Hungary Steps Up to Overcome New Challenges

After a decade of sustained efforts to implement economic and political reforms inside Hungary while moving towards integration with the trans-Atlantic community, the Ambassador of Hungary to France, H.E. Andre Erdos, describes the new challenges facing his country as it prepares to join the European Union.

The Diplomatic Letter: Accession negotiations between Hungary and the European Union came to a close at the Copenhagen Summit, held on 12-13 December of last year. The transition period that began with the collapse of Hungary’s communist regime is finally drawing to an end. Could you describe the headway your country has made in building a democratic State open to the West and the free-market economy? What does Hungary hope to gain from European Union membership, which it will acquire on 1 January 2004?

His Excellency Andre Erdos: We have gone through a historic transition period since the Berlin Wall came tumbling down, after Hungary opened up the first breach – according to the ex-Chancelor Kohl – that allowed several thousand East Germans who had taken refuge in Hungary to leave the country and cross over into West Germany. To start with, we had to transform a State-controlled planned economy into a market economy, even if the Hungarian economy was rather unorthodox compared to Soviet economies. Next, we had to change a single-party system into a democratic parliamentary system. It has not been easy to completely transform the country, especially in such a short time frame: less than a decade. Many Westerners sorely underestimate the great complexity of such a change. The countries of Central Europe had far less time to attain the same level of development now enjoyed in the countries of Western Europe. Not only were they short on time, they were further pressed by difficult circumstances on both the national and world stages. They faced the great challenge of making their peoples adopt a new mindset. Think back, for instance, to the sudden collapse of the Soviet market, which purchased the better part of Hungarian production. Think of the war in the former Yugoslavia, right along our border. Think of the weight of U.N. sanctions against that country, which banned all commercial shipping on the Danube River, the corridor we used to get our products to foreign markets. I can only bow before the great maturity and wisdom shown by our people, who paid such a heavy price to ensure that Hungary would be ready to join the Atlantic Alliance and the European Union in just ten years’ time.
Joining the European Union is a goal shared by all the parties currently represented in the Hungarian Parliament. We remain realistic, knowing full well that Hungary will go thorough a period of adjustment and adaptation after it joins the EU. Still, the worst is already behind us. With the close of accession negotiations, 80,000 pages of legislation concerning every field of human endeavor were introduced in Hungary. European Union membership is a guarantee that our democratic system will stand firm, and not be undermined by nationalist movements. It will bolster our country’s security, not only in the military sense but also in terms of investments. It will enhance prospects for economic prosperity, as has been the case in other countries that have joined the EU, such as Ireland and Portugal. I should also mention another aspect, a psychological factor that was probably not as important in Dublin or Lisbon as it is in Hungary. For Hungary, joining the EU represents a historic reunion with the rest of Europe, after a separation that lasted nearly half a century. From now on we will work together to build this great house named Europe. We will have the added weight of 75 million new consumers in the recently admitted countries, along with new markets and a growth rate higher than the current overall EU rate. The enlargement will also put the Union in a stronger position to battle problems that know no borders, such as drug trafficking, organized crime, and the deterioration of the environment. It will also give Europe more weight on the international stage.

T.D.L.: Hungary has made great strides in bringing down inflation and attracting foreign investments, but has seen its budget “slip out of control” as the economy shows signs of shrinking. How is the government going to prevent the deficit from growing even bigger, keeping it within the limits set out in the EU accession criteria?

