Hungary weary of European Union Wednesday, 01 February 2012 01:49

By Michael Birnbaum

Hungarians celebrated joining the European Union eight years ago by chopping through the barbed wire that separated them from Austria, eliminating a final vestige of the Iron Curtain. But after years of financial crisis, many here in Europe’s heart are questioning their westward ties.

As membership in the EU becomes ever more a dour pledge to cut spending while opening borders to economic competition, anti-EU politicians in many countries have surged in popularity, capitalizing on the anxieties of voters who see dimming hope for the future. Hungary’s Prime Minister Viktor Orban has been at the front of the pack, passing electoral and economic revisions that critics say are far outside of European norms but that he says put his country’s interests first.

Other countries could soon be following Hungary’s path in what has until now been a mostly one-way road toward tighter economic integration. Near-bankrupt Greece could be kicked off the euro, or even out of the EU entirely, if it fails to make enough progress in grappling with its problems. Even politicians who support the union as a whole are questioning the wisdom of the fiscal pact agreed to on Monday that binds together the 17 countries that have adopted the euro in a solemn vow of austerity, and will slowly draw in eight other countries, including Hungary, if they join the euro zone.

“The fiscal pact raises budgetary discipline to the status of a panacea for all the ills associated with the debt crisis,” said Martin Schulz, president of the European Parliament and a member of Germany’s Socialist party, in a speech to European leaders Monday. “Alone and accompanied by austerity measures in many member states, it will not bring much needed economic growth and jobs.”

Orban blames the rush of foreign money that came in after his country joined the EU for its later problems, a common complaint in other struggling countries, especially Greece, which after years of exuberance faced a painful reckoning. There, the EU and International Monetary Fund have little to show for billions of euros of bailout money and two years of austerity-driven attempts to restructure the country’s economy.

But Orban has a freer hand than his Greek peers because Hungary retains its own currency. In recent months he has passed laws that would reduce the central bank’s independence to make it submit to his policy goals. He also dismissed more than 100 long-serving judges and revamped the country’s data-protection office to place it under his control. All three actions led the EU to launch proceedings against Hungary in January, saying that the changes had contravened European treaties.

Protests have split this country of 10 million since the beginning of January, underscoring deep divisions between Hungarians who see the EU as the only thing preventing their country’s slide toward authoritarianism and those who feel it is the source of their troubles.

The European Union has been “building an empire” with its ever-increasing demands on individual countries, said Gyorg Filip, who careens his battered taxi through Budapest’s sycamore-lined streets as a way of supplementing his $300-a-month retirement pension. On the side of the cab is a map of Hungary’s pre-World War I borders, when it was three times as large and engulfed much of Central Europe.

Filip said he ran a sock-knitting factory until it was forced shut five years ago, blaming European free-trade rules that swept in cheaper mass-produced socks from abroad. Hungary’s leaders “fooled all the people” with promises of prosperity when the country voted to join the EU under the previous Socialist government, Filip said. Orban, long cautious about membership, has turned such sentiment to his advantage.

In tussling with the EU and the I.M.F., Orban has used his two-thirds majority in parliament to institute laws that dismiss or water down the power of his opponents in positions ranging from the judiciary to the central bank to local schools. A prominent opposition radio station, Klubradio, will likely be off the air in March after authorities awarded its frequency to another station.

Orban and his allies say the changes are aimed at sweeping out the last of the Communist remnants; the opposition counters that it is simply a bid to create a powerful network of supporters of his Fidesz party.

“You can see the tyranny of the majority,” said Attila Mesterhazy, chairman of the Socialist Party. “They’re building their power not based on the will of the people but on administrative tools.”

Orban has been forced to back away from some of his euroskeptic rhetoric in recent months as he seeks an I.M.F. credit line to shore up his country’s finances, and he has said he would change the new central bank policy. On Monday, he agreed to the EU austerity pact, which Hungary hesitated to sign in December. The treaty, however, will not have any practical impact on Hungary unless it joins the euro, which politicians say is unlikely before 2020.

Despite his conciliatory steps, Orban has continued to caution Hungarians about capitulating to European demands, and courted China and Saudi Arabia as alternative sources of investment, encouraging them to set up shop in Budapest’s imposing fin-de-siecle buildings.

And he also appears to be sticking to his financial policies, which critics and government officials alike agree are not a strategy from any economics textbook. Some policies — such as increasing the value-added sales tax to 27 percent, one of the highest in the world — have been aimed at raising revenue. Others, like instituting a flat income tax, amounted to a tax cut for the wealthiest earners. Many economists blame the rapid-fire changes for exacerbating the tough situation that Orban inherited when he took over from the Socialists.

WP-Bloomberg