ANOTHER EUROPEAN UNION IS NECESSARY AND POSSIBLE: Challenges of the Left on the Economic and Financial policy of the European Union


Impacts in European countries and country-specific strategies of the Left


 Systemic change

There was a systemic change in Hungary at the end of the 1980s. The Central and Eastern European (CEE) region is an upwardly mobile formation striving towards the European core (centre) countries. In the CEE, especially in Hungary (but a little later also in the Czech Republic, Slovakia, Poland and the Baltic republics) the capitalism “was built from outside” and the foreign, especially the multinational capital played a decisive role. Hungary as an apt pupil during the years of transition has lost its leading role in the region by now. Double marginalization has taken place: its position weakened both in the EU and in the CEE.

The „outside model” of the systemic change was implemented by the new political class in posession of the monopoly of legitimate violence: the change has been made „typically by the states from top-down” and its real socio-economic content was dressed in national and ethnic form.

In Hungary, the systemic change meant the victory of the „so-called late Kádár technocrats” that could become dominant actors within the elite groups managing the transition, because they worked closely together with the superstructure of global capitalism (i.e. IMF, WTO, World Bank, credit rating agencies, etc). In 1989 they found the catching up with the reconnection to the West. The concept of Central European region in the 1980s ideologically prepared for Hungary’s Western re-orientation.

Modernization strategy was based on following the outside examples, namely: de-etatization, deregulation, privatization, monetarism, launching and managing series of social, economic and political actions according to new individualism. Today it became clear to the majority of people that Hungarian society can not be converted and stimulated to catch up by imported ideas and institutions.

The successful modernization manifests itself in an economic and social structure, which is built on the possibilities of the country and is capable to operate according to the changing external and internal conditions as well as creating a social structure, which is a base – in all components – for further advancement of the modernization process.

What is the reason for our backwardedness?

Modernization of the state socialist experiments has lost social leverage and the upswing was not followed again by an independent, own development based on the possibilities. In the last decade of the socialist system the macroeconomic indicators clearly expressed the deteriorating economic performance, while after 1978 Hungary ran into the debt trap. The last decade are significantly worse in all indicators than the previous two periods, while investment and per capita real wage has been negative. Thus, the legitimacy of the socialist system was undermined by the poor performance and was ready to be overthrown in order to start – not for the first time – the coveted task of catching up.

Historically, however, based on GDP and GNP calculations, since the 1860s the performance of the Hungarian economy is more or less constant: Hungary stands at around 60% of the European core (centre) countries with 4% to 6% point difference (if the cyclical fluctuations are not considered and the weighing of the reference is taken into account).

If we take the performance of the early 21st century and compare it to the EU-15 (prior to 2004), Hungary stood at 57% – 58%. (The golden age of the Hungarian economy was between 1997 and 2001, when GDP grew by an average of 4.6%. This growth declined significantly between 2002 and 2007 and then turned into an open crisis). But if we compare Hungary’s performance in 2006 to the average of EU-27, the figure stood at 63%.

However, since the outbreak of the crisis, the decline of GDP (2008 = 0.6%), the negative growth results (2009 = – 6.5%) further pushed down Hungary’s figure.

When the global financial crisis broke out in 2008, Hungary was in a very precarious economic situation. Although the government had introduced major austerity measures from 2006 to 2008, these cuts could not prevent the flood of international speculation, which threatened to collapse the country’s economic and financial system. Immediate support from the IMF and the European Central Bank (ECB) allowed Hungary to avert the most dramatic scenario. Nevertheless, the crisis underscored several weak points in the Hungarian system that could no longer be ignored, including:

  • an extremely high exposure to foreign currency debt (mainly in the private sector);
  • high levels of external debt financing;
  • low level of employment (49.7%) combined with a high rate of unmeployment (10.9%) and activity rate (55.8%);
  • low average monthly wages (EUR 616) comparing to the productivity level;
  • premature consumerism generated by the banks offering low interest rate  credits denominated mainly in Swiss Francs, which led to very high level of households’ indebtedness (18%);
  • sharp conflicts between the Socialist Party (MSZP) and the right wing party (Fidesz);
  • dangerous ideology-based polarization of the society.

Hungary’s economic performance remained in the medium range, and since 1979 has so far been unable to escape from the movement of forms that after periods of rise a period of decline, loss of balance, reproducing fiscal deficit and growing external and internal indebtedness and dependence follow. Then comes the deep recession and the resulting crisis. The explanation of this movement of form – and also the negation of modernization theory – is the conceptual content of the semi-periphery. The problem of the relative backwardness and the semi-peripheral status does not depend either on governments and governmental measures or mostly even on a form of social-determination. The semi-peripheral CEE countries are in an intermediate position in the world economy, in the structure of the centre and the periphery. However, we cannot step out of the world economy, we cannot keep aloof  because the most important historical attempts failed in dozens of countries, including the former Soviet Union. The dilemma of the CEE countries, therefore, is only the degree of openness.

