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41

Andrzej Sadecki

In a state of necessItyHow HAS orbAn cHAnged HungAry

NUMBER 41WARSAWAPRIL 2014

In a state of necessItyHoW HAS oRBAN cHANgEd HUNgARy

Andrzej Sadecki

© copyright by ośrodek Studiów Wschodnichim. Marka Karpia / centre for Eastern Studies

content editorolaf osica, Mateusz gniazdowski

EditorHalina Kowalczyk

co-operationKatarzyna Kazimierska, Anna Łabuszewska

TranslationIlona duchnowicz

co-operationNicholas Furnival

graphic design PARA-BUcH

dTP groupMedia

Photograph on cover: PAP

graphsWojciech Mańkowski

PUBLISHERośrodek studiów Wschodnich im. Marka Karpia centre for Eastern Studies

ul. Koszykowa 6a, Warsaw, PolandPhone + 48 /22/ 525 80 00Fax: + 48 /22/ 525 80 40osw.waw.pl

ISBN 978-83-62936-44-1

Contents

MAIN PoINTS /5

INTRodUcTIoN /7

I. doMESTIc PoLIcy /10

1. The constitutional reforms /102. Fidesz’s hegemony in the state administration /123. The weakening of independent institutions /134. The consolidation of power and the ‘irreversibility’

of the changes /145. The dominant position of Prime Minister Orban /146. Fidesz’s business and media base /16

II. EcoNoMIc PoLIcy /19

1. The fiscal policy /202. More state in the economy /223. The results /24

III. EURoPEAN ANd FoREIgN PoLIcy /28

1. European policy /282. The international criticism /303. The policy on Central Europe /334. The Eastern opening /36

coNcLUSIoN ANd FoREcASTS /40

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MAIN POINTS

• ViktorOrbantookpowerinHungaryatatimewhenthecoun-trywasplungedinadeeppoliticalandeconomiccrisis.Hein-troducedradicalchangesinthecountryandthuschallengedthe previous economic andpolitical order. Themechanismsof checks and balances were significantly hemmed in, andthepoliticalopposition’s rolewasmarginalised.Thiscausedagreatdealofcontroversyabroad,andOrban’sruleprovokedadiscussiononthelimitsofdemocracyandtheruleoflawintheEuropeanUnion.Thereforms,however,havenotunder-minedthefundamentalfeaturesoftheparliamentarysystem,in place inHungary since 1989. Thenewbasic law includessomenecessarysolutions,suchasconstitutionalrestrictionson public debt. Nevertheless, the changes were aimed pri-marilyatreinforcingthecentralgovernmentandexpandingFidesz’sdominanceontheHungarianpoliticalscene.

• Fidesz’skeyachievementsafterfouryearsofruleareaconsol-idationofpublicfinancesandaslightreductioninpublicdebt,thoughthisremainsthehighestintheregion.Ithasbeenun-abletoovercometheeconomicstagnationongoingsince2007.Frequent legislativechangeshaveaddedto thedeteriorationof the investment climate, although the policy of support-ingselectedeconomicsectorshaspreventedcapitalflight.Inturn,thedropinmarketconfidencecausedtemporaryprob-lemswith the service of thenational debt. The governmenthastakenanumberofshort-termmeasuresaimedatimprov-ingthesituationfacedbycitizens,butnoclearperspectiveforimprovingthedynamicsofeconomicgrowthcanbeseenyet.

• No fundamental changeofdirectionhasbeenseen inEuro-peanandforeignpolicyandHungaryhasshownlittleactiv-ityandinitiativeaspartoftheEUandNATO.Relationswiththe USA and most large EU member states have cooled asaconsequenceofthecontroversiesoverHungarianreforms.

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AlthoughpoliticiansfromFideszhaveresortedtoEuroscepticrhetoricathome, inpracticeBudapesthas followedtheEU’smainstream.TheOrbanadministrationconfirmeditsobliga-tionsaspartofNATObutitfurthercutthecountry’smilitaryexpenses.

• Orbanhasshownaninclinationtotreatco-operationwithinthe Visegrad Group not as a formatwhich supplements theEuropean integrationprocess andwhich is a foundation forpolitical coalitions inside theEuropeanUnion,butratherasa group to counterbalance the ‘dictate’ of Brussels and thelargestEUmemberstates.AlthoughHungary’sapproachwasnotbackedbyitspartners,thecountrybecameengagedinco-operationaspartoftheV4,pointingouttheSocialists’negli-gence in thisarea.On theotherhand,FideszhasconductedamuchmoreactivepolicyconcerningHungarianminoritiesabroad, and has thus caused tension in relations with thecountriesitborders.

• The strategyof an ‘Easternopening’ in foreignpolicywhichwasannouncedat thebeginningofFidesz’srulehasbroughtlimitedeffectsdespitethesignificantdiplomaticexpensesin-curred.EstablishingclosereconomicrelationswithChinawasinitiallygivenahighpriority,butRussiagraduallybecametheleading economic partner. Although Fidesz as an oppositionpartyhadseverelycriticisedcloseco-operationwithMoscowinenergyissues,itcontinuedthepoliticalleft’spolicyaftertheelection. Furthermore, Orban’s government decided to builda comprehensive solution to address themost important is-suesfortheHungarianenergysectoronthebasisofco-opera-tionwithRussia.IthasactivelysupportedtheconstructionofSouthStream,andtowardstheendofitspresenttermchosetoentrustaRussiancompanywithdevelopingthePaksnuclearpowerplant,thelargestinvestmentinHungarysince1989.

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INTRODUCTION

In2010,theright-wingpartyFidesztooktotalpowerinthecoun-try. Together with its satellite party the Christian DemocraticPeople’sParty(KDNP),itachievedasweepingvictoryinthepar-liamentaryelectioninApril2010.Itwon53%ofthevotes,thusre-ceiving68%oftheseats(i.e.aconstitutionalmajority)inparlia-mentaspartofthemixedelectoralsystem.Thisvictorycameaftertwoback-to-backdefeatsin2002and2006,andthepartyleader,ViktorOrbanreturnedtohisroleattheheadofthegovernment(afterhavingbeenprimeministerfrom1998to2002).ParliamentelectedFidesz’sPalSchmittpresidentofHungaryinJune2010.InOctober2010,Fideszreceived58%ofvotesinlocalelections,anditscandidatesformayorswonin22outofthe23largestcities,in-cludingBudapest.

AttherootofFidesz’sdominanceontheHungarianpoliticalscenewastheeconomicandpoliticalcrisiswhichbeganin2002-2010,whenthepoliticalleftwasgoverningthecountry.Duringitsfirstterm, the coalitiongovernment formedbySocialists andLiber-alsoversawarapidincreaseinthecountry’sdebtandacrisisinpublicfinances.Furthermore,Hungarybenefitedmuchlessfromtheeconomicboomfollowing its accession to theEuropeanUn-ionthantheothernewmemberstates.Followingtheelectionin2006,PrimeMinisterFerencGyurcsanyappealedforreformsataclosedpartymeetingandatthesametimeconcludedthattheac-tionstakenbythecabinetthusfarhadbeenafailureandthattheSocialistshadbeenable to retainpoweronlybyconcealing thetoughfinancialsituationandlyingduringtheelectioncampaign.Hisspeechwasleakedtothepressafewmonthslater,causingthestrongestpoliticalupheavalinHungarysince1989.Awaveofan-ti-governmentaldemonstrationssweptacrossthecountry.TherewereviolentclashesbetweendemonstratorsandthepoliceinBu-dapest,wherehundredsofpeoplewere injured.TheGyurcsanygovernmentretainedpower,butthepoliticalleftbeganhaemor-rhagingpopularity.

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Fidesz capitalised on the disrepute of the political left, and to-getherwithKDNPpresented itselfas theonly legitimaterepre-sentativeofHungarians.OncetherecordingdiscreditingPrimeMinister Gyurcsany had been disclosed, each time he spoke inparliament, the Fidesz-KDNP factionwould leave the chamber.During the referendum in 2008 initiated by Fidesz,whichwasaplebisciteagainst the left-winggovernment,citizensvotedforthe cancellation of charges for higher education, doctor’s visitsand stays in hospital, imposed by the Gyurcsany government.However,FideszdidnotmakeeffortstoshortentheSocialistgov-ernment’sterm,hopingthattheywouldbecomeevenlesspopularovertime.Theinternationaleconomiccrisis,whichcausedamassoutflowofforeigncapitalfromHungary,dealtthepoliticalleftthefinalblow.Thecountryfounditselfonthevergeonbankruptcyandplungedintoadeeprecession(-6.8%GDPin2009).Massre-dundancieswereseeninmanycompanies.Itwasonlypossibletostabilise thefinancialsituationduetoa loangrantedbythe In-ternationalMonetaryFundandreformsconducted inconsulta-tionwiththeIMFbythetechnocraticgovernmentledbyGordonBajnai.However,budgetcutsandtaxraisesmadetheHungarianSocialistParty(MSZP)evenlesspopular,andtheirsupportlevelsfellto19%duringtheelection(ascomparedto40%in2006).