H.E.A.E.: Hungary launched a policy aimed at bringing down inflation in the latter half of the 1990s. Estimates show that inflation had been reduced to 5.4% by the end of 2002. We intend to keep it down to around 5% in 2003. At the same time, we want our country to remain attractive for foreign investments, which are extremely important to the Hungarian economy. Hungary continues to attract nearly a full fourth of total foreign investments in Central Europe. These investments are a major economic asset for our country, creating a great number of jobs and supplying us with technology. The Hungarian government intends to bring the budget deficit down to 4.5% in 2003. During a recent meeting with his French counterpart, Hungary’s Minister of Finance stressed that the deficit can indeed be brought down if the budget for this fiscal year is well planned. There will be few special expenditures this year, not like the State bonds for building highways that weighed so heavily in last year’s budget. We will not join the monetary union immediately upon joining the EU. We are set to join the EMU in 2007, and will have to meet the Maastricht criteria in the meantime, bringing the deficit down to 3% or under. Hungary’s current growth rate is slightly more than double the EU’s average growth rate. It is, however, true that the Hungarian economy will have to grow at an even faster pace to catch up. The government plans to pump up the growth rate even higher, pushing it to 4% in 2003, and to between 4 and 5% in 2004. We will do this by focusing on boosting our exports.

T.D.L.: Overindustrialization and excessive collective farming during the Soviet era inflicted great damage on the Hungarian environment. During a recent meeting of the Budapest Initiative, Hungarian Prime Minister Peter Medgyessy underscored the need to give the notion of “sustainable development” brand-new meaning. Could you describe the headway the government has made in this arena, and any new projects it hopes to launch?

H.E.A.E.: We are in permanent consultation with European Union bodies on the issue of lasting development. Hungary is currently drawing up a plan for sustainable development, as required by the European Union accession criteria. It is true that we went a little overboard with industrialization in the 1950s. But the campaign to make Hungary “the land of iron and steel,” as the saying went, was abandoned long before the regime change. The environmental problems we are experiencing right now are tied as much to industrial and agricultural production as they are to the country’s infrastructures. We have invested considerable sums to resolve these problems, most notably by changing pipeworks and heating systems. New projects in the areas of public transportation and waste treatment are currently under study. So as you can see, we are taking these problems extremely seriously.
Hungary’s location must also be taken into account. The Carpathian Basin is a natural destination for runoff from neighboring countries. 90% of the water Hungary receives comes from abroad, along with the well-known pollution it carries. It will hence be extremely difficult to resolve this problem on our own unless it is addressed through a regional cooperation program, which is absolutely essential. This is not the first time we have faced this problem in recent years, and we cannot rule out the possibility it could happen again, given our geographic location.

T.D.L.: Could you summarize the broadlines of Hungary’s regional defense policy for our readers, as well as your country’s regional cooperation strategy? What can Hungary do to help Europe craft its new Common Foreign and Security Policy?

H.E.A.E.: When it comes to its defense activities, Hungary does not operate within a regional framework but within the framework of NATO. According to the terms of the Washington Treaty, the Atlantic Alliance guarantees the security of each and every member State. We consider our options and take action within this context.
Hungary joined the 19-member NATO alliance in 1999. This gives us specific responsibilities and obligations, and we do our utmost to meet them. Our regional cooperation efforts are focused not so much on the military stage, but in the economic, environmental and social arenas. Our cooperation with the countries of the Visegrad Group, for instance, offers a good example of this.
As a future member of the European Union, we are looking forward to helping implement a common foreign policy and build the European defense. We would like the European Union to become a key player on the world stage, not only in the diplomatic and economic arenas but in the realm of security as well. We are fully aware of the great complexity of this task, yet still wish to be a part of it. In light of the great political will of EU governments, I am convinced we will get results. I hope recent events surrounding the war in Iraq will inspire us to begin working even harder to come up with the most effective ways of building the new Europe and creating a more united trans-Atlantic community.
NATO and European Union structures must help not hinder each other. I do not believe the two are incompatible. We have held consultations and taken decisions with the aim of harmonizing their activities, as most of the countries involved belong to both organizations.
I believe that the notion of “community preference” is not only a political consideration, but also a purely technological one. We will have to wait and see if the big companies working in the military sector but also in others sectors, can make products that are truly competitive while incorporating the very latest technology. If a non-European firm puts out products that are more competitive than those made by a European country, then a choice will have to be made. This choice may run counter to our objectives in the political arena. This is why I stressed the quality of products manufactured by European companies. When choosing between equally competitive products, it is clearly preferable to go with European products, for a wide array of social, economic and political reasons. But this is not always the case right now.