However, not only the openness dilemma of the semi-periphery is an important question, but also the phenomenon of the emerging new competitors that have often more capital power than Hungary’s whole economy.

In Hungary, the new capitalism is largely open. As a result, Hungary suffers the losses, which is caused by the semi-peripheral position, namely that – from the trade relations point of view – the main partners before 1989 (primarily the Soviet Union and the socialist countries) are now replaced by the European centre countries, first of all with Germany.

The existing problems of today’s Hungarian society is that the new system is only capable of a performance presented here above.  Thus, the new capitalist system cannot cut through the Gordian knot, namely that at least one million people is missing from the active population (it was 4.8 million before 1989). Due to changes in class relations the domestic industrial reserve army (i.e. the unemployed) has enormously swollen. Essentially, the persistently low level of employment took shape by 1993. For this reason the needy are numerous and compared to them the taxpayers are few (the tax base is insufficient), so to spread the cost burden evenly to the public is very limited. Consequently taxes are high and willingness of savings and investment is low. The overall performance of the Hungarian new capitalism is approximately equal to the state socialist system, but the resources and income are allocated much more polarized. Oligarchic wealth of a few hundred thousand people was established, they are really caught up to the centre, while the ratio of people living below the poverty line is about 40% of the population (i.e. four million people).

In the past twenty years massively disintegrated, under-class groups appeared, with a large number of Roma population in the lead, under the continuous pressure of welfare compensation (benefit). Thus, the poulation’s carrying capacity of public ownership was much higher than that of the private property created by original income transfers, privatization and restitution.

The impacts of the economic crisis in Hungary

Hungary is one of the biggest losers of the current crisis. Since 1989, foreign capital investment (FDI) has played a significant role in the renewal of Hungarian industry and in the formation of new industrial spaces. The economic crisis has had a significant impact on the Hungarian economy, particularly for the globalized, export-oriented industry. Primarily those branches of the local economy suffered the most that are closely tied to the global economy (e.g. automobile industry and electronics). These industries and the impacts of the crisis are typically concentrated in the northern Transdanubia area of the country, so we can designate this region as the core of the crisis. Moreover, the crisis has brought into focus the spatial structural dichotomy of the Hungarian industry and has also contributed – even if only temporarily – to alleviating regional differences. However, the new, semi-post-Fordist pattern of Hungarian industry has not been reorganized.  The sharp GDP decline in 2009 was linked with the construction and the contraction of the real estate market.

At the end of 2008 and early 2009 the Hungarian Currency (HUF) was depreciated by 15% to the Swiss Frank (CHF) and 17% to the Euro (EUR), which led to insolvency and to an emerging credit crunch. Indebtedness of the households in foreign currencies (CHF and EUR) has increased. As a result the financial conditions of the households deteriorated, the income and spending relations changed. The social composition by income and financial situation became polarized, the gap between the richest and the poorest widened, differences between the households sharpened, the quality of urban residents’ life decreased.

The crisis in Hungary has shown us clearly the low competitiveness, the scarce resources, the small size of domestic market, the unfavourable demographic trends, the quantitavie and structural problems of labour force as well.

The main problem we are facing now is that – as a result of a dysfunctional economic model – the greater part of Europe, including Hungary reached an impasse. Unfortunately, many policymakers still believe that combining foreign capital and cheap labor is equal to catching up, which is a serious mistake. It is also a big problem that among the proponents of this erroneous economic idea – with a slight difference – we can find both major parties of Hungary. The neo-liberal economic policies are spiced on the right by Fidesz with runic, Turul bird elements and by MSZP on the left with uncritical adoration of Europe. It goes without saying that there might be a constructive role of the capital, but it has already crossed the borders, leaving behind a socially unacceptable situation. In addition to the classical bargains and fights between the antagonistic labour and capital, the knowledge as a third factor also entered into the productive scene. However, the Hungarian leadership of the last twenty years has been ignoring this change and deteriorated our country into a low productivity.

Civic Resistance, Protest Movements in Hungary

The govenmental measures started in 2011 in order to mitigate the negative impacts of the crisis are sharply criticised, but no positive effects can be detected yet. The result of Hungary’s unorthodox economic policy  is an open question, but for sure Hungary’s position in the EU has not stregthened at all.