Fidesz skilfully capitalised on growing frustration among theHungarian public, who were tired of constant political scan-dalsandthedifficulteconomicsituation1.The2010electionalsomarked an end to the previously established set-up of political

1 InthesurveyconductedbyPewResearchCentrein2009,94%ofrespond-ents fromHungary described the situation in their country as negative,while 72%of themsaw it asbeingworse than in the communist era. 71%ofrespondentswereoftheopinionthatEUmembershiphasweakenedtheHungarian economy. Although support for democratic values was high,deepdisillusionmentwiththestateofHungariandemocracybecameevi-dent,since77%ofrespondentssawitasnegative.Formoreinformationsee:‘HungaryDissatisfiedwithDemocracy,butNotItsIdeals’,http://www.pew-global.org/2010/04/07/hungary-dissatisfied-with-democracy-but-not-its-ideals/http://www.pewglobal.org/2010/04/07/hungary-dissatisfied-with-democracy-but-not-its-ideals/

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parties in parliament, since two anti-establishment parties en-teredparliament:thexenophobicandnationalistJobbikpartyandLMP(PoliticsCanBeDifferent),apartypromotingsustainablede-velopmentandtheprotectionofthenaturalenvironment.Fidesz,JobbikandLMPchallenged,albeiteachtoadifferentextent,theexistingorderandsomeelementsoftheconsensusregardingthefreemarket,liberaldemocracyandtheEuro-Atlanticorientationpresentsincethepoliticaltransformationofthecountry.

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I. DOMESTIC POLICY

Inthegovernment’srhetoric,theconditionofthestatewhichthe“nation”hadregainwasthatofhighernecessitywhichallowedthecountry’sleadershiptointroduceseriouschangesandsearchfornewsolutions.Fidesz’selectoralmanifestoin2010didnotprovideforanyseriousreconstructionof thestate.However,Fideszde-fineditssweepingvictoryasa“revolutionattheballotboxes”,anexpressionofpublicconsenttothepoliticalsystembeingchangedandatthesametimeasavoteofnoconfidenceforthedisgracedLiberalandSocialistpoliticalelites.Adeclarationofthe“nationalco-operationsystem”wasacceptedattheonsetofthenewparlia-mentarytermandmadeavailabletoreadondisplayinallpublicadministrationbuildings.Itmarkedthesymbolicopeningofthenewera.Anewsocialcontractwasannouncedasaculminationofthestruggleforlibertywhichcommencedin1956.Asaresult“after forty-six years of occupation anddictatorship and a cha-otic two decades of transformation,Hungary regained its rightandcapabilitytodetermineitselfasanautonomousstate”2.Par-liamentdeclaredthesettingupofanewpoliticalandeconomicsystem,themainpillarsofwhichwouldbe“work,home,family,healthandorder.”EthnicHungarianslivingbeyondthecountry’sborderswerealsoincludedinthepoliticalcommunity.ThisaboveallconcernedtheHungarianminoritiesfromthecountriesbor-deringonHungary,livingintheterritoriesthecountryhadlostin1920.Parliament’sfirstdecisionwastointroducefacilitationsforethnicHungariansseekingHungariancitizenship.

1. The constitutional reforms

Withitstwo-thirdsmajority,Fideszwasabletocarryoutamajorre-constructionofthestate.Anewconstitutionandelectorallawwereadopted,andmostinstitutionswerereorganised.Reformscovered

2 ‘Legyenbéke,szabadságésegyetértés’,14June2010,http://www.kormany.hu/download/2/33/00000/Politikai_Nyilatkozat.pdf

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suchareasaslocalgovernments,thelabourcode,thepensionsys-tem, education, the health service and the secret services. FromthebeginningofitsterminMay2010untilDecember2013,parlia-mentadoptedasmanyas840acts(ascomparedto583actsadoptedthroughouttheentirepreviousterm).However,thefoundationsoftheHungarianpolitical system,establishedduring theroundta-bletalksin1989,werenotchanged,andaround80%oftheregula-tionsinthenewconstitutionareidenticaltothosefromthepre-viousone.Theparliamentary-cabinetsystemhasbeenpreservedandtheprerogativesoftheparliamentandgovernmenthavebeenstrengthenedinsignificantly.Thepresident,asbefore,iselectedbyparliamentandhasnoextensivepower,althoughthenewconstitu-tionhasvestedthepresidentwiththerighttodissolveparliamentshoulditfailtoadoptabudgetby31Marchofanygivenyear.Thenumberofdeputiesintheunicameralparliamenthasbeenreducedfrom386to199.Theelectoralsystemhasbeenslightlysimplified,butthemajority-proportionalsystemhasbeenpreserved.

Centralist tendencies could be observed in the reforms carriedoutbytheOrbangovernment.Theamendmentofthe localgov-ernment actwhich took effect togetherwith the new constitu-tionon1January2012partlyreversedthedecentralisationofthestatewhichhadbeeneffectedin1990.Forexample,itreinvestedcentralauthoritieswiththepowertosuperviseeducationalinsti-tutionsandhospitals; thesehadbeensupervisedbydistrictau-thorities(megye).Thepublic-privatepensionsysteminoperationfrom1998wasliquidated,andtheopenpensionfund’sassetsweretakenoverbytheTreasury.

Anumberofsymbolicand ideologicalchangeshavebeen intro-duced.Underthenewconstitution,thenameofthestate‘Repub-lic of Hungary’ (Magyar Köztársaság) was changed into simply‘Hungary’(Magyarország).Thiswasintendedtosymboliseaclearbreakwith the legacyof thePeople’sRepublicofHungary.Reg-ulationsestablishing theprotectionofhuman life fromconcep-tionanddefiningthefamilyasarelationshipbetweenamanand

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awomanwereincludedinthenewconstitution.However,regula-tionsallowinglegalabortionandrelationsbetweentwopartnersof the same sexwere not repealed. The government partywasafraidtochangethesolutionsbackedbyasignificantpartofHun-garianpublic3.

2. Fidesz’s hegemony in the state administration

ThereconstructionofthestateadministrationenabledFidesztoconductamajorstaffreshuffle.Althoughreplacementofperson-nelinstateinstitutionsandstate-controlledcompanieswasnoth-ingnewinHungary–thepoliticallefthadcarriedoutathoroughpurgeafter itsvictory in2002–Fideszcarried it outona scalehithertounseen.Thereasonsforthechangesincludedtheneedto call the incompetent left-wing government to account,whiletheactthatfacilitateddismissingpublicadministrationservantsadoptedat thebeginningof thenewgovernment’s termprovedto be a handy instrument.When Schmitt took the presidency,almostallpresidentialadministrationemployeeswerereplaced,eventhoughhispredecessorhadbeennominatedbyFidesz4.Staffreshuffleswerealsoseenamongregulatoryauthoritiesandatcul-turalandacademicinstitutions.

Thereorganisationorcreationofnewinstitutionsmadeitpossi-bletoreplacealmostallseniorofficials,inmanycasesbeforetheendof their tenures.Oneexamplewas thepresidentof theSu-premeCourt,who,followingthereorganisationandrenamingofthisinstitution(knownasKúriasince2012),hadtoleavehisofficebeforehistermhadexpired.Stateinstitutionsbecamemorepo-liticised.Aqualifiedmajorityisrequiredwhenelectingdirectors

3 ‘Hiábavédettamagzat,nemszigorodikazabortusz’,Index,11March2011,http://index.hu/belfold/2011/03/11/az_abortuszrol_torveny_valtozasa_varhato

4 ‘Sólyom szintemindenmunkatársát kirúgták, Szabadnémaradhat’,Nép-szabadság,3August2010,http://nol.hu/belfold/solyom_szinte_minden_munkatarsat_kirugtak_schmittek

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of regulatory institutions, the president of the Supreme Court,judgesoftheConstitutionalCourtandotherseniorstateofficialsand this previouslymeant that the candidateswere selected asa consequence of a compromise between the governmentpartyandtheopposition.

3. The weakening of independent institutions

The2010electionvestedFideszwithunusuallystrongpower,ena-blingittopushthroughanylegalact.Stateinstitutionswhichhadcounterweightedthelegislativeandtheexecutivepowersaspartofthechecksandbalancessystemwereweakened.ThisaboveallconcernedtheConstitutionalCourt(CC),which–giventheweakpresidentialprerogativesandthelackofanupperparliamentaryhouse–hadplayedanespeciallyvitalroleintheHungarianpo-liticalsystem.ThenewconstitutioncurbedtheCC’spowertopassverdictsonbudget issues, andvestedparliamentwith therighttonominatethecourt’spresident (previously, thecourt’s judgeselectedoneoftheirnumbertobethepresiding judge).Thegov-ernment camp has on many occasions actually challenged theultimatenatureof theConstitutionalCourt’sdecisions. Insomecases,when thecourt foundanact tobe incompatiblewith theconstitution,parliamentwouldamendtheconstitutionandadopttheactinunchangedformorraisetherankofitsregulationstoconstitutionallevel.Fideszhasresortedtothistrickafewtimes,bothwhentheoldconstitutionwasinforceandsincethenewonehasbeenadopted.ThemostwidelypublicisedcasetookplaceinMarch2013,whenparliament–amendingtheconstitutionforthefourthtime–adoptedapackageofseveralamendmentsincaseswhichhadbeenquestionedbytheConstitutionalCourt.Finally,FideszcancelledsomeofthechangesunderpressurefromtheEu-ropeanUnion,theCouncilofEuropeandtheUSA5.

