Other countries could soon be following Hungary’s path in what has until now been a mostly one-way road toward tighter economic integration. Near-bankrupt Greece could be kicked off the euro, or even out of the E.U., if it fails to make enough progress in grappling with its problems. Even politicians who support the union as a whole are questioning the wisdom of the fiscal pact agreed to on Monday that binds together the 17 countries that have adopted the euro in a solemn vow of austerity and that will slowly draw in eight other countries, including Hungary, if they join the euro zone.
“The fiscal pact raises budgetary discipline to the status of a panacea for all the ills associated with the debt crisis,” Martin Schulz, president of the European Parliament and a member of Germany’s Socialist party, said in a speech to European leaders Monday. “Alone and accompanied by austerity measures in many member states, it will not bring much-needed economic growth and jobs.”
Orban blames the rush of foreign money that came in after his country joined the E.U. for its later problems, a common complaint in other struggling countries, especially Greece, which after years of exuberance faced a painful reckoning. There, the E.U. and International Monetary Fund have little to show for billions of euros of bailout money and two years of austerity-driven attempts to restructure the country’s economy.
But Orban has a freer hand than his Greek peers because Hungary retains its own currency. In recent months, he has passed laws that would reduce the central bank’s independence in an attempt to make it submit to his policy goals. He also dismissed more than 100 long-
serving judges and revamped the country’s data-protection office to place it under his control. All three actions led the E.U. to launch proceedings against Hungary in January, saying that the changes had contravened European treaties.
Protests have split this country of 10 million since the beginning of January, underscoring deep divisions between Hungarians who see the E.U. as the only thing preventing their country’s slide toward authoritarianism and those who think it is the source of their troubles.
‘Building an empire’
The European Union has been “building an empire” with its ever-increasing demands on individual countries, said Gyorg Filip, who drives his battered taxi through Budapest’s sycamore-lined streets as a way of supplementing his $300-a-month retirement pension. On the side of the cab is a map of Hungary’s pre-World War I borders, when it was three times as large and engulfed much of Central Europe.
Filip said he ran a sock-knitting factory until it was forced shut five years ago, blaming European free-trade rules that swept in cheaper mass-produced socks from abroad.
Hungary’s leaders “fooled all the people” with promises of prosperity when the country voted to join the E.U. under the previous Socialist government, Filip said. Orban, long cautious about membership, has turned such sentiment to his advantage.
In tussling with the E.U. and the IMF, Orban has used his two-thirds majority in parliament to institute laws that dismiss or water down the power of his opponents in positions ranging from the judiciary to the central bank to local schools. A prominent opposition radio station,Klubradio, will probably be off the air in March after authorities awarded its frequency to another station.
Orban and his allies say the changes are aimed at sweeping out the last of the Communist remnants; the opposition counters that it is simply a bid to create a powerful network of supporters of his Fidesz party.
“You can see the tyranny of the majority,” said Attila Mesterhazy, chairman of the Socialist Party. “They’re building their power not based on the will of the people but on administrative tools.”
Orban has been forced to back away from some of his euro-skeptic rhetoric in recent months as he seeks an IMF credit line to shore up his country’s finances, and he has said he would change the new central bank policy. On Monday, he agreed to the E.U. austerity pact, which Hungary hesitated to sign in December. But the treaty will not have any practical effect on Hungary unless it joins the euro, which politicians say is unlikely before 2020.
Despite his conciliatory steps, Orban has continued to caution Hungarians about capitulating to European demands and has courted China and Saudi Arabia as alternative sources of investment, encouraging them to set up shop in Budapest’s imposing fin de siecle buildings.
And he also appears to be sticking to his financial policies, which critics and government officials alike agree are not a strategy from any economics textbook. Some policies — such as increasing the value-added sales tax to 27 percent, one of the highest in the world — have been aimed at raising revenue. Others, such as instituting a flat income tax, amounted to a tax cut for the wealthiest earners. Yet others — nationalizing the country’s private pension plans to help ease the government’s cash crunch — were just plain unconventional.
Many economists blame the rapid-fire changes for exacerbating the tough situation that Orban inherited when he took over from the Socialists.
“The economic policies of the government simply failed,” said Zoltan Torok, an economist at Raiffeisen Bank. “It was shortsighted” and also based on the expectation that Europe’s economy would improve, not deteriorate, he said.
For all Hungary’s travails, economists note that some fundamentals remain decent. The country’s debt stands at 83 percent of its gross domestic product, close to Europe’s average, and the IMF predicts modest economic growth this year and next.
Still, to many here, neither Orban nor the European Union seems likely to ease Hungary out of its problems.
“I don’t see the light at the end of the tunnel,” said Orsolya Kovacs, 35, an accountant who speaks the language of finance when talking about her own pocketbook. “I don’t have Internet at home anymore. I don’t take my car to the shop,” she said. “This is like restructuring.”
Kovacs invested in property in 2007, taking out mortgages in Swiss francs that got more expensive as the Swiss currency skyrocketed last year. When she finally managed to sell an apartment in the summer, near the franc’s peak value, “all I got back from the bank was 20,000 forints,” she said — about $87, after years of paying down her loan.
Though support for Orban’s party has dropped, it remains the most popular in the country, and the far-right anti-Semitic and
anti-E.U. Jobbik party has surged in polls.
“We want to balance out this one-sided reliance on the West by opening up to our Eastern partners,” said Elod Novak, Jobbik’s deputy head, who burned the star-studded blue-and-yellow flag of the European Union at a rally this month.
A government spokesman, Zoltan Kovacs, paused recently when asked whether the E.U. had been good for Hungary.
“All in all, yes,” he said, after a moment of silence. “It’s an ongoing debate. It’s not only a debate in Hungary, it’s an ongoing debate in all European countries at the moment. . . . There are many questions that should be answered about which way Europe is going.”