Hungary’s Rotating EU Presidency Paralyzed

Hungary is wary of deeper eurozone integration, even though it isn’t a member of the euro.

Last week, German chancellor Angela Merkel and French president Nicolas Sarkozy put forth their plans to deepen integration among the seventeen nations that use the euro as their currency.

Hungarian Prime Minister Viktor Orbán described the eight-hour luncheon in Brussels where the proposals were discussed as the longest meal in his life, comparable only to his wedding. At the end of that dinner, he added, there were days of celebration, though.

Surely, at the end of the luncheon in Brussels there was no cause for joy, certainly not for Viktor Orbán.

The Hungarians had worked out a six-point plan that doesn’t speak to the current financial problems connected to the euro. It seems that this plan wasn’t radical enough for Merkel nor Sarkozy. This isn’t surprising given Orbán’s ambivalent attitude toward the European Union in general and his opinion concerning “states rights,” to use a familiar term from American history. The political future of Hungary’s ruling party, Fidesz, largely depends on artificially whipped up nationalism. It would be politically unacceptable at home for Orbán to stand behind a proposal that could take away a substantive amount of economic freedom from the member states.

The Franco-German plan is a radical shift in attitude toward sovereignty in economic and financial matters. If it materializes, it might be an important turning point that could lead to the euro nations’ agreeing on more of their key economic policies as a unified bloc. In return Berlin would strengthen the rescue fund for the eurozone by lending its full €440 billion ceiling figure and perhaps use its funds more flexibly in the future. The problem currently is that there is a single currency without either economic convergence or political union.

Although some member states currently oppose a common tax and wage policy, most observers agree that France and Germany will eventually get their way. For the time being, Austria, Ireland and the Netherlands are complaining, but Ireland’s views in particular don’t carry much weight given the incredible financial mess the country is in.

And what about Hungary? Hungary is not in the eurozone and perhaps many Hungarians at the moment are delighted about the delay in adopting the single currency. Thus, if the Franco-German plan materializes it doesn’t affect Hungary in the short run. However, it has a bearing on Viktor Orbán’s pride and the standing of Hungary which currently occupies the rotating presidency of the European Union.

Hungary’s “ambitious plans,” even before the Franco-German announcement, had suffered some setbacks. It was obvious that at least one item on the Hungarian agenda, the inclusion of Croatia in the union, wasn’t going to materialize given the economic predicaments faced by many existing EU member states. Another, extending the Schengen borders to include Bulgaria and Romania, also seemed to be too much for the European Commission. And now this two-tiered plan.

As Viktor Orbán rather unhappily remarked, the seventeen eurozone countries’ regular meetings will take place in private, most likely meaning that even the prime minister of Hungary will not be present in the next six months. Adding insult to injury, just yesterday Poland was invited to join the meetings as an observer.

Orbán most likely was mighty upset when he arrived in Brussels for the summit. The agenda was suddenly changed and, instead of presenting the Hungarian proposals, he found himself a witness to a long discussion about a new strategy from which Hungary, rotating presidency or not, was excluded. No wonder that Orbán was unhappy.

The importance of the rotating presidency had already been diminished by the appointment of a bona fide president of the European Council a couple of years ago. That limited role has now been further diminished by the announcement of the Franco-German plan that made Hungary’s “ambitious plan” much less relevant.

Viktor Orbán was certainly upset and offended. That’s why he talked about the Franco-German plan as “a nonexistent document.” He tried to mask his disappointment by pointing out that Hungary wouldn’t want to be part of the “elite group” because if the country joined the eurozone any time soon, it might lose its competitive edge by being tied to a common economic and financial policy.

He may be right but the question is whether foreign companies would be eager to establish businesses in Hungary just because of this alleged competitive edge. Extra tax levies and other less than business-friendly burdens currently imposed on foreign enterprises by Orbán’s government are far from conducive to a large influx of foreign capital.

Of course, Hungary can look for business outside of Europe — Russia and the Far East. As for Russia, Hungarian-Russian relations are not the best. It didn’t matter how often Tamás Fellegi, minister of national economic development, went to Moscow, he always came back empty handed. Foreign Minister János Martonyi is the latest visitor to the Russian capital and since he just returned to Budapest, we don’t know yet whether he managed to put Russo-Hungarian relations on an improved track. There has been talk of Russian businesses getting a piece of the action in the Budapest metro construction and the expansion of the Paks Atomic Plant, but no word of major Russian firms planning to set up shop in Hungary. Similarly, there is no news on Chinese investments.

It is unlikely that the sidestepping of Viktor Orbán and the Hungarian rotating presidency by the eurozone heavyweights has anything to do with the less than savory reputation of Orbán and his government in Western Europe. One suspects, however, that he is not the most beloved man in Brussels.

This story first appeared at Hungarian Spectrum, February 8, 2011.