5 ItshouldbenotedthatsomeessentialdecisionspassedbytheConstitutionalCourt,forexampletheonedeemingtheobligationtoregisterforelectionunconstitutional,havebeenrespectedbytheparliamentarymajority.

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4. The consolidation of power and the ‘irreversibility’ of the changes

EvenifFideszlosespower,itwillcontinuetowieldsignificantin-fluenceonthesituationinthecountrysinceithasextendedthetenuresofmany seniorofficials andnominated loyal adherentstosuchpositions.Oneexampleistheissueofmediasupervision.The head of the National Media and Intercommunications Au-thority(NMHH–establishedin2010)andmembersoftheMediaCouncilwereappointedfornine-yearterms.ReformsconductedbyFideszmayalsoproveextremelydifficultforthenextgovern-ments to revert. The Hungarian legislative system includes anextensivecatalogueofso-called“cardinalacts”(sarkalatos törvé-nyek),adoptedbyaqualifiedtwo-thirdsmajority inparliament.Thisprocedureappliestoactsconcerning,forexample:electorallawandthescopeofpowersoftheConstitutionalCourtandothercentralinstitutions.Thenewconstitutionhasextendedthescopeof issueswhichcanberegulatedundercardinalacts, includingfamilypolicy,thepensionsystemandthetaxsystem.Thiswillbeaseriousrestrictionforfuturecabinets,whichwillfinditdifficultto implement their politicalmanifestos should they fail towinatwo-thirdsmajority.Forexample,anextensivecompromiseinparliamentwouldbeneededtocanceltheflat-rateincometaxin-troducedbyFidesz.Furthermore,thepowersoftheBudgetCoun-cil,whosemembers are linked to Fidesz,havebeen reinforced;andthisinstitutionmayplayamajorpoliticalroleinthefuture.Ifthecouncilvetoesthebudgetact,andthegovernmentfailstoadoptanewone,thepresidentwillbeabletodissolveparliamentandscheduleanewelection.

5. The dominant position of Prime Minister Orban

Fidesz’sruleischaracterisedbytheunusuallystrongpositionofPrimeMinisterOrban.Heistheundisputedleaderoftheparty.AlthoughFideszisformedbyagreatvarietyofright-wingcircles,nofactionshavebeenformedinsidetheparty,andOrbanhasno

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real competitors among Fidesz members. The individuals whousedtoplayanessentialroleinthispartyhaveeitherbeenmar-ginalised(ZoltanPokorniandTamasDeutsch)orholdseniorpo-sitionsinthestateadministrationandhavenotshownindepend-entpoliticalambitions(PresidentJanosAderandParliamentarySpeakerLaszloKover).Fideszpoliticiansoftheyoungergenera-tion(intheirthirtiesandforties)arepredominantamongOrban’sclosestaides.JanosLazar,theheadofthePrimeMinister’sOffice,isplayingtheleadingroleamongthem.LazarhasbeenmentionedasOrban’spotentialsuccessor.

Inthefirsttwoyears,whentheconstitutionalreformofthestatewasbeing implemented,PalSchmitt,whowascompletely loyalto the party,was the president ofHungary.He replaced LaszloSolyom,whowaslinkedtothepoliticalrightandwasadeeplyre-spectedpolitician.Nevertheless,FideszchosenottoelectSolyomforthesecondterm.Schmittapprovedofalllegalactssubmittedtohim for signing.Hedidnotusehis right to sendanactbacktoparliamenttobeconsideredagainordirectittotheConstitu-tionalCourtevenonce.WhenSchmittsteppeddowninApril2012as a consequence of a plagiarism scandal, deputies fromFideszelectedJanosAder,whohadservedasaMemberoftheEuropeanParliament. The new president has shown some independence,sincehehasdirectedafewactstotheConstitutionalCourtinthefirsttwoyearsofhispresidency,buthehasgenerallysharedthepartylineasregardsthemostimportantissues.

The centre of power led by the primeminister has been rein-forced.Theprevioustwelveministrieshavebeenreplacedbyeightstrengthenedministries;onlytheMinistryofForeignAffairsandtheMinistryofDefencehaveremainedinunchangedform.ThePrimeMinister’sOfficehasbeengrantedmoreextensivecompe-tences.Ithastakenoverissuesconcerningforeigneconomicco-operationandthepolicyof ‘Easternopening’fromtheMinistryofForeignAffairs.TheNationalDevelopmentAgency,whichisinchargeofthedistributionofEUfunds,fellunderthesupervision

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ofthePrimeMinister’sOfficeinAugust2013,andtheoffice’shead,JanosLazar,wasputinchargeoftheagency.Thecivilianintelli-genceservicealsoreportstothePrimeMinister’sOffice.

6. Fidesz’s business and media base

Fideszhasalsouseditsdominantpositioninpoliticstoreinforceitsbusinessandmediabase.TheHungarianpresshasgivenpub-licity toanumberofcasesofdiscrimination infavourofentre-preneurs linked to theparty.TheKozgepconstructionholding,whichhasregularlywonpublictendersoverthepastfewyears,hasplayedthekeyrole.TheholdingisownedbyLajosSimicska,whowasOrban’sroommateasastudentandservedasfinancialdirectoratFideszinthe1990s.In2013alone,Kozgep,eitherbyit-selforaspartofaconsortium,wonpubliccontractsworthatleast430billionforints(almost1.4billioneuros)6,coveringprimarilyinfrastructuralprojects.Actsregulatingthesaleoftobaccoprod-uctsandlandtradehavegivenrisetostrongcontroversies.Busi-nessmenlinkedtothepoliticalrightbenefitedfrombothacts.

Fideszhasalsogainedmoreinfluenceinthemassmedia,althoughasectionoftheHungarianpressiscriticalofthegovernment.Atthebeginningofitstenure,Fideszdissolvedthepreviousinstitu-tionsinchargeofmediasupervisionandestablishedtheNationalMediaandIntercommunicationsAuthorityandtheMediaCoun-cil.Fidesz’snomineeswereappointedforlongtermsasmembersof both of these institutions.Thepoliticisation of these institu-tionsandregulationsofthenewmediaacthavebeensharplycrit-icisedbyjournalistsgroupsathomeandabroadandalsobytheHungarianpoliticalopposition.TheyalsoattractedtheattentionofagreatpartoftheEU’smemberstates,sincethegovernmentmadethechangesshortlybeforeHungarytookthepresidencyof

6 EstimateddatatakenfromtheinvestigativejournalismportalAtlatszo.hu,http://atlatszo.blog.hu/2014/01/08/kozgepes_kozbeszerzesek_2013-ban_tul_a_400_milliardon

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theCounciloftheEuropeanUnion.Themostcontroversialissuesincludedthepossibilitytoimposehighpenaltiesonthemediaandregulationsforcingjournaliststorevealtheirsourcesofinforma-tionundercertaincircumstances.PartoftheregulationswhichcouldviolateEuropean lawwere loosenedunderpressure fromtheEuropeanCommission,butthebasicpartoftheactremainedin force.However,no gross violations of the freedomof speechhavebeenwitnessedoverthepastfewyears(oneexceptioncouldbe theproblemswhich the left-leaningKlubradiohashadwithobtainingalicence).Inturn,massivelayoffswerecarriedoutinthepublicmedia,whicharenowclearlypro-governmental–astheywereunderSocialistrule.

Thegovernmenthasmadeusofanumberofpropagandameas-urestopopulariseitsactionsandachievements.Advertisingac-tionsbrandedas‘governmentinformation’havebeencarriedoutonalargescale.Publicfundshavebeenspentonfull-pageadver-tisements inHungary’s largest dailies, Internet advertisementson the key news portals and on posters and hoardings. WhenspeculationaboutthetermsonwhichtheInternationalMonetaryFundwouldgrantaloantoHungaryappearedinthemediainOc-tober2012 (unconfirmedby the IMF), thegovernment launchedacampaignundertheslogan“WeshallnotsuccumbtotheIMF!”7.WhentheEU’sexcessivedeficitprocedurewasdiscontinuedwithregardtoHungaryinJune2013,thegovernmenttookoutadver-tisementsinthepresstoannouncethattheEU“hadbeenforced”to close theprocedure, and every citizen received a letter fromPrimeMinisterOrbanwithinformationaboutthisfact8.Thegov-ernmentconductedanumberofadvertisingcampaignsunderthe

7 Thefollowingadvertisementswerepublished insevenmajordailieswithnationalcoverageon9October2012:“Whatcanweexpect fromtheIMF?Respectandtrust!WewillnotallowHungarytoloseindependence”,“Notoreducedsupporttofamilies!WeshallnotsuccumbtotheIMF!”,“Notorealestate tax!”. http://index.hu/belfold/2012/10/09/nem_engedunk_az_imf-nek_-.hirdeti_a_kormany/

8 TheletterfromOrbanwaspublishedonthefn24portalon9August2013,http://fn.hir24.hu/Root/Shared/Pictures/2013/08/09/orban-levele.jpg

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slogan“Hungaryisbetter-off”(Magyarország jobban teljesít) inthelast year of its present term, giving information about the gov-ernment’sachievementsinpressadvertisementsandonpostersthroughoutthecountrywhosegraphicallayoutcloselyresembledthatusedinFideszpartymaterials.Advertisementsofthiskindhavealsobeenbroadcastontelevisionduringtheelectioncam-paign.FideszhasthusinfactexceededthelimitofTVspotssetforeachpoliticalparty.

