Yearning for Change - Again
The political and economic crisis Hungary is going through is shared by all within the region
It has been one month since a referendum dealt a huge blow to the ruling government's plans for reform. The country is still in turmoil as almost daily some top expert or politician comes out of the woodwork and states the obvious: the government policies aren't working and the prime minister ought to resign. This includes many who had until now cheered on the government; as if to cover their own complicity they are now only too glad to draw a dagger.
Yet the present political and economic crisis isn't something new. Hungary's economic woes have been apparent ever since the fall of communism some 18 years ago. The dormant crisis has been inherited from all successive governments since, and has come to a head now thanks in large part to the arrogance of the present prime minister. Nevertheless, it was something that was bound to happen sooner or later whichever party happened to be in power.
Meanwhile, similar developments can be witnessed in other Central and Eastern EU member states. Naturally, these developments differ from country to country in terms of scope and intensity. In Poland, for instance, the demise of the political left has already occurred. In Hungary, this process has been rather slow but has since gathered pace with the current political crisis. In conjunction with this, the rise of the radical right (at least in appearance, not so much in parliament as of yet), heralded by symbolic acts such as the formation of the Hungarian Guard, has been replicated elsewhere; late last year in the Czech Republic the Czech Guard was established along the same lines as in Hungary.
Most - if not all - countries within Central and Eastern Europe are burdened with similar problems. In Hungary these problems have burst with an intensity that others are not likely to face to the same degree. Moreover, the present situation of other member states within the region is such that these latent problems have remained well below the surface. Still, these problems are there and thanks to the neo-colonialist policies of Western Europe they have become entrenched so that it's not a question of if they will surface but one of when.
The Present in Light of the Past
The reason Hungary has become mired in a crisis when other new member states seem more or less far from such a point has to do with the seeds that were sown in the 1970s. The regime was well aware of the lessons of the 1956 revolution and had quickly sought to consolidate its hold on power by easing control over the social sphere. The notion was as long as people don't involve themselves in politics, they can do more or less whatever they want, within certain limits of course. This included dabbling in basic forms of consumerism, although the party line was still anti-capitalist. Hence the famous Kadar slogan of "those who are not against us are with us."
This became the basis for what was later called in the west "Goulash Communism" and led to Hungary becoming the "happiest barracks" in the Soviet camp. In the 1970s, this policy came under threat with the energy crisis caused by high oil prices. Whereas other countries within the region responded by cutting back on goods and services, Hungary took a novel approach: it borrowed money from the capitalist west. Thus, while other countries underwent a period of austerity, Hungary put on the appearance of prosperity. Many Hungarians felt they had devised a unique system that was better than capitalism. Indeed, there was the feeling that Hungary was second to only West Germany in terms of development.
Sadly, this "learned recklessness" carried on through the communist years into the present and explains in large part the reckless behaviour of Hungarians when it comes to financial matters. Hungary has the highest level of personal debt within the region. Whereas many Central and Eastern Europeans save in order to make a big purchase, Hungarians right away turn to credit.
Not surprisingly, the government reflects this same sort of recklessness when managing the country's finances. During the regime change of 1990, Hungary's debt stood at about 20 billion USD. By 2000 this figured had reached some 100 billion USD. Most are aware that some sort of reform is needed but no-one has any idea of exactly what or how. Meanwhile, the country has gone from the happiest barracks in the Soviet camp to the most depressed in the Brussels camp.
Crisis of Convergence
Starting with the first wave of accession in 2004, all new member states to the EU must design a convergence program annually. This convergence program sets out a government's approach and economic objectives that would be needed to adopt the Euro. Among these objectives are a series of "reforms" that fall in line with the European Commission's neo-liberalist plans for Europe, also known as the Lisbon Agenda. Among the criteria is a budget deficit under 3% and a low inflation rate.
As a result of this, the new member states to the EU have been hamstrung by Western Europe's desire to "liberalise" and "privatise" everything in the east, while their own markets stay either closed or very difficult to access. Consequently, all countries within Central and Eastern Europe have been unduly burdened by the Lisbon Agenda. Thus, the health care reforms which had precipitated the political crisis in Hungary are something that many other countries within the region have already gone through or are set to go through. Slovakia suffered a crippling strike by health workers a few years back because of similar reforms; ultimately the new government of Fico scrapped parts of it, among them the much-despised visit fee. Likewise, comparable fees had also been introduced in the Czech Republic only to be later scrapped.
From this it can be seen that there is a common thread of change running through most of the new member states of Central and Eastern Europe. This change is to backtrack on so-called "reform" which seeks to dismantle what is left of the welfare state in these countries. Heath-care and pension reform are foremost points of contention.
In Hungary, however, thanks to the large debt left by the former regime these points of contention have led to a serious crisis. Most pundits now blame the government for not taking the views of civil society into consideration when developing their reform policy. Still, they all agree that some sort of reform is needed to address the country's catastrophic financial position. Many see gloomy times ahead, even the threat of insolvency within the next couple of years.
