The Goulash Archipelago
by Michael Patrick O'Leary
A version of this article appeared in Ceylon Today on October 2 2014
Imagine a country where a populist leader wins a two-thirds majority in parliament and uses it to make radical constitutional changes, which were not in his election manifesto. The opposition is negligible and ineffectual. The popular leader sees his electoral success as a mandate to restructure the justice system and to place his acolytes in important institutional positions. He clamps down on the media, undermines religious organisations and imposes a nationalist viewpoint, citing national sovereignty when subject to international criticism. Checks on executive power are removed. Transparency International condemns widespread corruption. NGOs (including some based in Norway) are intimidated by police raids. Slum clearance is making people homeless. The leader seems to regard himself as a monarch. Where is this country?
It is not some failed state in Africa or Asia. It is right at the heart of Europe and of the “ethical” project known as the European Union.
Will Hungary become a dictatorship and remain within the EU?
Hungarian Prime Minister Victor Orbán has said that his aim is to build an “illiberal state” on “national foundations,” citing as models China, Russia and Turkey. He denied that these plans conflicted with Hungary’s EU membership.
The EU presents itself as a moral model to the world. Any European nation wishing to become a member of the EU must, in theory, respect the values set out in Article I-2 of the Constitution. Turkey has been trying to get into the EU for a long time, but, despite its ongoing electoral success, the Erdoğan government makes the EU uncomfortable. The EU takes steps to ensure that a prospective member state meets certain criteria about democratic practices. This has delayed Turkey’s acceptance. What happens when a state is accepted into the EU, and then reneges?
Although Viktor Orbán has made no secret of his plans to use his popular support to make sweeping constitutional changes, to muzzle the media and reshape Hungarian institutions to suit his own purpose, the European Commission agreed in August 2014 to provide Hungary with nearly 22 billion euros of economic assistance. The money will arrive between 2014 and 2020 to boost competitiveness and growth. Hungary will also get €3.45 billion for rural development and €39m for fisheries.
Collapse of Communism
Hungary was the first Eastern European country to gain some economic freedom under “Goulash Communism”. Communist leader Janos Kádár, through the New Economic Mechanism, reintroduced some elements of a free market. Hungary was “the happiest barrack” in Central and Eastern Europe. However, Kádár had to borrow money and, in 1982, joined the IMF. The resultant debt contributed to the instability of subsequent governments.
In 1989, Hungary allowed thousands of East Germans to escape to the West by opening its border with Austria. Hungary began a programme of privatisation soon after the collapse of communism and within four years privatised half of the country’s economic enterprises. By 1998, nearly half of foreign direct investment in Central Europe was going to Hungary.
Hungary and the EU
In 1988, Hungary was the first among the Central-Eastern European countries to establish diplomatic relations with the European Community and benefited from assistance programmes. Every political party elected to the Hungarian National Assembly after the first free elections of 1990 agreed that accession to the European Community had to be a priority.
At the EU Summit in Dublin on 25-26 June 1990, the twelve then existing members initiated talks with the Central-Eastern European countries to establish a “new type of relationship”. In 1998, the EU began negotiations with Hungary on full membership. In a 2003 national referendum, 85% voted in favour of joining the EU and Hungary became a full member on 1 May 2004.
Despite EU membership, a high level of private and state borrowing left Hungary vulnerable to the credit crunch of 2008, and in October of that year, the government was forced to appeal to the IMF and the ECB for huge sums to avoid disaster.
In 1992, Viktor Orbán became leader of the Fidesz party, which was originally founded by young democrats persecuted by the communist party. In 1998, Orbán formed a successful coalition and won that year’s parliamentary elections with 42% of the national vote. Orbán became Prime Minister of Hungary at the age of 35.
Fidesz does not have a coherent ideology, but draws on populist themes, including those espoused by extreme right wing groups- national sovereignty, distrust of foreigners and NGOs (an NGO that trains dogs to help disabled people was recently raided by police). Fidesz narrowly lost the 2002 elections to the Hungarian Socialist Party. Dissatisfaction with the Socialist government’s subsequent handling of the economy from 2002 to 2010 coincided with the rise of the right-wing nationalist party Jobbik. Fidesz moved to the right and won the parliamentary election in 2010. Fidesz scored another comfortable victory in the 2014 election and Jobbik increased its share of the vote from 17% to 20.5%.
New Constitution: Top-Down Coup d’État
The two-thirds parliamentary majority gained by Fidesz in 2010 allowed it to replace the comparatively liberal post-communist constitution. Critics say the new constitution removes essential checks and balances but Fidesz claims that the constitution needed to be changed to expunge vestigial traces of communism. However, deep constitutional change was not part of Fidesz’s electoral programme and it does not have a democratic mandate for the changes it has introduced.