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II. ECONOMIC POLICY

Fidesztookpowerindifficulteconomictimes.Hungaryhadfallenintoitsdeepestrecessionofthepreviousdecadejustoneyearear-lier(itsGDPfellby6.8%in2009).However,thecountrywasnotinacatastrophicfinancialsituation.Therealthreatofthestatedefaultingonitsdebtshadbeenavertedbya loanworth20bil-lion euros granted by the IMF and other financial institutions.Anagreementwith the IMF marked thebeginningofaprocessaimedatimprovingthehealthofpublicfinancesthroughreformsconductedbythetechnocraticcabinetledbyGordonBajnai9.Itspolicy,closelyconsultedwiththeIMF,wasstronglycriticisedbyFidesz,whichwasmakingpromises to end the austeritypolicyandopenanewbeginningineconomicpolicyduringtheelectioncampaign.However,inpracticeFidesz’smanifestocannotbede-finedasacoherenteconomicstrategy.Intheinitialperiod,itin-cludedelementsaimedatstimulatingeconomicgrowththroughtaxcutsforsmallandmedium-sizedcompanies.Then,anattempttoconsolidatepublicfinanceswasmadeinthenextyears,whilecutsinsocialexpenditurewereavoided.Themostimportantre-formscarriedoutbyFideszcovered:

a)majorchangesinthecountry’sfiscalsystem,includingthein-troductionoflowincometaxesalongwiththeimpositionofhightaxesonbanks,telecommunicationfirms,theenergysectorandretailchains,followedlaterbyincreasingandimposingnewtax-es,whilethesituationinpublicfinancesremaineddifficult;

b)majorchangesinthepensionsystemasaconsequenceofwhatdefactowasadisassemblyofthepublic-privatepensionsystemandtakeoverofthesavingsfromopenpensionfundsbythestate-controlledpensionsystem;

9 Forexample,theextensionoftheretirementage(from62to65graduallybetween2010and2022),thefreezingofwagesfortwoyearsandtheliquida-tionoftheso-called“thirteenthpaycheck”forpublicservants,andtheVATrateincrease(from20to25%).

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c)strongstatecontroloftheeconomy,examplesofwhichincludebuildinganationalenergygiant,increasinginterferencewithen-ergypricesandunderminingtheroleoftheindependentofficeforregulatingtheenergysector.

Itwasassumed inFidesz’seconomicstrategythat the incometax cuts for individuals and small andmedium-sized compa-nieswould revive the stagnantHungarian economy. In turn,thespecialtaxesimposedonsomesectorsandthereturntothestate-controlledpensionsystemwereexpectedtosignificantlyimprove the country’s fiscal situation. However, the govern-ment’splanshadtofacedomesticandforeignrestrictions.Thegovernment has been forced to significantly modify its eco-nomicpolicythroughoutitsentiretenureduetothefinancialmarkets’reactiontotheHungarianreforms,thevolatilesitua-tiononforeignmarkets,thedisciplinarymeasuresadoptedbytheEUwithregardtoHungary’sbudgetpolicyandcontinuingstagnation.

1. The fiscal policy

In thefirstyearof its rule,Fideszcut the income taxandwassimultaneously searching fornew sources of budget revenues.A16%flat-ratepersonalincometaxwasintroducedin2011,re-placingtheprevioussystemwheretwothresholds(18%and36%)applied.The 16%corporate income tax (CIT) ratewas replacedwithtworates:19%andthereduced10%rateforfirmswithin-comeslowerthan500millionforints(around1.6millioneuros).Lowerbudget incomeswere tobe compensatedby crisis taxesimposedonbanks,insurancecompanies,energycompanies,tel-ecommunicationserviceprovidersandretailchains.InFebru-ary 2011, the state took over savings fromopenpension fundsworthroughly10billioneuros.Thisdefactomeantthecancella-tionofthereformwhichhadintroducedthepublic-privatepen-sionsystemin1998.Thesefundshavebeenusedtoservicethecurrentneedsofthestate.

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Theimpositionofadditional leviesonthesectorswhereforeigncapitalwaspredominant,thefailuretomakebudgetcuts,andtheuseofsolutionstoimprovepublicfinancesbyuseofone-offmeas-uresprovokedanegativereactionfromthefinancialmarkets.Inlate2011/early2012,thekeyratingagencies(Fitch,Moody’s,andStandard&Poor’s)reducedtheratingforHungarianbondstothe‘non-investment’grade.Contrarytogovernmentforecasts,whichhad predicted economic growth at a rate of 3-5% in 2011-201310,Hungary’s economy oncemore entered recession (-1.7%GDP) in2012.Inadditiontothis,thefinancialcrisisintheeurozonewors-ened.Hungaryagain started tohaveproblemswith the serviceofthenationaldebt.Furthermore,theEuropeanCommissionap-pliedstrictrulestothereductionofHungary’sdeficit,refusingtorecognisethesingleboostinbudgetincomeasadurableimprove-mentofthefinancialsituation.HungarywasthefirstEUmemberstatewhichtheEuropeanCommissionapplieditsstrictestinstru-menttoaspartoftheexcessivedeficitprocedure,namelythesus-pensionofpartofthefundsfromtheCohesionFund(themeasurewasliftedoncethegovernmenthadimplementedapackageofre-forms).

Thegovernmenthadtosignificantlymodifyitseconomicpolicy.Firstofall,ithadtoimposenewtaxesandcutspendingtoalim-ited extent. Between 2011 and 2013, parliament adopted a totalofelevenlawpackagesaimedatstabilisingthebudgetsituation.TheVATratewasliftedfrom25to27%(beingthehighestintheEU).Afinancial transaction tax (FTT)was introduced, initiallyat0.1%ratetobeincreasedsubsequentlyto0.3%(theHungarianNationalBankwasexemptedfromthetaxunderpressurefromtheEU).Thecrisistaximposedontelecommunicationfirmsandretailerchainswasliftedin2013,whiletheothercrisistaxeswereretained.Thebanktax,whichwastobeliftedaftertwoyears,has

10 NGM-prognózis:Csökkenőadóterhekésújraelosztás,Origo,2October2010,http://www.origo.hu/gazdasag/hirek/20101102-ngm-2011ben-3-szazale-kos-2012ben-35-szazalekos-gazdasagi-novekedes.html

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becomeaconstantelementof theHungarianfiscal system.Thegenerouswelfarespendingwaseffectedby limitedbudgetcuts.Unemploymentbenefitsandearlierretirementschemeswerere-stricted. Furthermore, expenses on higher education, subsidiesfor public transport and medicine, and expenses of individualministrieswerereduced.Asaresult,thegovernmentmanagedtodurablybringdownthedeficittobelow3%,andtheCounciloftheEuropeanUnionwithdrewtheexcessivedeficitprocedure(EDP)inJune2013,whichhadbeenimposedonHungarysinceitsacces-siontotheEUin2004.

2. More state in the economy

Therehasbeenanintensificationintendenciestowardsstatecon-trolintheeconomysince2010.Despitethedifficultfinancialsitu-ation,thestatehasboughtbackanumberofpreviouslyprivatisedcompaniesfromprivateowners.Themostspectaculartakeoverswereseenintheenergysector.Thegovernmentboughtbacka21%stakeinMOLfromRussia’sSurgutneftegasforapriceof1.88bil-lioneuros(MOLisanimportantplayerontheregionaloilmarketandtheHungariangastransmissionsystemoperator).Thestate-ownedcorporationMVMspent870millioneurostobuycompa-niesbelongingtoGermany’sE.ONwhichhadadominantpositionin thestorageandtradeofgas. Inadditionto that,anumberofsmallertakeoverswereconductedontheenergymarketfromfor-eignentities(e.g.fromRWEandENI).Thestate’sreinforcedpo-sitionintheenergysectorwasintendedtohelpthegovernmentincreaseits influenceonthewaythesectorwasdevelopingandonthepricesofenergycarriers.PrimeMinisterOrbanpromisedthatentitiessellingenergywouldactasnon-profitorganisationsinthefuture11.Sincethecompanywhichbuysnaturalgas fromGazprom has been taken over from E.ON, the state-controlled

11 ‘Orbán:Brüsszelbenkellmegvívniarezsiharcot’,Magyar Nemzet,31January2014, http://mno.hu/belfold/orban-brusszelben-kell-megvivni-a-rezsihar-cot-1208377

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corporationwillnegotiatethenewlong-termcontractwithRus-sia(thepresentoneexpiresattheendof2015).

