Brexit, Hungary and EU Funding

by Dr Thomas Lorman, Teaching Fellow in Central European History, SSEES 

Any journey through Hungary is marked by the sight of posters promoting various government infrastructure projects which are being carried out according to the government’s ‘New Széchenyi Plan’ (Új Széchenyi Terv) named in honour of Count István Széchenyi, one of Hungary’s great nineteenth century statesmen and a tremendous anglophile. Each poster is appropriately adorned with both a Hungarian and an EU flag, a visible demonstration of how Hungary is benefitting from EU funding. This funding is substantial. In the funding cycle 2007-2013, Hungary paid 8 billion euros into the EU budget and received 33 billion euros. In the current funding cycle up to 2020 Hungary is expected to be the net beneficiary of a further 32 billion euros. Per head of population, Hungary is receiving more EU funds than any other member state apart from Lithuania. As a result, over 90 percent of the funding for state infrastructure projects is provided by the EU. The result of such largesse is evident in, among other things, the new metro (tube) and tram lines, better roads and railways, cleaner air and beautified city centres. The posters promoting the EU’s support for various government projects serve, therefore, as tangible proof that the EU is helping to close the gap between Central and Western Europe, healing divisions that were exacerbated by the maladministration that characterized over four decades of Communist rule, and ensuring that the call for a ‘return to Europe’ in 1989 was not just empty rhetoric. Britain has had a long-standing view that the creation of a free and prosperous Central Europe is in this country’s best interest. EU funding appears to be an effective way of achieving that objective.

The direct benefits to Britain of the EU’s financial support for Hungary should not be overlooked. Tourists benefit from the Hungary’s gradual reconstruction and modernization; EU funds have helped raise the quality and price of Hungarian agriculture and curbed the amount of cheap, low-quality produce that would otherwise have been ‘dumped’ on the British market. The dramatic improvements in the quality and accessibility of Hungarian wine are a case in point. EU funding has also helped grow the Hungarian economy. About 5-6% of the country’s GDP is directly dependent on EU funding, and that in turn has made Hungary a growing market for British exporters. Moreover, for those concerned about the negative impact of migration into Britain, EU funding has provided more jobs for the Hungarian labour force and thereby limited the number of Hungarians who have tried their luck in the British labour market.

On closer inspection, however, the posters that record the EU’s contribution to Hungary’s development promote, first and foremost, the Hungarian government’s own efforts to transform the country. Although the full sum of money devoted to each project is listed on every poster, no effort is made to spell out precisely how much of the total budget has been contributed by the EU, while the obligatory inclusion of the EU flag is dwarfed by the slogan that ‘Hungary is being renewed’ which is emblazoned on an orange background associated with the governing FIDESZ party.  As the vast majority of EU funding is spent by the government, either at the state or local level, the overall impression is that the transformation of the country is primarily the result of the government’s efforts and finances. Put simply, the EU pays and the Hungarian government reaps the benefits.

Hungarian private businesses and NGO’s do have some access to EU funds. Even businesses linked to opposition figures have obtained some crumbs from the table. Nevertheless, the dispersal of EU funding is mired in constant allegations of corruption, a woefully inefficient bureaucracy, and an overwhelming stench of nepotism. On occasion the EU has withdrawn funding from Hungary over concerns about the misuse of funds and has had some success in demanding greater transparency and imposing realistic targets and timetables. Such efforts have gone some way to curbing the most egregious cases when EU money was misused. Nevertheless, Transparency International asserts that almost every project funded by the EU in Hungary continues to be afflicted by some level of corruption.  Indeed, such is the scale of the inflow of EU money into Hungary that the government is struggling to spend all of the money allocated. It is, therefore, not overly concerned with spending the money in the most efficient manner possible with one estimate suggesting that it is spending EU money, on average, at about 25 percent over the market rate.

Moreover, the EU has proved entirely impotent as regards the rampant politicization of the Hungarian bureaucracy which oversees the actual dispersal of most EU funding. The politicization of the Hungarian bureaucracy is, it should be noted, a long-standing, phenomenon. Each change of government has been accompanied by the wholesale sacking of senior civil servants and senior figures in various state organizations such as the post office, the railways, the television and radio. Critics contend that this malign state of affairs has been exacerbated by the current FIDESZ government, in power since 2010, it has certainly not diminished. Thus the government’s own favoured persons, organizations and businesses continue to receive the lion’s share of government funding, including most of the funds provided by the EU.

Individual members of the government have adopted an old tactic of warning the electorate in specific constituencies that their future prosperity is dependent on voting for the right party. The implicit threat is that a vote for the opposition will mean that they will receive less funding from the government, including less EU funds.  As a result of such shenanigans, Hungarian analysts from across the political spectrum have voiced concerns about how civil society and the democratic process is being squeezed and distorted by the government’s control and manipulation of the flow of EU funds. Britain, as one of the EU’s wealthier member states, is helping to fund this manipulation.

In addition, EU largesse has ensured that it has been far easier for successive Hungarian governments to rely on EU funding rather than carry out a comprehensive economic reform program that would put the country on a track towards rapid economic progress. The initial wave of reforms that were enacted in the 1990s to empower the free market have given way to tinkering, lethargy, and even creeping re-nationalization. As a result, Hungary’s economic growth in the past decade, precisely when the lion’s share of the EU funds has arrived, has been anaemic.  In the past decade its GDP growth rate has consistently fallen below 4% per annum, ensuring that Hungary cannot meaningfully close the gap in living standards between Central and Western Europe. Thus, eastern Hungary comprises three of the ten poorest regions in the entire EU and a significant proportion of the Hungarian workforce is motivated to look for employment prospects elsewhere including Britain. Indeed, there is a case to be made that the governing clique in Hungary has a vested interest in preserving the relative impoverishment of Hungary as it allows them to cream off the EU’s largesse while bolstering their own grip on the country.

EU funding is, of course, only one example of the impact that EU accession has had on Hungary but it is a revealing one that illuminates larger problems with the entire EU project. Clearly, EU funds are bringing tangible benefits to Hungary, and to Britain, but they have also encouraged successive Hungarian governments to dodge reforms, exacerbate nepotism, weaken civil society, and obscure their own malfeasance. Proponents of Brexit should acknowledge the negative impact that this will have on Hungary if the inflow of EU money is reduced by ending Britain’s contribution, but opponents of Brexit should also acknowledge the negative impacts that this inflow of funds is having right now.

 

Please note: Views expressed are those of the Author(s) and do not necessarily reflect the organisational views of UCL, SSEES or UCL SSEES Research Blog