EU ups pressure as Hungary continues "double speech" strategy

By bne IntelliNews March 14, 2012

Phil Cain in Graz, Austria -

Hungary's government continues its domestic display of Euroscepticism while gradually bending to EU demands.

On March 13, the EU ratcheted up the pressure on Hungary when the bloc's finance ministers agreed to suspend EU funds destined for Hungary because of its failure to hit budget targets, though said the funds could be reinstated in June if Brussels determines that the government is working to bring its budget policies in line with EU rules. And the previous week, the European Commission insisted Hungary overhaul constitutional changes it had introduced on January 1 or be denied an International Monetary Fund (IMF) bailout and face legal action. Concern – particularly relating to the independence of the central bank, judiciary and data protection authority – led the EU to suspend EU/IMF bailout talks in December and launch accelerated infringement proceedings on January 17.

That ultimatum from the Commission came in response to a document outlining the actions the rightist Fidesz government of Viktor Orban have taken to allay EU misgivings. Hungary's 100-page response was handed to the commission on February 17, the last possible day, and Orban had described the document at the time as "convincing". However, the Commission thought otherwise, and Hungary now has a month to be more convincing still or face ongoing exclusion from IMF talks and possible legal proceedings at the European Court of Justice.

Despite this stern warning, the messages coming from Hungary continue to be mixed. "I see the Orban government following the same strategy as it has applied over the last few weeks - a strategy of 'double speech'," says Andras Biro Nagy, an analyst at Budapest-based think-tank Policy Solutions.

What this means is that at home Orban talks like a diehard Eurosceptic, while at the same time his government tells the Commission what it wants to hear.

Orban recently told Hungarians the "leadership mentality" of the European Commission was not enough to govern a country village. Yet at the same time, this government has already proposed changing the data protection law to comply with EU demands. "The 'double speech' strategy seems to work back at home," says Nagy. "The erosion of Fidesz support has stopped over the last two months and the far-right Jobbik party is not able to exploit the growing anti-EU sentiment."

The line Fidesz is pedalling domestically about the ultimatum is that the European Commission accepted 90% of the report and that what remains is merely a matter of tweaking. At the same time, some members of the Orban government, addressing an international audience, have expressed more urgency and flexibility. "The government is aware of the risks and it is seeking an optimal solution and an IMF deal is unarguably part of this," Tamas Fellegi, a minister without portfolio in charge of IMF negotiations, told an investor conference in Budapest. The necessary changes would be made "promptly", he added.

There is little reason to narrow the gap between domestic fist shaking and international compliance. "There is considerable political gain domestically in emphasising the importance of the Hungarian interest," says Julia Lakatos, head of International Affairs at the Centre for Fair Political Analysis. "Prime Minister Orban will continue to do so, just as Margaret Thatcher or Jacques Chirac were known to go against the European common interest in favour of their national interests."

The haven of the Hungarian language makes it easier, say analysts, reducing the chance of messages reaching unintended audiences.

At the same time, Orban has no option but to comply with the commission's demands, Lakatos says. It has reached the "post party-politics" phase, she says. "After a great deal of conflict and politically-charged statements from all sides, the negotiations have returned to the routine way of doing EU business. It is not in the interest of the Hungarian government to change from its current cooperative stance."

Normalisation of EU-Hungary relations is crucial to regaining market trust no matter where the Hungarian government seeks its finance, she says.

The Organisation for Economic Cooperation and Development (OECD), a club for rich countries, is inclined to agree. "Swift action is needed to stabilise the Hungarian economy and put growth on a sound footing for a durable recovery," according to its latest survey published in Budapest on March 13. The IMF deal is an inescapable part of it, it said. The OECD forecasts a budget deficit of 3.4% of GDP in 2012 and 3.3% in 2013, compared with the government's predictions of 2.5% and 2.2% in 2013.

On March 12, Moody's Investors Service, a rating agency, said the delay in securing an IMF/EU financing deal was "exerting pressure" on a rating it has already relegated to junk status in November.

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