T.D.L.: A member of NATO since March 1999, Hungary confirmed its solidarity with the Atlantic community by helping to diffuse the crisis in Yugoslavia. Has the situation in the Balkans been sufficiently stabilized to focus on regional development? Can Hungary play a role in ensuring the region’s continued stability? What do you think of the Stability Pact for Southeast Europe?

H.E.A.E.: The manner in which the grave problems that rocked the Balkans in the last decade of the 20th century were handled will forever remain a shameful stain on Europe’s collective memory. It was a political and military disaster. From 1991 to 1995, we witnessed an unthinkable saga marked by incompetence and poor judgments on the part of powers that could have made a real difference from the very start of this crisis.
I am sorry to say that the world’s democracies fell down in their duty to stop this blood bath. Tens of thousands of European Blue Helmets were stationed in the region, and still they couldn’t halt the wave of excessive nationalism that put ex-Yugoslavia to fire and the sword. As Hungary’s representative to the Security Council at the time, I was a direct witness to the international community’s astounding passiveness, which would result in some 200,000 deaths and create millions of exiles.
There is still no real stability to speak of in the Balkans. We will have to wait and see what happens in Serbia and Montenegro, both of which are experiencing internal problems. As for Bosnia, I am afraid that the presence of international troops is absolutely necessary to keep us from repeating the same old scenarios. Macedonia and Albania have their own political and economic problems to deal with. Recent events have confirmed what was said about this region at the start of the 20th century: the Balkans are the “soft underbelly” of Europe. Given Hungary’s geographic proximity and historical ties with this part of Europe, as well as its efforts in recent years to promote democracy both locally and nationally, our country could constitute the European Union’s vanguard in the region.
As concerns the Stability Pact for Southeast Europe, the proliferation of international structures has at times raised problems and caused confusion for both the leaders and the peoples of these countries. The countries of the region have used the prospect of joining the European Union as a compass, prompting them to implement reforms aimed at meeting the accession criteria. Making it easier for these countries to get where they need to be to join the EU should be one of the Union’s top priorities. I refuse to believe that this objective cannot be met. But even if the necessary political and economic changes can be made, changing people’s mindsets will be the greatest challenge. Some of these countries still have all kinds of demagogues who could resume their seductive ranting at any moment, sending their countries back to the dinosaur age. The western Balkans are still prey to these dangers. An international force – one that operates in the military arena if needs be, but above all in the political, economic and social arenas – must step in to help these countries establish and ensure the smooth functioning of governments able to carry out the difficult tasks that lie ahead. In this hard enterprise the Stability Pact for Southeast Europe could play a leading role.

T.D.L.: Hungary’s relations with bordering countries have been strained by the issue of minority rights. The law enacted by Parliament in June 2001 was recently revised in view of Turkey’s accession to the EU. Does this indicate a change in Turkey’s stance towards the rights of Magyar communities living abroad, which are guaranteed by the Hungarian Constitution? What form will government support for these communities take in the future?

H.E.A.E.: The Constitution says that the Hungarian government has a moral responsibility towards Hungarians living beyond our national borders. In our neighbours’ territories there are currently about 3 million Hungarians living abroad. We are in the process of revising the 2001 law. It must meet the legitimate needs of the millions of Hungarians living outside our borders, be acceptable to the governments of the countries in which they live, and comply with European Union legislation. I believe that all three of these criteria are absolutely vital, so that the law’s various dispositions – most notably certain privileges in the areas of education and culture – can be guaranteed in neighboring countries. Having said that, I am well aware of the great complexity of this question. We are all familiar with the troubled history of Central Europe, and with the great shocks dealt to Hungary at the close of the First World War. We continue to consult with neighboring countries, and have already made great headway with some of them. We are continuing our discussions with others. Obviously, we cannot force anything on anybody, as that would only spark a backlash against Hungarians living in these countries. We are also in permanent consultation with associations and parties that represent the interests of Magyars living abroad. Our main goal is to help enable Hungarian minorities to preserve their native language, national identity, secondary schools, and institutes of higher education.

