Europe: Fix What You Messed Up Yourself!

In 2006, the politics of the new ex-communist EU countries have looked to be in a spectacular mess. Perhaps the most memorable scene of the year in Eastern Europe was when a prop tank was driven by crazed Hungarian demonstrators up against tear-gas-happy riot police on 23 October. More than a third of Hungarians still think the prime minister, who admitted to “lying day and night” in order to be re-elected, should resign. The leader of the opposition, who is ready to back anyone who considers government handouts to be a birthright, and who welcomes any interest groups disgruntled with the half-baked government reforms, eggs them on. Is this going to be business as usual in this part of Europe from now on? After spending years shaping up for – and finally celebrating – accession, was this behaviour to be expected from even the relatively peaceful Hungarians?

If so, it will not just be our fault. Credit markets have let our budget run up an ill-disguised deficit of unprecedented scale in anticipation of EU regional funds (amounting to more than 300 euros per capita per year in a country where GDP is less than 11,000 euros per capita). The windfall that these funds represent is accompanied by new, huge, costly and inflexible bureaucratic structures, operating more in the style of Brussels than Budapest. This new set of institutions might make the gradual siphoning off of juicy budget resources from below riskier than usual for countries in the region. Thus, the rent-seeking political elite have to stay on the ball if they do not want the 2007-2013 gravy Orient Express to leave the station without them being in the engine room. Indeed, the new reward for Central European politicians is the luxury of spending what they get from Brussels. Decisions concerning the sub-headings of the national development plan and the delegation of political trustees to supervise the execution of that plan are just too attractive for politicos to not start destructive political wars for. And if these wars are distant from the civil wars that the reaping of natural resources often cause in developing countries, they are certainly not the quintessentially polite and productive bouts of conflict-cum-cooperation that successful, developed countries tend to engage in, either.

In fact, what political parties fight over and what they are willing and able to make deals on is a key ingredient of countrywide economic success. Parties competing for the electoral vote which base their arguments on issues of distribution (feasible alternative budgets), and which cooperate on at least some key long-term measures designed to boost state institutions and productivity, tend to make a country successful. Parties in power that do not share an iota of responsibility or potential kudos with the opposition for necessary long-term reforms, and parties in opposition that consider each attempt at institutional reform to be a chance to topple the government, make a country stagnate or fall.

Despite feeble attempts to prove the contrary, this letter by and large outlines the case in Hungary. Given the state of the political culture in Hungary, ungrateful as this may sound, a slice of the fault lies with those who have thrown the meat to the dogs. With its happily taken, but not so happily doled out transfers and its impenetrable rules, the Union has messed up Hungarian politics. It might also make some effort to help us sort this mess out.

What efforts do we have in mind? Do we want EU institutions to come in and meddle with Hungarian politics on a large scale? Do we want them to threaten withholding funds in an arbitrary manner? No. Such remedies would have much worse side effects for Hungary and Europe than the good they might achieve. However, there are more homeopathic treatments at the disposal of the Commission that might help cure our body politic. Mr. Almunia could include references to the value of cooperation on certain key issues in the comments he regularly makes on Hungarian macro-economic plans. High-ranking Eurocrats could have low-key chats with Hungarian MEPs. The EU could offer a few hundred hours of opinion from unbiased, world-class experts to help sort out long-term institutional matters (from health-care to tax-reform) if all-party-approved study groups are set up to work in those fields. We have learned at our own cost that not even the best foreign ex-minister or full professor is a substitute for local experts with local knowledge; at the same time it is only such outsiders that can guarantee professional quality to all of the deeply distrustful political players and interest groups. It should not be impossible to find the best ways of making such bodies work, either. A further step might be to fine-tune some of the crude pan-EU macro-economic criteria to guide us (as well as other member countries) towards consensual reforms. One example might be to extend euro criteria to include the implicit debt in calculations.

The Eurocrats could certainly do more than just put up with the fishy goings on in the east European region, insinuate that our behaviour shows we are doomed to remain as second-tier members, and whisper that letting us in at all was a mistake best not repeated. However, let there be no mistake, we are in. We are also getting a substantial wad of euros from European taxpayers. As a New Year’s resolution, why not put some additional thought and effort into helping us put that money to good use, too?

Péter Mázsa
Member of the State Reform Cabinet of the Hungarian Government

Balázs Váradi
Partner, Company for Economic Strategy and Analysis

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