Struggling Hungary battles for early EU membership

Date: 14/03/1996

IF Hungary gets its way, the EU might well have 22 members by the end of the decade.

Battling against an enormous foreign debt, sluggish growth and a drastic fall in living standards, this medium-sized country of ten million inhabitants is nevertheless still banking on becoming a fully-fledged member of the Union by the year 2000.

On the face of it, Hungary's push for rapid membership - and, consequently, early EU enlargement - seems decidedly rash. Its external debt amounts to over 80&percent; of GDP, its inflation rate exceeds 20&percent; and Hungarian industry is only just beginning to emerge from the difficult years of post-Communist reconstruction.

Just a year ago, a major debt default crisis, raising the spectre of another Mexican disaster, was only narrowly avoided. While Poland, the Czech Republic and Slovenia continued to steam ahead, Hungary, with a growth rate of under 1&percent;, barely escaped another recession.

Yet despite all this, nobody in Budapest or Brussels doubts that, barring the unexpected, the country will be amongst the very first to win the EU membership prize.

Politically, Hungary has quickly revealed a democratic maturity which has won it the respect of its western partners. In economic terms, the current government, led by former members of the country's last Communist cabinet, is as tough as they come.

Even more importantly, Budapest can bank on the huge debt of gratitude it earned from the West in general, and German Chancellor Helmut Kohl in particular, in the late summer of 1989.

Hungary was the country which took the risk of opening up the Iron Curtain at a time when nobody could be really certain that the Soviet Union would not roll out the tanks.

Thus, from Germany's point of view, bringing any other Eastern European country into the EU ahead of Hungary would be unthinkable, as Bonn diplomats point out.

The repayment of this debt is made all the easier by the fact that Hungary has grown into a paragon of political maturity and stability compared to its neighbours.

Neighbouring Slovakia elected a leader displaying all the unpleasant qualities of a thuggish autocrat, the Czech Prime Minister Vaclav Klaus tends to infuriate his colleagues by lecturing them in a hectoring manner reminiscent of former UK Prime Minister Margaret Thatcher, and Poland's recently-retired President Lech Walesa conducted his period in office in a way which raised doubts about his understanding of the democratic principles for which he once fought so bravely.

Hungary, meanwhile, is ruled by correct, polite Gyula Horn, who was foreign minister in 1989 when the Soviet bloc fell apart.

Initial doubts raised by the former Communists' electoral victory in May 1994 were dispelled in March last year, when the coalition government of the Hungarian Socialist Party and the Alliance of Free Democrats, faced with spiralling debt, embarked on a drastic stabilisation course to avoid the threat of insolvency.

Horn announced a harsh austerity programme which cut deep into ordinary Hungarians' already depleted pockets, attacked the welfare state and delighted foreign investors and financial markets.

The plan, hatched by Finance Minister Lajos Bokros, proved successful.

The current account and budget deficits receded from their previous heights, while foreign currency reserves shot up.

Frightened foreign investors who, since 1989, had spent nearly as much in politically stable Hungary as in all the other Central European countries put together, regained their confidence.

Bokros' sudden decision to leave office during a stormy cabinet meeting in February this year when his plans to dismantle the welfare state came under attack from less radical colleagues, came as a serious blow to the government.

But Horn reacted swiftly, announcing further stabilisation measures and naming one of the country's leading bankers, Peter Medgyessy, as Bokros' successor. The markets responded well to Horn's handling of the crisis, as Medgyessy, while perhaps less confrontational in his approach, belongs to the same school of tough market-driven reformers as his predecessor.

Apart from the enormous foreign debt load, the foundations of which were laid during the easy going years of Goulash Communism, Hungary's biggest political challenge was undoubtedly the heritage left by the First World War.

The Trianon Treaty of 1920 deprived Hungary (which had lost the war as part of the Habsburg-ruled dual Austro-Hungarian monarchy) of half its territory, and left well over two million ethnic Hungarians living beyond the country's borders, mostly in Romania and Slovakia, often in difficult conditions.

Yet while Budapest supports the Hungarian minorities' claims for local autonomy and the preservation of their cultural heritage, the political establishment, aware of the potentially-explosive situation in a part of Europe where nationalism can whip up emotions quickly, has resisted the temptation to press for a return of the lost territory.

A 'friendship treaty' with Slovakia only awaits Slovakian ratification to come into force. The conclusion of a similar treaty with Romania has so far foundered on Bucharest's refusal to accept the definition of national minorities as laid down by the Council of Europe. Hungary itself, while mixed religiously (65&percent; Roman Catholic, 20&percent; Calvinist Protestant and 5&percent; Lutheran), is ethnically virtually homogenous.

Budapest's ambassador to the EU, Endre Juhasz, admits that while the political culture in Hungary will facilitate rather than hinder his country's accession to the EU, quite a lot remains to be done on the economic front.

Both sides acknowledge that one of the major problems is agriculture, which employs a comparatively large proportion of Hungary's working population (13.5&percent;, or one in seven people) and accounts for about 6&percent; of Hungary's GDP.

Without pushing for radical change, Budapest has urged the EU to begin reforming its own agricultural policy to avoid unnecessary delays to the enlargement negotiations.

But the argument frequently cited by the Union - that a premature integration of Hungary and other applicant countries into the EU would spell economic disaster for the new members, as their industries would collapse (as in former East Germany) under the impact of single market competition - is largely a fallacy, according to Juhasz.

He stresses that the Europe Agreement which entered into force in February 1994, already provides for the establishment of free trade in industrial products by the year 2000, and the adaptation of the Hungarian economy to face up to the competitive challenge of the single market started in earnest years ago.

To assess the specific problems that Hungary might face on entering the EU, the Commission is currently finalising a questionnaire which, once completed, will serve as a basis for its opinion on membership, which it has been instructed to come up with after the end of the Intergovernmental Conference.

But however careful the preparations, EU experts stress, the exact impact of Union membership on the Hungarian economy will probably be impossible to foretell.

They point to the example of Portugal, where the textile industry fared much better after the country joined the Union than both sides had expected.

The Commission, which - more than the Council of Ministers - is currently structuring and setting the agenda for the preliminaries of enlargement, is satisfied with Hungary's cooperation.

Provided suitable transitional arrangements are negotiated, many Commission experts see no reason why Hungary's desire for EU membership in 2001 should not become a political reality.