Thursday, 5 January 2012

Foget about the euro crisis! Hungary - EU's supercrisis

Not as bad as you might think

Regardless of what you read in the economic news, 2011 has been a very good year for the EU. It is ironic that it is a crisis threatening the foundations of the Union that has propelled the EU at the top of the news and has made obvious its status of economic superpower. There is no doubt now that the EU can hold the world economy hostage to the same extent as the US. Events inside the EU economy have an impact around the world to an extent far greater than previously thought. But as bleak news about the economic performance became the daily norm, so did summits and meetings between EU leaders. The markets have pushed the EU to integrate at a record speed. Many have been disappointed by the inconclusive summits that have made only marginal progress but judging by normal EU standards what has been achieved in 2011 exceeded even the wildest predictions of 5 years ago. We are now openly talking about eurobonds. A stability compact has been decided (yes, the details have not yet been put forward but the idea of further coordination across the continent is now taken as a given). And most importantly, elite socialization at the various meetings has formed what can be regarded as a proto government of the EU. Don't get me wrong, I am not satisfied with the lack of leadership and the squabbles of EU leaders but we mustn’t forget that we are talking here about binding together 27 (soon to be 28) countries that have a very strong and varied cultural legacy and that at various points in the not so distant past have been at war with each other. The spillover effects can already be seen with the EU states working together on other important issues as well. An oil ban on Iran has just been decided and it is remarkable that such coordination in foreign policy has been achieved.

But as the EU accelerated integration, it has also sacrificed the basic value of democracy. We now have 2 governments that have been imposed on Italy and Greece without consulting the population. While the Greek prime minister has a grand coalition in his government, giving him some basic legitimacy, Italy's Monti is leading a government of technocrats (which, leaving naivety aside, had to be first agreed by Berlin and not by Italy itself). The Irish budget has first been circulated in the Bundestag and not in Ireland. Many budgetary decisions in Spain had to be discussed with the other EU members first. I do not necessarily condemn any of these developments but a higher degree of transparency is needed to make the process more democratic.

Russia's clone inside the EU

All these events are somehow related to the eurocrisis. But another development is now threatening the EU. It is not just about certain countries leaving the euro or about recessions wiping out trillions from the market. It is about something more fundamental than that. It is about the instauration of a new undemocratic regime in an EU member state. Hungary has made a giant step towards putinism and away from democracy with the introduction of a new Constitution at the beginning of the year. Essentially, a mild form of one party rule has been imposed on the country. I say ‘mild’ because it has the potential to grow into something much bigger and frightening. The nationalistic government of Viktor Orban, supported by over 2/3 of the Parliament has imposed rules that trample basic human rights. Freedom of speech is no longer guaranteed in Hungary. The press is anything but free. Many religions (including the Muslims and Hindu) are now discriminated against and changes have been made to the legal framework to make it impossible for sexual minorities to ask for equal rights. The Constitution and the laws of December 2011 reintroduce God and the Christian values as basic pillars of the country’s policies.
Equally disturbing, the heads of cultural establishments around the country are being replaced by party officials or even far right extremists. The National Bank and many other financial institutions will fall under the control of the party as well. An electoral reform also seems to ensure that Fidesz, the governing party, will be able to secure a greater share of the Parliament with fewer votes. Worryingly, Hungarian officials are making declarations insisting that they are proud of the changes (with even more to come) and that observers should make no mistake, this is not just a state reform but a full change of regime.

The Hungarian PM has essentially adopted a Le Pen-like view of what his country should be like and has enshrined this view in the fundamental law with very little chances for a different party to change them even if Fidesz will lose control of the Parliament. He has rebuffed any criticism coming from outside, snubbing both Hilary Clinton and Jose Barosso. When the American ambassador wrote an article criticizing the changes, she was politely invited to keep her views for herself. When another former US ambassador has warned that Hungary might end up suspended from the EU, he was ignored. Negotiations on a new loan have been suspended after the IMF and the EU pleas for an independent central bank went unheard in Budapest. Meanwhile, the country is heading fast towards bankruptcy and the people are being hit hard by the 'unorthodox' economic policy of the government (they now have to pay the highest VAT in the EU, among other taxes and plunging national currency).

The clouds on the horizon

The worst part is that the EU can do nothing about this. It can warn and express preferences but these can all be ignored by the national government. The EU is not prepared for this kind of crisis as it takes for granted that all its member states are democracies and will remain that way. What will happen if Hungary becomes Europe's Russia and other central and eastern European countries follow in installing nationalist/populist governments? Even if the eurocrisis is resolved, the EU will be broken. I can see a number of ways in which the situation could lead to war. All you need is a nationalistic government in a neighboring country and all the talk about solidarity and brotherhood will be forgotten. The ugly faces of last century will be back.

Even more important, the actual aim of EU enlargement would become a failure. There is no guarantee that Hungary’s example will not radicalize the entire region. This is a far greater threat than the eurocrisis because it can easily undermine the entire philosophy behind the EU. It is a sign that nationalism is alive and kicking on a continent that saw two devastating world wars. The entire eastern flank of the EU can become a ticking time bomb if Orban continues with his nationalistic tone.

It is remarkable how similar the circumstances of today are to those that preceded World War II. Far right and populist forces growing across a continent going through one of the worst economic periods ever experienced with even more austerity to come. Growing mistrust of other countries and nationalistic views are replacing the pro-European discourse. The EU used to be there to eliminate the risk of any spark that could ignite the entire region but now seems unable to prevent a member state from straying.

The chances for the worst case scenario are still slim. A full break-up of the EU followed by war in Europe is still unlikely but clouds of the perfect storm are gathering in the right places. To simply ignore the threat and dismiss it would be the worst thing to do. The EU needs to force Hungary back into line by any means possible. I am sure the Hungarian citizens would rather be European than isolated within their own country. It is just a matter of forcing the government to listen to those citizens and not to the few radical voices that have not learned anything from the previous century.


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  2. And just to be safe, I should say, I very rarely get involved with hungarian politics, because it is a mess, and living abroad means, I can escape that. ;)

  3. Unfortunately, history shows, the Hungarian citizens are very good in revolting against foreign power, not soo good (effective) at protesting against domestic power.

    About the electoral reform, when they got elected in 2010, they promised to make the Parlaiment smaller, because it is irrational, that a country, with Hungary`s size should have 386 representatives. It is from the era of the Pre-Trianon Hungary, after which the "motherland" was divided, but they kept the numbers of reps. the same. Personally, I support any kind of will to cut the numbers, and reform the Parlaiment, so does most of the population.

    What I do not agree with, is pretty much everything else, from telling off IMF, not listening to foreign advice and having the priority back in 2010, to rename everything, from aiport to streets, instead of doing some work in order to help the country.
    Good post Marius!