T.D.L.: Romania’s head of government, Prime Minister Adrian Nastase, made a highly symbolic visit to Hungary on 1 December 2002, the Romanian national holiday. Can we expect your two countries to step up their ties even further, working together more closely on issues that affect both countries?

H.E.A.E.: Hungary has long been in favor of admitting Romania into both NATO and the European Union, as we firmly believe that enlarging these two organizations will widen the zone of stability in Europe. Having a stable and democratic country along our southeast border is clearly in our own best interest, as is encouraging Hungarians living in Romania to participate in this great endeavor. Our bilateral ties are being steadily strengthened. The Prime Ministers of Romania and Hungary recently participated in deliberations during the Congress of Romania’s Hungarian Party , bearing witness to the excellent ties between our two countries. To our great fortune, both sides share the same political will to keep pushing forward. Romanians realize they have an ally in Hungary, an ally that can help bring them closer to Europe. With regard to our economic ties, Hungarian firms have invested in Romania, especially in Transylvania. Within the scope of major European projects, our two prime ministers have agreed to build a highway – with European Union assistance – linking Bucharest to the rest of Europe via Transylvania. It is true that there are still people in both countries who have not heeded the lessons of History, and are clinging stubbornly to nationalist obscurantism. Neither Bucharest nor Budapest are following that philosophy, and I hope this remains true in the years to come.

T.D.L.: Your country is playing an important role in the Visegrad Group, and is well positioned to become Central Europe’s leading financial center. Has regional cooperation been boosted by CEFTA? What can Hungary do to help move Central Europe down the path towards full development?

H.E.A.E.: Even before the political changeover, the Hungarian economy was heading down a path quite different from other countries in the Visegrad Group. This prepared the ground for and greatly facilitated the country’s economic transformation. Hungary was, for instance, the first COMECON country to introduce a two-tier banking system, back in 1987. Some of the duties of the Hungarian National Bank were turned over to newly created commercial banks. Key international financial players moved into the Hungarian market, such as BNP-Paribas, Credit Lyonnais, City Bank, and Dresdner Bank. A great many new banks were opened, so many in fact that foreign interests now hold most of the capital in Hungary’s banks. We have a network of relatively stable monetary institutions, and are heralded as a pioneer in the creation of the Visegrad Group and CEFTA. CEFTA has given its member countries many advantages and thus confirmed its viability. I do not believe that the European Union and the Visegrad Group are incompatible. We could easily maintain and continue working through this type of structure, which benefits the entire region.
With regard to Hungary’s future role as a financial center, I have to assume that other countries share that objective. If you look at a map, you’ll see that our country lies at a crossroads where the Balkan region, Ukraine and Russia all meet. We could thus serve as a “transmission corridor” between the European Union and the major markets in the East, such as Ukraine and Russia, which holds great interest for the EU in the economic arena. As a country that did business with the USSR and knew it well, Hungary could be a very useful tool, helping the European Union break into these vast markets, which extend all the way to Japan.

T.D.L.: Hungary favors expanding the NATO security zone in the east. Have your country’s geopolitical interests shifted in recent years? On a broader level, how would you describe current relations between Hungary and Russia?

H.E.A.E.: First of all, we will never build real security in Europe without Russia. And while the Russians do not have belong to the European Union, it is absolutely vital for them to be a part of the process to turn the entire European continent into a zone of stability and democracy. Building a special partnership with Russia is extremely important. It will serve both the economic and security interests of Europe as a whole. In view of the location of Russia and Hungary, I believe we can help bring this project to fruition. This involves economic issues as well as security concerns, and political as well as cultural questions.
It is true that our bilateral ties were troubled in the past, marked by highs and lows and even chills in Russian-Hungarian relations. But that period is behind us. Now that the EU has been enlarged, and Hungary has joined NATO, I am confident that Russia realizes the borders edging towards it do not belong to a hostile bloc, but to a zone of expanded security and political and economic stability. I think we have united all the necessary conditions and opened excellent possibilities for building dynamic and beneficial ties with both Russia and Ukraine, in a much more relaxed climate.