Thestate’spositioninthefinancialsectorhasalsoincreased.Thestate-ownedHungarianDevelopmentBank(MFB)boughtGerma-ny’sDZBank’sshares inTakarekbank,which is formedbysav-ingsco-operativesandwhichwaslaterrecapitalisedbythestate.Inasituationwhereaccesstoloanshadbecomemoredifficultduetohightaxesimposedonbanks,thegovernmentmadeattemptstomakeiteasierforentrepreneurstoreceiveloanswiththehelpofstate-controlledbanksandtheNationalBankofHungary.Giventhehardfinancialsituation,furthertakeovershavebeenimpos-sible,butthisprocessissettobecontinuedinthecomingyears.AsPrimeMinisterOrbanhasdeclared,atleasthalfofHungary’sbankingsectorshouldbecontrolledbyHungariancapital–atpre-sent,90%ofthissectorisownedbyforeigncapital12.

TheFideszgovernmenthasadoptedaselectiveapproachtowardsthepresenceofforeigncapital inHungary.Ithasimposedaddi-tionalleviesoncompaniesoperatingintheservicessector,aboveallontheenergy,financial,telecommunicationandtradebranch-es,whileforeigncompaniesactiveintheproductionsectorhavebeen treatedonpreferential terms.Thegovernmenthas signedanumberofstrategicco-operationagreementswithcorporationsfromthissector.Theseagreementswereintendedtostrengthenthe companies’ sense of security while legal regulations werechangingfrequentlyandtoencouragethemtoinvestmore.Thegovernmenthassignedstrategicco-operationagreementswith43companies (including13 fromtheautomobilesector).ThePrimeMinisterhaspersonallysignedtheagreementswithAudi,Daim-ler,Coca-ColaandSuzukiamongothercompanies.

12 ‘Overhaul of Hungarian banking sector kicks off - 7 facts about Orbán’sdream’,Portfolio, 11December2013,http://www.portfolio.hu/en/economy/overhaul_of_hungarian_banking_sector_kicks_off_7_facts_about_or-bans_dream.27062.html

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Thegovernmenthasadoptedanumberofsolutionsaimedattem-porarilyimprovingthesituationofitscitizenswiththestagnanteconomy. Thesewere predominantly solutionswhich burdenedtheprivatesector.In2011,borrowersreceivedtheoptiontomakea single repayment of mortgage loans in foreign currencies ata reduced exchange rate,which has been beneficialmost of allfor thosewhohadmoremoney.Thegovernmenthasalsomadeattemptstoforcebankstostopofferingloansinforeigncurren-ciesandtoconvertexistingloansinforeigncurrenciesintoforintloans,buthasbeenunabletoachievethatbytheendofthisterm.Itsmostimportantmove,whichhasaffectedallconsumers,wastoforceenergycompaniestocutpricesforindividualclients13.In2013,electricity,gasandcentralheatingpricesdropped20%,andthe energyprice reductionhasbecome the leitmotiv inFidesz’scampaignaheadoftheelectioninApril2014.

3. The results

Maintaining financial discipline and reducing the level of thebudgetdeficittobelow3%arethegovernment’sgreatestachieve-ments.The impositionof a constitutional limit (50%ofGDP)onpublicdebtwasalsoapositivemoveFideszmade.Ifthedebtex-ceeds this level–as is currently thecase– thebudgetactmustprovideforreducingit.TheOrbangovernmenthasreducedpublicdebttoalimitedextent,butitremainsatalevelofaround80%,thehighestintheregion.Thecountry’shighforeigndebtwillalsocontinuetobeaproblem.

Thegovernmenthasbeenunabletoovercometheeconomicstag-nationcontinuingwithoutchangesince2007.Furthermore,Hun-garyenteredrecessionforthesecondtimerecentlyin2012(-1.7%).The low flat-rate tax contributed domestic demand receiving

13 Formoreinformationsee:A.Sadecki,‘TheHungariangovernment’sstrug-gleagainstforeignenergycompanies’,27March2013,http://www.osw.waw.pl/en/publikacje/analyses/2013-03-27/hungarian-governments-struggle-against-foreign-energy-companies

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aboost, but this has been satedprimarilywith importedprod-ucts. The imposition of additional levies on banks has signifi-cantlycurbedtheavailabilityofloansforcompanies.Inturn,theimpositionofcrisistaxesonsomesectors,thefrequentlegislationchangesandtheincreasedstateinterferenceinmarketshavealladversely affected the investment climate. Although no majoroutflowofinvestmentsfromHungaryhasbeenseen,theoppor-tunitiestoattractnewinvestorshavebeensignificantlyreduced.

Asignificant improvement in the levelofemploymenthasbeenimpossibleoverthepastfouryears(Fidesz’skeypromiseaspartofitscampaignin2010wastocreateonemillionjobswithinadec-ade).Althoughtheunemploymentratefellfrom11.2%in2010to10.2%in2013,fewnewjobswerecreatedwithinthisperiod.Un-employmentwasreducedprimarilyowingtoexpandingthepub-licworkprogramme,whichextended toalmost 300,000peopletowards the end of 201314. Emigration fromHungarymostly toGermanyhasincreasedsignificantlyoverthepastfewyears.Theunemployment rate has still not been brought back to the pre-crisislevelof7.4%(2007).TheverylowemploymentrateremainsaweaknessoftheHungarianeconomy.Therateis62.1%forpeopleaged20-64,whiletheEUaverageis68.4%15.

14 ‘Közelíta300ezerhezaközmunkásokszáma’,Világgazdaság,18November2013,http://www.vg.hu/kozelet/kozelit-a-300-ezerhez-a-kozmunkasok-szama-416015

15 Employment rate by sex, age group 20-64, Eurostat, http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=t2020_10

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Chart 1.Economicgrowth(%ofGDP)

2004

[% of GDP]4.8

4.0 3.9

0.10.9

-6.8

1.11.6

-1.7

1.1*

2005 2006 2007 2008 2009 2010 2011 2012 2013

-7-6-5-4-3-2-1012345

Source:HungarianCentralStatisticalOffice(KSH)*estimateddata

Chart 2.Unemployment(%)[%]

6.1

7.2 7.5

7.4

7.8

10.0

11.2

10.910.910.2

2004 2005 2006 2007 2008 2009 2010 2011 2012 20135

6

7

8

9

10

11

12

Source:HungarianCentralStatisticalOffice(KSH)

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Chart 3.Budgetdeficit(%ofGDP)

-6.5

-7.9

-9.4

-5.1

-3.7-4.6 -4.3

4.3*

-2.0 -2.4-3.0

-10

-8

-6

-4

-2

0

2

4

6

2004

[% of GDP]

2005 2006 2007 2008 2009 20102011

2012 2013** 2014**

Source:Eurostat*BudgetsurplusresultingfromtheTreasury’stakeoverofthesavingsfromprivatepensionfunds**EuropeanCommissionforecast

Chart 4.Publicdebt(%ofGDP)

59.5 61.765.9 67.0

73.079.8 82.2 82.1 79.8 77.8 79.1

0

20

40

60

80

100

2004

[% of GDP]

2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014*

Source:Eurostat*EuropeanCommissionforecast

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III. EUROPEAN AND FOREIGN POLICY

The government led by Orban has not made any fundamentalchanges in the country’sEuropeanand foreignpolicy.Over thepastfouryears,littleactivityandinitiativehasbeenseeninHun-gary’sforeignpolicyaspartoftheEUandNATO.RelationswiththeUSAandmostlargeEUmemberstateshavecooledasaconse-quenceofcontroversiesoverHungarianreforms.Althoughpoliti-ciansfromFideszhaveresortedtoEuroscepticrhetoricathome,inpracticeBudapesthasfollowedtheEU’smainstream.TheOr-banadministrationconfirmeditsobligationsaspartofNATObutit furthercut thecountry’smilitaryexpenses.Atpresent,mili-taryexpensesareaslowasaround 0.8%ofGDP(2014).Thislevelofexpensesallowsthearmytomaintainitscapabilitiesbutpre-ventsthemodernisationofoutdatedmilitaryequipment.

The Fidesz government has demonstrated a greater interest inregional co-operation, especially aspartof theVisegradGroup.However, its policy towards Hungarianminorities in the coun-tries itbordershasgivenrise to tension inrelationswith thesecountries,especiallySlovakiaandRomania.DuetotheeconomiccrisisintheWestandincreasingpoliticaltensioninrelationswithpartofHungary’straditionalpartners,BudapesthasmadeeffortstointensifypoliticalandeconomicrelationswithEasterncoun-tries.CloserpoliticalandenergycontactshavebeenestablishedaboveallwithRussiaaspartofthe‘Easternopening’policy.