Yet the solutions proposed are basically more of the same. For instance, the head of the Hungarian National Bank, Andras Simor, while claiming to understand the difficulty that people are going through with the austerity measures thus far, nonetheless has boldly stated that what is needed at this point is radical reform that would save the government some 2,000 billion HUF (approximately 12.5 billion USD). This includes reduced social programs, shorter maternity leave, no minimum wage, and an increase in the retirement age. As far as Simor sees things, there are the needs of the people and the needs of private investors; in order for the country to grow, the latter must take precedence. Yet when asked if he would take part in a new government to implement these reforms, he replied a firm no. Apparently talk is still cheap.
Opting Out
When measuring a country's economic performance, gross domestic product (GDP) is the favourite yardstick used. Essentially a measure of output, GDP takes into account a nation's consumption, investment and government spending, as well as the balance of its exports and imports. This convenient benchmark is undoubtedly a valuable economist's tool and over time has been used as an indicator of welfare and well-being. But welfare and national income is not the same thing. GDP, for example, does not include factors such as environmental degradation, depletion of natural resources and even human happiness. Oddly enough, natural disasters may also be positive for GDP, as the clean-up operations generate economic activity.
Yet Eurocrats in Brussels as well as the head of EU member states rely too heavily on GDP as an indication of economic and social progress. Likewise, too much emphasis has been placed on the importance of joining the Euro, so much so that the leaders of many countries are willing to sacrifice social programs so that investors are able to do business easier. It also goes without saying that many countries have actually seen a drop in their GDP after joining the Eurozone.
Hungary's biggest problem was that after the change in regime it hadn't put a moratorium for five years or so on the repayment of loans and the privatisation of state assets in order to give the country's economic players time to adapt to a market economy. What can be done now, however, to help address this mistake is to change the mentality of reform which seems to focus exclusively on GDP and the rights of investors.
Against the idea of Europe Inc.
Contrary to the likes of Simor and the vast majority of other economists and specialists, the reforms which are needed should be focused on increasing the tax burden on multi-national corporations and investors. Moreover, what is needed at EU-level is an EU minimum wage in order to guard against the exploitation of European labour markets. Such a policy is in line with the type of change that most within Central and Eastern Europeans feel is lacking: that private capital and large multi-nationals are not paying their fair share.
Subsequently, a growing anti-EU sentiment can be discerned throughout Central and Eastern Europe. At times it has found expression in the possibility of a life outside the EU. This isn't because people are against the underlying concept of a united Europe; rather, they are against the idea of Europe Inc.
This feeling, unfortunately, often plays into the hands of the extreme right which is against the notion of a united Europe, period. Hence the rise in such movements as the Hungarian Guard and Czech Guard, where members feel that the state is no longer able to provide a sense of security to citizens. In other words, many feel that EU accession has led to the demise of the nation state, and with it the end of law and order, loss of identity, a lack of personal security, etc.
Despite this, there are some economic arguments for opting out of the EU which, in Hungary's case, may provide a short-term solution to its financial woes. The existing course is to reduce the country's debt by reducing spending, hence attempts to cut deep into social programs and health care. On the other hand, little can be done to raise revenue as Hungarians are the second highest taxed in Europe (with a tax rate of over 50%, second only to Belgium).
Yet a main revenue stream of the country that was lost because of EU accession was customs and excise taxes. Bringing back this revenue stream, coupled with higher taxes for the wealthy and multinational corporations, will help guarantee a sizeable increase in government revenue which, in turn, can be used to pay down the country?s debt without having to sacrifice social programs.
Some complain that under such a policy companies would leave because they would be no longer competitive on the world market. This, in fact, is nothing more than an empty threat. Those that do leave will suddenly find themselves priced out of the Hungarian market, a position they can't afford to lose. Moreover, since most jobs are generated by SMEs (Small and Medium Enterprises), the loss of multinationals wouldn't be such a bad thing; indeed, it would give the chance for smaller companies to grow.
Such an idea may sound unrealistic and overly utopian, but this is what is actually on the minds of many within the region. The fact that traditional and neo-liberalist ideas have led Hungary to the sad state its now in has prompted some to question the policies and wisdom of so-called "experts", and to rethink the links between the economy and social progress.
The winds of change which blew across Central and Eastern Europe two decades ago look set to blow once again. The difference this time round, however, is that not all countries are at the same level. The crisis in Hungary is not felt everywhere or as deep because of the different paths taken by each country over the past few decades. Still, the underlying problems are similar and given the shaky state of the world economy, many other countries within the region may soon find themselves approaching a crisis point similar to that of Hungary.
Not only this, it must be remembered that the winds of change never blow evenly. During the regime changes of the late 1980s, some countries merely stepped from one system to another (Hungary); others had to struggle for change (Poland and then Czechoslovakia); and there were some which even succumbed to revolution (Romania). Indeed, some have yet to recover (many of the states of the former Yugoslavia). The question now is to what extent will the crisis in Hungary ultimately spread to the rest of Central and Eastern Europe, and how much of it will remain a domestic affair.