T.D.L.: France and Hungary have steadily strengthened their ties over the past decade, stepping up diplomatic and cultural exchanges considerably. How do you account for the enhanced mutual appreciation between our countries? Would Hungary like to play a greater role in the French-speaking community, despite the fact the number of French speakers in your country remains relatively small?

H.E.A.E.: The political leaders of France and Hungary trod different paths during the great upheavals of the 20th century. In that light, I can only praise the great headway we have made over the past thirteen years, which offers clear proof of what can be done in the new Europe. We have left the dark periods of our shared history behind us. Hungarians are often amazed by the great interest France has shown in our country. Franco-Hungarian relations have evolved in the exact same manner as Franco-German ties, relatively speaking. We see the French-German partnership as a model, in that despite their stormy relations in the past, Paris and Berlin have managed to build ties that offer great hope to everyone willing to believe in a new Europe. France has finally stopped viewing us as the “private ground” and “unapproachable ally“ of German. It now sees Hungary as a key strategic partner in Central Europe.
In the economic arena, France is our third investor and fourth trading partner. The number of French tourists visiting Hungary rose 25% in 2002. Budapest has the most impressive French Institute in Central Europe, offering clear proof that times and attitudes have changed in both countries. I am greatly pleased to see this upsurge in bilateral exchanges. Though we are well-informed about official relations between the two States, it is difficult to keep abreast of all the joint French-Hungarian activities in civil society. The exceptional interest in Central Europe and Hungary is clearly related to the enlargement of the European Union.
As far as the French-speaking community is concerned, we are in the process of filing a formal request to join the International Organization of the Francophonie, as an observer country. This confirms our great interest in the French-speaking community, which in our minds represents much more than a very beautiful language and a very rich culture. The Francophonie is an authority that can keep a watch on the human rights situation in its member countries. It embodies a strong commitment to preserving the world’s cultural and linguistic diversity. Hungary is scheduled to join the Francophonie at the next IOF summit, to be held in Ouagadougou in 2004.

T.D.L.: France has greatly strengthened its position in Hungary over the past decade, becoming the third foreign investor. Most of this investment has been made by large groups, while small- and medium-sized French companies have broken into only a handful of sectors. What can your country do to improve the profile of French firms in Hungary and reenergize trade ties between the two countries?

H.E.A.E.: The French giants are all working in Hungary, yet both countries readily acknowledge that France’s small- and medium-sized companies (SMEs) have made few inroads there. The French Minister of Foreign Trade visited our country with the heads of numerous French SMEs, in an important step towards attracting more French investors to Hungary. In light of Hungary’s expansion and upcoming accession to the European Union, we could see a slight decrease in the advantages offered by our country in the past, especially in terms of labor costs. PSA Citroen, for instance, recently decided to set up operations in Slovakia, out of four candidate countries. The choice was based on very objective calculations, with Slovakia’s labor force offering the best advantages. We, of course, sincerely regret PSA’s decision, but realize that there must always be a loser as well as a winner. In the mid-1990s, over half the foreign investments made in Central and Eastern Europe poured into Hungary. This was a high point in the flow of capital into the region. The flow of capital has since slowed down, but Hungary continues to be a leader in this area. I believe that joining the European Union will bring our country brand-new experiences. We remain convinced that Hungary has many other advantages to offer besides low labor costs, such as considerable gray matter and other advantageous conditions for setting up, for instance, research centers. We are convinced Hungary still has a good many cards to play that will attract large-scale foreign investments. We also hope to keep French companies interested in our country. As concerns special advantages for foreign firms that did not comply with European regulations, we have successfully negotiated a transition period during which the facilities granted in past years will still be extended. We have also set up a new program to promote foreign direct investment, called “Smart Hungary,” which fully complies with European Union criteria. I hope that France and Hungary will continue to strengthen their ties, despite the new challenges and diversification of the economic landscape.