1. European policy

Neitherstatementsfromgovernmentrepresentativesnorstrate-gicdocumentshaveprovidedacoherentvision for thedevelop-mentoftheEuropeanUnion.Theforeignpolicystrategyof201116

16 Hungary’sForeignPolicyaftertheHungarianPresidencyoftheCounciloftheEuropeanUnion,2011,http://www.kormany.hu/download/e/cb/60000/foreign_policy_20111219.pdf

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expressedsupportforenhancingintegrationandtheprimacyofthe communitymethod over the intergovernmentalmethod intheEU’sdecision-makingprocess.Atthesametime,theneedtoreinforcethepositionofdemocraticallyelectedgovernmentshasbeenemphasised.Somediscrepancieshavealsobeenheardintheviewsvoicedby theministerof foreignaffairs, JanosMartonyi,whohasdeclaredsupportforcloserintegration,andPrimeMin-isterOrban,whohasmadereferencestothetraditionofa‘Europeofthenations’.Orbanacceptsthedeepeningfinancialintegrationof the eurozonemember states becauseHungarywants its keyeconomicpartnerstoremainstable.Hedoes,however,insistthatthestateswhichdonotbelongtotheeurozonebegiventhehigh-estdegreeofeconomicsovereignty.

Inpractice,Hungaryhasaccepted themaindirectionsofEuro-peanintegrationoverthepastfouryears(withtheexceptionofthe“EuroPlusPact”).IthasnotblockedanydecisionsintheEUre-quiringunanimityofthememberstates.WhenHungaryheldthepresidencyoftheCounciloftheEUinthefirsthalfof2011,itcon-tributedtoprogress inworkontheso-called“six-pack”, i.e. thepackageofeconomicgovernancerulesintheEU.InitiallyHunga-ry,liketheUnitedKingdomandtheCzechRepublic,wasscepticalaboutthefiscalpactbut,unlikethesetwo,itfinallysupportedthepact.Althoughtheintentiontointroducetheeuroasthenationalcurrencyismentionedinofficialdocuments,actionsanddeclara-tions fromFideszpoliticianshaveproventhat theyhave in factgivenupeffortstoadoptthecommoncurrency.IntheopinionofPrimeMinisterOrban,Hungaryshouldnotconsiderintroducingtheeurountilithasachievedalevelequivalentto90%oftheav-erageGDPoftheeurozonememberstates17.ThenewconstitutionstatesthattheforintistheHungariancurrency,whichmakestheintroductionoftheeuroevenmoredifficult.Thismeansthatan

17 ‘Orbánmegismételteazeurócsatlakozásegyikfeltételét’,Portfolio,12Octo-ber 2013, http://www.portfolio.hu/gazdasag/orban_megismetelte_az_eu-rocsatlakozas_egyik_feltetelet.190419.html

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amendmenttotheconstitutionandanextensivepoliticalcompro-misewillbeneededtoaccepttheeuroasthenationalcurrencyinHungary.

AmongthemajorchallengeswhichHungaryhasfacedinitsEuro-peanpolicyoverthepastfouryearsare:itspresidencyoftheCoun-cilof theEU in thefirsthalfof2011andnegotiationsof theEU’smultiannual financial framework for 2014-2020. The Hungariandiplomacyeffectivelydirectedtheworkof theCouncilof theEU.Asignificantpartofprioritieswhichhadbeenpreviouslysetwereimplemented, including the accession treaty with Croatia beingsigned and theEU’s strategy for theDanube region (EUSDR) be-ingadopted.However,thecontroversialmediaactadoptedbytheHungarianparliamentjustbeforeHungary’spresidencyandPrimeMinisterOrban’sconfrontationalstatementscastashadowontheevaluationoftheHungarianpresidency.Achievingagoodresultinthenegotiationsconcerningthenewfinancialframeworkbecamethenextpriority task forHungary.Hungarybelonged to the so-called“friendsofcohesionpolicygroup”andtothecoalitionofthestatessupportingastrongcommonagriculturalpolicy.AlthoughmorefundshavebeengrantedtoHungaryascomparedtotheEu-ropeanCommission’sinitialproposalanditwillstillreceivemorefundsfromtheEUbudgetthanitpaysin,itwillreceivesignificant-lylessmoneythanin2007-2013.Hungarywillreceive18.34billioneurosfromtheCohesionFundinthenextsevenyears,i.e.20%lessthanaspartofthepreviousfinancialframework18.

2. The international criticism

Hungary’s relationswith itsWestern partners have cooled sig-nificantly.Fideszhasbeencriticisedfor ‘abusing’ its two-thirdsmajority in parliament and an excessive concentration of pow-er. It has been accused for example of restricting the role of

18 ‘Többévespénzügyikeret–versenyképességésszolidaritás’,http://eu.kor-many.hu/tobbeves-penzugyi-keret-2014-2020

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independent state institutions (especially the ConstitutionalCourtandtheHungarianNationalBank)andofattemptstocon-trolthemedia.Ithasalsobeencriticisedabroadfortheimpositionofadditionalleviesonthesectorsoftheeconomywhereforeigncapitalpredominates.

Accusations against theHungariangovernmenthavebeenmadeprimarilybytheAmericanandGermandiplomacyandfromthepresidentoftheEuropeanCommission.TheEuropeanParliamentandtheCouncilofEuropeadoptedresolutionscriticisingthepo-liticalreforms,determiningthatpartoftheHungarianregulationswerecontrarytotheEuropeanlegalsystem.Theresolutionsrec-ommendedchangesbutdidnotresorttotheuseofstricterinstru-ments,suchasthelaunchoftheproceduretosuspendthememberstate’srighttovoteintheCounciloftheEU.TheEuropeanUnionhas takenmore lenientmeasures thanwereavailable to itwhendealingwithHungarypartlybecauseFideszbelongstotheEurope-anPeople’sParty(EPP),thelargestfactioninEuropeanParliament,thoughOrban’spolicyhasalsobeencriticisedwithintheEPP.Mod-eration in evaluating theHungariangovernment and support inviewofdisproportionatelystrongcriticismhavebeenmanifestedespeciallybyHungary’spartnersfromtheVisegradGroup.

Budapest has relinquished part of the planned changes or re-pealedthemostcontroversialregulationsunderforeignpressure.Asarule, itmade limitedconcessionswhenothercountries in-sistedon them.Budapestwaswilling to cancelespecially thosechanges in the case ofwhich the European CommissionwouldlaunchtheEUinfringementprocedure,whichcouldhaveendedin sanctionsbeing imposedby theCourt of Justiceof theEuro-peanUnion,andalsointhosecaseswhereWashingtonorBerlininsistedespeciallystrongly.Nevertheless,mostof thecriticisedchangeshaveremainedinforce.

ThecontroversiesoverHungarianreformsandthegovernment’smoves adversely affecting foreign business have undermined

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Hungary’sinternationalpositionandledtocoolingrelationswiththe states ofWestern Europe and theUSA. These relations havebeenrestrictedtomultilateralco-operationaspartoftheEUandNATO.WesternpoliticianshavebypassedBudapest,andtheHun-gariandiplomacyhasfounditdifficulttoorganisethesparsevisitsbytheHungarianprimeministerandpresidenttoWesternEuro-peancapitals (LondonandBerlin).Hungary’srelationswithGer-many,itskeytradepartnerandlargestinvestor,havebeentense.BerlinhasreproachedtheHungariangovernmentforviolatingthestandardsof theEuropean ruleof lawandhasprotestedagainstregulations unfavourable toGerman companies present inHun-gary.CriticismhasevenbeenheardfromsouthernfederalstatesofGermany,despiteHungary’sengagement inDanubeco-operationandtheclosecontactsbetweentheCSUandFidesz.Nevertheless,relations between Budapest and Berlin have remained relativelystable,partlyasaconsequenceofmajoreffortsmadebyHungary.

TensioninforeignrelationsdidnotharmFidesz’spopularityonthedomesticscene.Onthecontrary,thiscontributedtoaconsoli-dationofthepoliticalright’selectorate.Thegovernmentpresent-edthereservationsregardingtheHungarianreformsasunrea-sonableinterferenceinHungary’ssovereigndecisions.Politiciansfrom Fidesz suggested that Western countries were criticisingthepoliticalchangesinHungarymainlyduetothefactthattheinterestsofWesterncompanieshadbeenaffectedbythegovern-ment’smovesandbecausetheconservativechangeswereunwel-come to those holding liberal and leftist views. They presentedthegovernment’sactionsas thenextstage in the long“struggleforfreedom”,makingreferencesforexampletotheSpringofNa-tionsin1948-49. Inturn,PrimeMinisterOrbanclaimedduringright-wingralliesthatBrusselscouldnotdictatetoHungarywhatithastodo,likeSovietMoscoworHabsburgViennahaddone19.

19 ‘1848 és 2010 is megújulást hozott’, 15 March 2011, http://www.korma-ny.hu/hu/miniszterelnokseg/miniszterelnok/beszedek-publikaciok-interjuk/1848-es-2010-is-megujulast-hozott

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Fideszpoliticiansfounditeasytoplaydownforeigncriticismdueto the toneof theattacks fromsomeWesternmediaandpoliti-cians,whoaggressively attacked theHungariangovernmentorwhopresentedthesituationinHungaryinanunreliablemanner.Allthisallowedtheattentiontobedistractedfromspecificaccu-sationsfromtheEuropeanCommissionandcriticallegalopinionofthepoliticalreforms,forexamplethosepresentedbytheVeniceCommission(anadvisorybodytotheCouncilofEuropeonconsti-tutionalissues).