The Hungarian civil society, including trade unions, are today very weak. This includes the many social groups that have been humiliated and hurt in the past two years. Not only the unemployed and the poor, but also doctors, teachers, and civil servants who are also affected. Regretfully, solidarity between the most vulnerable groups of Hungarian society has not strengthened, this is often because they dislike each other and do not cooperate. There is a fierce fight for employment. A big question is if and when these humiliations and unkept promises by the Fidesz government become understood and politically conscious within these groups.

As long as those in power go unchallenged, the „divide et impera” strategy will remain successful. It is particularly important to understand that with these divisive politics the Hungarian people themselves – unlike in other European countries – are more individualistic in character. The lack of solidarity has an understandable past which may be connected to the policy of the previous Kadar regime (between 1956 and 1988). At that time the majority had been faring well and very few needed to join forces socially. The market economy is today attached to this same spirit of ‘Divide and rule’. But today not only the non-poor turn against the poor, but also the different groups of poor people turn against one another. The interaction between these social groups can only be expected if the tensions degenerate into assault and battery. A hitherto unseen ghettoization is occurring and conscious efforts are made within the cities to get rid of the Roma and the poor. The ban on begging in public areas has also intensified.

However, people do not want to be silent anymore. The left-wing criticism against Fidesz is not yet successful, but a growing dissatisfaction of a large strata of the society has recently led to the birth of a new movement called “Together 2014”, which aims to unite the opposition vote in a bid to unseat PM Viktor Orban in the next election. Together 2014 is an alliance between former PM Gordon Bajnai’s ‘Patriotism and Progress’, ‘One Million for Press Freedom’ (Milla) and the trade union-based ‘Solidarity Movement’. Together 2014 is a centrist anti-Fidesz electoral alliance (not yet a political party). It should be said that at the time of this writing, Bajnai has not indicated if he plans to run for office. After the establishment of Together 2014 was announced in October 2012, the left-wing opposition parties appeared hesitant, both about what it actually stands for, and whether or not to join the coalition. Ex-PM Ferenc Gyurcsany’s Democratic Coalition Party (DK) immediately supported this initiative, while the leadership of the Hungarian Socialist Party (MSZP) declared it will consider joining the alliance. The Green Party ‘Politics Can Be Different’ (LMP) is divided over the question of joining Together 2014 or just negotiating with Bajnai and it is on the verge of a split. It is still unclear if this rainbow coalition of Socialists, Liberals and eventually Greens is workable, i.e. whether they can come up with a political program that is credible to the Hungarian voters.

However, civil society organisations (CSOs), progressive groups and individuals have already started to violate Fidesz’ policy interest. While democratic institutions whither away, CSOs continue to learn liberal democracy. New coalition of civic groups, movements, trade unions and opposition parties are now in the making. There are four issues/major causes where we could observe more or less massive protest actions and emerging new movements namely:

 1.   Free media/Democracy  (Milla);

 2.   Legal Defence, Solidarity and Democracy (Solidarity Movement and The City belongs to Everyone);

 3.   Education (University Students’ Network);

 4.   Change of paradigm (Real Democracy Now, World Revolution, Occupy Hungary).

Besides the above mentioned, there are several smaller and weaker civil movements as well, e.g. Fourth Republic! (4K!), ‘One Million for Democracy’, and ‘Hungarian United Left Movement’ (MEBAL). There are also a number of other initiatives to list, such as the so-called Poem Marathon, the Petitions web page against the government’s politics, a protest movement against anti-semitism and racism in the Hungarian Parliament.

A common characteristic of the new Hungarian movements is that they try to keep a distance from the political elite. Unwilling to lose the credibility of their movement, or to be seen as aspiring for power, most of the time they exclude politicians and political parties from their events and actions. At the same time, regarding certain fundamental issues, such as for example the new constitution the movements do occasionally cooperate with political parties.

However, there is a growing suspicion that ultimately these movements are also aspiring for power and will turn into political parties before the next elections. There is a large push on some of the civil actions to transform into political parties. The pressure to become a political party is also inherent in the new protest movement itself – several groups have broken off from Milla and Solidarity with the aim to become political parties (e.g. 4K!).

It is evident, that the role of political parties is decreasing everywhere and it is difficult to address people in this format today. Parties can only represent a kind of partial interest, which is not that of the whole society. They cannot represent plurality or multiple interests. Having civil society replace political parties does not happen from one day to another, even though it is evident that it could represent the interests of society as a whole, and not only partial ones. Obviously, political parties still have a role to play, but alongside them civil society should also be strengthening gradually. If we want to create a non-partisan society in the long run, then we need a very strong civil society that can represent the interests of society as a whole.

 Budapest, 2 December 2012.

                                                                     Matyas Benyik

 This above text of lecture is to be delivered on 8 December 2012 in Sofia, Bugaria, in the Park Hotel Moskva at the International Conference organized by Rosa Luxemburg Stiftung and Bozludzha Foundation.


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