NGOs were raided by the police. This was “completely unacceptable”, complained Vidar Helgesen, Norway’s minister for Europe. News services became centralised monopolies. Employees lost the right to strike. Dozens of religious organisations closed. The government looted private pension funds. Schools were nationalised and all headmasters replaced. The government attacked critical intellectuals. Fidesz loyalists gained long-term powerful posts, including the presidency, the office of the chief prosecutor and the audit court, as well as top jobs in cultural organizations. The Orbán government reduced the powers of the constitutional court and the budget council. Bill Clinton said Orbán was an admirer of “authoritarian capitalism” and never wanted to leave power. “Usually those guys just want to stay forever and make money”.
Corruption has worsened, says Transparency International. A recent report highlights “worryingly negative trends” in Hungary. In the Social Justice Index (SJI) Hungary scored 4.44% in 2014, down from 4.79 in 2011 and 5.07 in 2008. The report showed that 43% of children are at risk of poverty or social exclusion. Children are worse off in this respect only in Romania (52.2%) and Bulgaria (52.3%). Hungary ranks second to last with respect to the percentage of children suffering severe material deprivation (35%), with only Bulgaria (51%) behind it. In Miskolc, a slum-clearance programme has made many homeless.
Democracy in Danger?
According to the Council of Europe’s Venice Commission, Orbán’s politicisation of the constitution poses serious threats to democracy and the rule of law. The opposition had no say in the drafting of the new constitution. Further amendments weakened opportunities for political competition and removed checks on executive power.
In April 2013, the Monitoring Committee of the Council of Europe’s Parliamentary Assembly recommended monitoring of Hungary. Hungary would have been the first extant EU member state to have its democracy scrutinized. On June 25th, the European Parliament voted not to subject Hungary to the monitoring procedure but adopted a resolution, stating that according to Article 2 of the Treaty on European Union, the situation in Hungary is incompatible with EU values.
When in opposition, Orbán accused the government of allowing the Hungarian economy to fall under foreign control. Fidesz bases its political appeal on an image of rescuing the country from an incompetent and corrupt Hungarian Socialist Party. Despite this populist stigmatising of foreign control, Hungary received a bailout of over $25 billion jointly from the EU, the IMF and the World Bank. Orbán was unwilling to make severe cuts in public spending and the IMF declined to provide the requested flexible credit line for Hungary.
Recently rating agency Standard and Poor’s warned that growth could slow to about 1% to 1.5% pointing to a large public sector, political uncertainty, weakness in the banking sector, and a regressive, complex tax system. Nevertheless, GDP rose in the second quarter at an annual rate of 3.9% and industrial output is up 11.3%. Tourism revenue has risen by more than 10% year-on-year.
Because Hungary is not a member of the Eurozone, it has the option of doing what ECB membership denies Greece and Ireland: printing more money and devaluing its currency. This could provide the sort of internal stimulus needed without additional borrowing. Orbán has said he has a duty to protect national sovereignty and preserve Hungary’s independence. Adopting the euro would mean local officials losing control over monetary policy. Hungary is required to introduce the euro eventually under its EU accession obligations. However, analysts believe there is not much chance of Hungary adopting the euro before 2020.
International organizations like the IMF and the Council of Europe have criticised Hungary’s political direction but nothing practical was done to stop Orbán unpicking the framework of Hungarian democracy. The Council of Europe adopted an ineffectual resolution, which criticised undermining of European democratic standards in Hungary, but merely resolved “to closely follow” the situation in Hungary. The Hungarian government has agreed to a few constitutional changes after the latest Council of Europe Venice Commission report, but did nothing to withdraw measures on political advertising and recognition of religious groups.
Sweden’s EU Affairs Minister, Birgitta Ohlsson, proposed that EU funds – which Orbán distributes to his supporters – should be withheld and that he should be warned that Hungary’s EU voting rights could be suspended. The European Parliament on 15 September rejected a proposal by the liberal group for a plenary debate on Hungary at its session in Strasbourg.
A few years ago, Tibor Navracsics boasted that he faithfully executes all tasks he receives from his superior. Navracsics has been appointed EU commissioner for education, culture, youth and citizenship.
Orbán has moved out of the Hungarian equivalent of the White House into a castle that formerly housed Hungary’s kings. Six million dollars from the exceptional provisions reserve fund will pay for renovation.
If Orbán succeeds in his stated ambition of building an illiberal state within the EU, existing or new members might copy him. Is the success of Fidesz and Jobbik a peculiarly Hungarian phenomenon, or is it an advanced symptom of a broader popular discontent with the “Europe Project”?
If Hungary gets away with using sovereignty as a justification for passing laws that directly contradict important democratic and human rights principles, this could undermine the whole ethos of the EU. As the EU expands to include a more diverse array of countries and cultures with different versions of democracy, it needs to examine its economic, social, and political values. Can the EU’s current mechanisms cope with further expansion?