3. The policy on Central Europe

GiventhesharpdisputeswithEuropeaninstitutions,theHungar-ian government has shown an inclination to treat co-operationwithintheVisegradGroupnotasaformatwhichsupplementstheEuropeanintegrationprocessandwhichisafoundationforpoliti-calcoalitionsinsidetheEuropeanUnion,butratherasagrouptocounterbalancethe‘dictate’ofBrusselsandthelargestEUmem-ber states.AlthoughHungary’s approachwasnot backedby itspartners,thecountrybecameengagedinco-operationaspartoftheV4, pointing out the Socialists’ negligence in this area. TheVisegradGrouphasproventobeavaluableco-operationformatforHungaryasitsrelationswithotherEUmemberstatesandtheEuropeanCommissionhavedeteriorated.

CentralEuropeanco-operationisatraditionalcomponentoftheapproachtoforeignpolicyrepresentedbypartofFidesz’sconserv-ativeelite.TheVisegradGrouphasbeenthebasicplatformofco-operation forHungary, althoughHungarianshavealso fosteredcollaborationaspartofotherformats,abovealltheEU’sstrategyfortheDanuberegion.Budapesthasattachedsignificancetode-velopingenergyandroad infrastructureconnectionsaspartoftheV4.HungaryhasbeenaboveallpromotingengagementintheWesternBalkan region in the area ofEUneighbourhoodpolicywhichisvitalforthe‘Visegradfour’,althoughithasalsobackedactionswithregardtotheareacoveredbyEasternPartnership.

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HungaryholdingthepresidencyoftheVisegradGroup(July2013–June2014)hasdeclareditiswillingtocontinuetheactionsiniti-atedunderthePolishpresidency,sincePolandisviewedasHun-gary’sstrategicpartnerintheregion.

TheissueofnationalminoritieslivinginthecountriesborderingHungary,atotalofapproximately2.2millionpeople,hasplayedasignificantlymore importantrole in foreignpolicy than itdidunder Socialist rule. The level of financial support for themi-noritieshasbeenslightlyincreased.Furthermore,Budapesthasbecomemoreengagedinthepolitical lifeofHungariancommu-nities. The Orban government has offered selective support toHungarianpartiesintheneighbouringcountries,backingthosewhich insistmore strongly on being given autonomy, standingfirmlyon the groundof collectiveminority rights.A simplifiedprocedureforgrantingHungariancitizenshipwasadopted.MorethanhalfamillionethnicHungariansmadeuseofthisprocedurebetween2011and2013.Thenewelectorallawgrantedactivesuf-frage(albeitnottoafullextent)toHungariancitizenswhohavenotregisteredresidenceinHungary20.Theconstitutionalprovi-sionshavealsobeenreinforced,statingfirmlythattheHungar-ianstate“bearsresponsibility”forthefateofethnicHungarianslivingabroad21.

ThepolicytowardsHungarianminoritieswouldattimesgiverisetotensioninrelationswiththecountriestheyarecitizensof.Atthe beginning of its present term, parliament established ‘Na-tionalUnityDay’commemoratingtheanniversaryofthesigningtheTreatyofTrianonon4June1920,asaconsequenceofwhich

20 Aspartof theproportional-majorityvotingsystem,HungariancitizenswhohavenoregisteredplaceofresidenceinHungaryareonlyeligibletovoteforpartylists,andnotforindividualcandidatesinsingle-memberconstituencies.

21 Formore information see:M. Gniazdowski, A. Sadecki, ‘Constitution foranewHungary–thedomesticandregionalimplications’,OSW Commentary, No.60of29July2011,http://www.osw.waw.pl/sites/default/files/commen-tary_60.pdf

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Hungarylostlandswhichweretheninhabitedbyover3millionofitscompatriots.AlthoughthememoryofTrianonhadformedaconstantelementoftheidentityoftheHungarianpoliticalright,theOrbangovernmenthasturneditintoanelementofthestate’sideology.ThishasbeencriticisedespeciallystronglybySlovakia.TheHungarianminorityissue(460,000people,8.5%ofthepopu-lation)becameakeytopicoftheelectioncampaigninSlovakiain2010.TheSlovakiangovernment,whosetermwascomingtoanend,respondedtothefacilitatedgrantingofHungariancitizen-shipbypassingregulationsunderwhichapersonseekinganoth-ercountry’scitizenshipcouldhavetheirSlovakiancitizenshipre-voked.TheatmosphereofHungarian-Slovakrelationsimprovedsignificantlyoverthefollowingyears,eventhoughthedisputeatissuehadnotbeenresolved,andmorepressurewasputoncol-laborationintheareaofenergyandtransportinfrastructureanddevelopingVisegradco-operationandthecommunityofinterestsintheEU.

Co-operation in the European Union and the Visegrad Group,includingaspartofthe ‘V4+’format,whereothersofHungary’sneighboursparticipated,allowedthecontroversiescausedbyBu-dapest’sengagementinthepoliticallifeofHungariancommuni-ties in the neighbouring countries to be soothed.Nevertheless,relationswithRomania,wheretheHungariancommunityisthemostnumerous (1.23million,6.5%ofRomania’spopulation),be-camecoolerinthesecondhalfofOrban’sterm.WhenFidesztookpower, a rapprochement between Hungary and Romania tookplace,andwasadditionallycementedbygoodrelationsbetweenPrimeMinisterOrbanandPresidentTraianBasescu.Romania’scentre-rightgovernmentwasable to sympathisewith theHun-garian citizenship act, partly because the country had adoptedsimilarsolutionswithregardtocitizensofMoldovaandUkraine.However, the opposition criticised the presidential camp forconcessions towards Hungary. This led to tension between thetwo countries at the time of the political crisis in Romania in2012.Romaniastartedrespondingwith increasingresistanceto

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Budapest’s support for theHungarianminority’saspirations forautonomy. It alsodisliked the fact thatpoliticians fromHunga-ry,especiallythosefromtheopenlyrevisionistJobbikparty,hadbeenactivelyseekingthesupportofvotersinRomania’sTransyl-vania.Despitetemporarytension linkedtothedisputeovertherestitutionofpropertylostafterthewarbyHungariansfromVo-jvodina(around250,000),relationsbetweenHungaryandSerbiahavebeengood,andHungaryhastakenSerbiaasamodelforpro-tectingtherightsofnationalminorities.

The rights of Hungarian minorities became the main issue inHungary’s relationswithUkraine (around 150,000 ethnicHun-garians live in Zakarpattia Oblast). Since the commencementoftheprotestsontheMaidaninNovember2013,reactionsfromHungary were limited to official statements condemning vio-lence. Hungary supported Kyiv’s European aspirations, but itspoliticiansdemonstratedhardlyany interest in thesituation inUkraine,theirlargestneighbour.ThegovernmentinBudapestap-preciatedtheconcessionsYanukovychhadmadetonationalmi-norities(includingtheregionallanguageactadopted)andfearedthepossibletakeoverofpowerbynationalistmovements.AmoredecidedtonecouldbeheardfollowingtheRussianinterventioninCrimea,whichwascondemnedbytheMinisterofForeignAffairsJanosMartonyi,whostoodupforsovereigntyofUkraineandtheinviolabilityofitsborders.PrimeMinisterOrban,however,em-phasisedHungary’sneutrality,statingthatthesecurityofZakar-pattianHungarianswas themost important issue. Concern forthenationalminorityalsoprovidedagoodexcuseforHungary’sneutralstanceontheconflictandallowedittorejecttheaccusa-tionlevelledbytheleft-wingoppositionthatthegovernmentwasbeingsubmissivetoRussia.

4. The Eastern opening

The Orban government granted high political significance tothe ‘Eastern opening’ strategy. Given the economic crisis which

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Hungary’s traditionalWestern partnerswere experiencing, thisstrategyassumedestablishingcloserco-operationwiththeemerg-ingeconomicpowers,especiallyChina,Azerbaijan,SaudiArabiaandovertimealsoRussia.Inadditiontoboostingtrade,whichhadalreadybeengrowingundertheSocialistgovernment,the‘Easternopening’wasintendedtoattractinvestmentsandgainnewsourcesforthefinancingoftheHungariandebt.BuildingbondswithEast-ernpartnerswasaccompaniedbyassurancesofaninescapablede-compositionoftheEUandWesterncivilisation,andtheopportuni-tiesthe‘Easternwind’wereofferingHungary.

