COMMENT: Fidesz exclusion from European People's Party - the start of a Hungarian Brexit?

COMMENT: Fidesz exclusion from European People's Party - the start of a Hungarian Brexit?
European People's Party will decide if it wants to exclude Hungary’s Fidesz, the ruling party of Hungarian Prime Minister Viktor Orban, from its ranks
By Gunter Deuber of Raiffeisen Research in Vienna March 18, 2019

In the coming week, a closely watched decision by the conservative European People's Party will decide if it wants to exclude Hungary’s Fidesz from its ranks.

The ruling party of Hungarian Prime Minister Viktor Orban, the chances of its expulsion are not that high. On the surface, of course, this is a purely political decision. However, it should also not be forgotten that a "fringe idea" – Brexit – partially went hand in hand with the departure of the Tories from European People's Party.

The departure by the Tories had a lot to do with personal political career ambitions and domestic political considerations as well, which were then linked to the question of EU membership. The Tories departure from the European People's Party then lead to less inclusion in important formal and informal preliminary coordination in Brussels, which may have further promoted EU scepticism in the UK and among certain actors in the sense of self-reinforcement.

The potential exclusion of Fidesz from the European People's Party would certainly be an alarming sign that EU scepticism in Hungary could become even stronger in the coming years. After all, some prominent political actors in Hungary like to use the Brexit as an example of the failure of the "Brussels bureaucracy" and are afraid that Brexit will now make EU-critical positions in Brussels (such as those shared by the UK and Hungary) even less important.

In addition, there are currently some developments in the Hungarian economy that could nourish an economic hubris such as that in the UK in the run-up to the Brexit referendum.

It should not be forgotten that in the aftermath of the global financial crisis from 2008 to 2016, until the Brexit referendum, some economic developments in the UK were much more positive than in the EU and above all in the euro area. GDP growth in UK was significantly higher than in continental Europe, while unemployment was significantly lower or was falling much faster. These trends have certainly boosted the mood that the US and China should move away from an economically weak Europe and the UK could, and should, act on its own.

The conditions in Hungary are partly similar. There, too, economic growth has been well above the EU average for some time, with unemployment below it. Some Hungarian politicians are also happy to try to position themselves in foreign and, above all, trade policy terms. This applies first and foremost to in relations to China and Russia. And Hungary is also not part of the euro area like UK.

But even if some of the macroeconomic indicators are similar, the anti-EU rhetoric in Hungary has not had a major economic impact up to now. All the Brexiteers' dreams had more substance than a dream about economic independence in Hungary can have. Besides the industrial core of Europe (around Germany), the UK is a separate core country of European (if not global) economic integration.

The UK and London will remain important centres of European and the global financial sector and related services value chains. After all, the UK is still the world's largest exporter of financial services and associated services, ahead of the US and Switzerland, which brings with it considerable network effects. The British pound is still a globally important currency; UK-law is a global asset in its own right.

Hungary, on the other hand, is geographically located on the periphery of economic integration in Europe. Although Hungary is an important manufacturing and near-shoring location for many Western European companies with a good mix of price and qualitative competitiveness and some self-reinforcing network effects can be seen here, there are few explicit country-specific advantages to be seen here. Hence there is a high level of substitutability in the medium-term. There are enough business locations (and not only EU members) around Hungary with similar locational advantages.

In terms of Hungary's economic development, one hopes that a possible Fidesz exclusion from the conservative European People's Party will not become part of a larger overestimation of one's own leeway and of self-reinforcing effects - with the irony that the Fidesz exclusion could be decided in the week when the summit "end game" around the challenging Brexit also takes place in Brussels