed it up" in its last term in office. To fix the "screwed up" economy, the government then launched an austerity programme on a country that already felt deep in a period of austerity.

According to the latest Eurobarometer poll by the European Commission, those satisfied with EU membership dropped from 49% to 39% between spring and autumn of last year. More than half of the Hungarians polled think the EU has had a negative effect on the economy.

There's a tinge of jealousy in these views on the economy. Back when Hungary joined the EU, some smarted at the inclusion of its supposed backward northern neighbour, Slovakia. Since then, Hungarians have watched in amazement as foreign direct investment (FDI) pours into Slovakia, and not into Hungary, once the darling of foreign investors. Last year, the level of new FDI in Hungary fell by 2%, but grew almost 110% in Slovakia.

Worse, a number of major car producers chose to establish major plants in Slovakia rather than Hungary, which had already a well established car industry with the likes of Audi and Suzuki.

This FDI helped Slovakia's economy grow by 8.3% in 2006, while Hungary's rose a meagre 3.9%. Slovakia's GDP growth even hit 9.6% in the fourth quarter. Some commentators point out Slovakia started from a lower base, but growth is what gets investors and analysts excited.

Orsolya Nyeste, an analyst at Erste Bank, says Hungary's economy has not received a dramatic increase in trading within the EU since joining the club.

"Before EU accession, Hungary had already established its main export partners in the EU, especially Germany," she says. "EU membership in itself hasn't brought serious growth to the economy."

What could fuel growth is the adoption of the euro, though this isn't likely until 2013 at the earliest. "Exchange rate risk can reduce trade; the adoption of the euro will eliminate this risk and will be more spectacular than the joining of the EU," Nyeste says.

EU money might act as a sop to all this, but even here Hungarians feel a bit short changed.

Underground (non-)movement

The saga over the construction of the now almost-mythical subway extension is reaching farcical proportions.

Last week after a trip to Brussels to see EU Transport Commissioner Jacques Barrot, Budapest major Gabor Demszky claimed the project is going full steam ahead with backing from the EU's Cohesion Fund. However, contradictory comments on the funding immediately followed from representatives of Barrot, who said the metro project was indeed discussed, but stressed that any funds haven't yet been guaranteed.

On the street, the message is gradually getting through that there is EU money there for those who have a plan and are prepared to pitch in themselves.

The take-up of EU funds is quickly picking up, with more than 50% of EU funds for 2004-2006 being distributed by the end of the period. Around HUF360bn (€1.5bn) of the HUF700bn made available by the EU within Hungary's National Development Plan for 2004-2006 had already been dispersed by the beginning of 2007, according to the National Development Agency.

The Eurobarometer poll also implies that those who have trust in the EU is significantly lower than the percentage of those who consider the country's membership of the EU a good thing overall. It's fair to say that most Hungarians entered the EU somewhat skeptically with the idea that things would be a bit better in as opposed to out. As the country wakes up to investment opportunities, Hungarians might just be learning to play the EU game.

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