The intensification of diplomatic relations failed to bring thepromisedquickeffects,althoughthiscouldhaveapositiveeffectonthediversificationofHungary’seconomicrelationsinthelong-erterm.ChinaandtheArabstateswerenotinterestedinbuyingHungary’shigh-riskbonds.NospectacularinfluxofinvestmentsfromtheEastwasseen,either.Althoughanumberof lettersofintent have been signed, including one concerning China’s in-vestmentsinrailroadsinHungary,theirimplementationisyettoprogressbeyondtheplanningstages.Exportstonon-EUmemberstateshavebeengraduallyincreasing.However,Europeanmar-kets are still the main export direction, with Hungary sellingaround75%ofitsexportsthere.The‘Easternopening’policyandestablishingcloserrelationswithcountriesgovernedbyauthori-tarianregimeshavealsorevealedsomethreats.SoonafterOrban’svisittoBakuin2012,HungarydeportedAzerbaijanicolonel,Ram-ilSafarov,whohadbeenservinga jail sentence inHungary forbrutallymurderinganArmenianofficerduringaNATOtrainingcourseinBudapest in2004.SafarovwasimmediatelypardonedinAzerbaijan.ThisgaverisetoArmeniafreezingrelationswithHungary and criticism from the international community. TheOrbangovernmentissearchingforanideologicalfoundationforthe‘Easternopening’policybyattemptstodrawuponthemythi-calunionofHungariansandHunsandotherTuranianpeoples,atheorywhichhasalongtraditionamongtheHungarianpoliticalright,andwhichisespeciallypopularamongradicalcircles.

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Overtime,Russiabecametheleadingstateinthe‘Easternopen-ing’ policy. Although when it was in opposition Fidesz had se-verelycriticisedtheleft-winggovernmentforitssubmissivenesstoMoscow,especiallyfortheconsenttoparticipateintheSouthStreamgaspipelineproject,itcontinueditspredecessors’policyafter the election. Firm support for the construction of SouthStreamwasupheld,and theOrbangovernmentwas thefirst towithdrawitssupportfortherivalNabuccogaspipelineproject.ThegovernmentalsodecidedtoentrustRussia’sstate-controlledcompanyRosatomwith implementingHungary’s largest invest-ment since 1989,without holding a tender. In January 2014, anagreement envisaging the construction of new reactors for thePaksnuclearpowerplantwas signed inMoscow,anda 30-yearloanofaround10billioneurosisexpectedtobegrantedbyRus-sianbanks.Energyco-operationhasbeenaccompaniedbythees-tablishmentof closerpolitical, economic and cultural relations,andPrimeMinisterOrbanhasexpressedtheopinionthattheEUandNATOshouldenhanceco-operationwithRussia.Officialcon-tactsatvariouslevelshavealsobeenintense;PrimeMinisterOr-banhimselfhasmadethreevisitstoMoscow22.Agreaterpartoftheright-wingelectoratehaveputtheirfaithinOrbanthatheisabletotakeduecareofHungary’sinterestsinrelationswithRus-sia, although he had demonstrated a sceptical attitude towardsRussiaforyears,andthememoryofthe1956uprisingsuppressedbySoviettroopshadbeenanessentialelementofFidesz’sidentity.

The political rapprochementwith Russia is an effect of the de-siretofindacomprehensivesolutiontothechallengeswhichtheHungarianenergysectorhasbeenfacing,andofthewishtotreat

22 Closer co-operationwith Russia has also extended to establishing closercontacts between the two countries’ government parties. For example,FideszpoliticianshavetakenpartinpartycongressesoftheUnitedRussia.In2013,ViktorZubkov,theChairmanofGazprom’sBoardofDirectorsandformerprimeminister,wasawardedwiththeOrderofMeritoftheRepub-licofHungary(incidentally,PrimeMinisterGyurcsanyawardedasimilarorderin2005tothepresidentofGazprom,AlexeyMiller).

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Russiaasamajoranda reliablepartner.RussiangaspricesareamongthemostimportantpoliticaltopicsforthegovernmentinBudapest,giventhegreatimpactofnaturalgasontheHungarianeconomy23.Hungaryisalsofacingthechallengeofdevelopingitsonlynuclearpowerplant,since thedeadline fordecommission-ingthefourreactorscurrentlyinoperationwillexpirebetween2032and2037.Furthermore,closerco-operationwithRussiafitsinwiththeprocessofbuildingstrongplayersonthedomesticen-ergyscene.Theroleofthestate-ownedcorporationMVMhassig-nificantlyincreasedunderOrban’srule,andthismaycontributetoHungary’snegotiatingpositionbeingstrengthenedinitsdeal-ingswithRussia.MVMhasbeenputinchargeofallissuestobenegotiatedwithMoscow(thedevelopmentof thenuclearpowerplant,thegascontractandtheconstructionofSouthStream).Ne-gotiationsonthenewcontractforthesupplyofgasaresettobe-ginsoon(thepresentoneexpiresattheendof2015).

23 Atthesametime,thegovernmentledbyOrbanhascontinuedthepreviouscabinet’seffortstodiversifygassupplies inordertotemperthecountry’sdependenceonRussiangas(e.g.theconstructionofinterconnectors).

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CONCLUSION AND FORECASTS

Despitemultipleconstitutionalandeconomicchanges,harshcrit-icismathomeandabroad, and thedifficult economic situation,Fideszasthegovernmentpartyhasbeenabletoretainasignifi-cantpartofitselectorateandhasledinallthepollsthroughoutitsentireterm.Theparty’spopularityhasnotbeenadverselyaf-fectedbythefactthatithasbeenusingthelawasitdeemsfitorbecauseoftheplagiarismscandalwhichculminatedintheresig-nationofthepresidentwhohadbeennominatedbyFidesz.Inter-nationalcriticismandthegovernment’sdisputeswithEUinsti-tutions,theCouncilofEuropeandtheUSAhavehadhardlyanyimpactonFidesz’sdomesticsupportlevels.

One of the reasonswhy the support forOrban’s party has notfallenisthefactthatthereformshavenotseriouslyharmedtheinterestsofanysocialgroup.Thosebetter-off,whoformanes-sentialpartofFidesz’selectorate,havebenefitedfromtheflat-ratetax.Atthesametime,thegovernmenthasraisedthemini-mumwage,whichhasbeenan importantgesture for thoseonlowerincomes.Despitethedirestraitsfacedbypublicfinances,pension indexationswere carried out every year. This has al-lowedFidesz tomaintain thesupportofpensioners,who formagroupofaroundtwomillion.Theenergypricecutsforindivid-ualclientsmadeinthelastyearofthegovernment’stermhavedistractedtheattentionfromtaxrisesandeconomicstagnation.This move has positively affected all consumers. The govern-menthasthusbeenabletoavoidpublicunrest.Demonstrationshavebeenheldonly inthecapitalandconcerned issueswhichhavenodirectimpactoncitizens’everydaylife,suchasthepro-tectionofthefreedomofspeech,theruleoflawandthesepara-tionofpower.

Additionalfiscalburdenshavebeenimposedonlargecompaniesfromtheeconomicsectorswhereforeigncapitalpredominates.Thishasprovokednegativereactionsabroadandmayadversely

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affecttheinvestmentclimateandHungary’sinternationalposi-tioninthelongerterm.However,Fideszhasbeenabletocapi-taliseontensioninrelationswithitsforeignpartnersandthusconsolidate its electorate using slogans about defending thecountry’s sovereignty. It has also been able to maintain highsupport levelsthroughaconstantmobilisationofitselectoratemanifestedforexamplebymarchesofsupport for thegovern-ment (so-called “peacemarches”), signature collecting actionsto supportFidesz’sprojects, letters sentby theprimeministerto citizens and the government’s advertising campaigns. ThecontinuingpopularityofPrimeMinisterOrbanhimselfhasalsobeenanimportantfactor.

Fideszalsoowesitsstrongpositiontotheweaknessoftheoppo-sition.Thepoliticallefthasbeenunabletosuccessfullydissoci-ateitselffromthenegativelyevaluatedrulein2002-2010andtoofferamoreappealingalternative toOrban’s rule.New initia-tives, suchas technocratGordonBajnaienteringpolitics,haveonlyattractedasmallsectionof thecentristelectoratedisillu-sionedwithFidesz’srule.InJanuary2014,thekeyleft-wingandliberalpartiesdecidedtodrawupacommonelectionlistandtoput forward joint candidates in single-member constituencies,to thus increase their chances for success.However, thepres-ence of discreditedpoliticians, such as formerprimeministerFerencGyurcsany,isaseriousburdenforthisalliance.Theradi-calrightJobbikparty,whichiscurrentlythethirdstrongestpo-liticalforceinparliament,hasmaintaineditspreviouslevelofsupport.SinceFideszhasimplementedpartoftheradicalright’sproposals and has strongly emphasised national and historicissues, Jobbik’s chances of improving the result achieved fouryearsagoarenowlower.

IfFideszwinstheparliamentaryelection,asexpected,itwillmostprobablyfocusonstrengtheningthestate’sroleintheeconomyinthecomingyears.Themostcontroversialpoliticalchangeshavealready beenmade in the present term, so Hungary’s disputes

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withitsWesternpartnersarelikelytobemitigated,thoughinci-dentaltensionmayappear.However,ifrelationswithpartnersintheEUandNATOdeteriorate,itcannotberuledoutthatHungarywillmakemoreactiveattemptstosearchforalliesintheEast.

ANDRzEj SADECkIWork on this text was completed in March 2014