Hungary: A Country of Firsts

In 1989 Hungary made a dramatic first step. Several months before the Berlin Wall fell, the Hungarian government opened its borders to Austria and the West, enabling thousands of East Germans to flee across the iron curtain. Within less than a year Germany was re-united, Hungary had elected its first democratic government, and Europe was on the way to erasing the East-West divide.

Twelve years later, the iron curtain has all but disappeared. In its place a new border has risen separating the European Union member countries from their non-EU neighbors. Many of them are candidates for EU-membership. Hungary is on the edge of that border. By 2004, however, it hopes to again make a dramatic move and become the first of the former Eastern European countries to join the EU.

Fast-paced tempo

So far the country is right on schedule, and if everything continues according to plan, Hungary will be finished with all the necessary accession negotiations by the end of 2002. This is a fast-track plan, and one which suits the Hungarian people just fine.

When asked how they feel about joining the EU, most Hungarians say they can’t wait for it to take place. It should have happened yesterday, many will say as they point to their country’s rapid economic development since the end of the Cold War.

In just over twelve years, Hungary has managed to completely turn around its staid socialist economy. The government has pushed through a quick-paced liberalization of the market. The energy, banking and telecommunication sectors have all been thoroughly privatized. Since 1997, the economy has grown at a consistent rate of between four to five percent per year. And unemployment has evened out to 5.6 percent, one of the lowest rates of all candidate countries.

With a little help from friends

From Audi and Volkswagen to General Electrics and Siemens, nearly 30,000 foreign firms currently operate in Hungary, churning out products for the country’s growing export markets. Since 1989, the export volume has increased by more than 50 percent. In 2001, 65 percent of all trade was with the European Union, 45 percent of which was with Germany alone.

Over the course of the last few years, international companies have poured in some 911 billion euro ($ 839 billion) in foreign investment and created thousands of jobs where there were none before. This direct foreign investment is the highest per capita of all Central and Eastern European countries, and accounts for a good percentage of Hungary’s overall economic growth.

Economic success story

Anton Kunszt, Head of the German Economic Club in Budapest, points to the high level of qualified labor and a good infrastructure as explanations for Hungary’s economic success. Compared to other Eastern European countries, Hungary also has a stable government and a flexible economy.

Kunszt says the economy and government are responsive to the needs of multi-national corporations, and that politicians understand how important foreign investment is for the nation’s economic success. Even if foreign companies buy up the majority of Hungarian businesses and enjoy significant tax abatements (some are even tax free for over ten years), most of the country sees it as a positive development. Where else would the money come from, the people ask themselves.

Kunszt, who was born in Hungary but left the country in the 1970s and returned again in the early 1990s, believes the country is on the right road to EU accession. "I don’t think Hungary is any less prepared now than Spain or Portugal were back when they entered the EU", he says praising his homeland’s economic progress in the last few years.

Private vs. public

Hungary’s economic success can be most clearly measured in the strong private sector growth. Here, the country is undoubtedly on the path to fast-track acceptance in the EU. But when it comes to the public sector, Hungary still has a ways to go.

All the economic growth and the investment has been solely in the private arena, says Istvan Bajko, a German teacher at the state business college in Budapest. Public facilities and institutions are not much better off than they were at the end of 1989.

"In the last ten years, the private sector has enjoyed strong development – especially thanks to the capital flowing in from Western Europe. But the state sector – the health system, the education system, and so on – these all have a great deal of problems," Bajko comments while he stands in the middle of a run-down school room with an ancient Chinese computer.

The national health care system, for instance, is so bankrupt, that hospital patients are asked to bring their own toilet paper and place settings (flat ware and dishes) for any meals they take while undergoing treatment.

Where does all the money go?

When it comes to wage earnings, only those fortunate enough to work for a big international company profit from Hungary’s economic success. State employees, such as teachers and doctors, earn far below what an assembly line worker at one of the foreign automobile manufacturers makes.

And many people are forced to take on two jobs just to make ends meet. The standard of living and the cost of rent has risen parallel to the increase in foreign investment over the past few years. It seems, the more foreign companies come to Hungary, the better the goods in the store are, and the more expensive life becomes. Not everyone has profited from the country’s economic success.

In fact, since so many foreign corporations are excused from paying taxes, there is no real correlation between the number of international businesses and an increase in state income. For those areas relying heavily on state support (health care, education, transportation, safety), there has been no real visible benefit from the increase in foreign presence.

Nonetheless, most Hungarians are looking forward to being part of the EU. They see accession as an improvement in their lives. Bajko says he hopes that joining the EU will bring a higher level of standards across the board, both private and public.

"I hope that the standards will rise. One cannot be a member of the EU and neglect the public sector – not to the extent it’s happened here. Financially, the public sector is not so far along as the private industry. But in a couple of years, I hope this will change."

Learning patience

Hungary will most likely enter the EU in 2004, and may even be one of the first candidate countries to do so. But not all of the desired improvements will take place right away. The Hungarians will have to learn to be patient, and to wait out the change.

Wilhelm Droste, a coffee house owner and poet in Budapest, says the Hungarians were always impatient, and wanted things to happen as quickly as possible. "It’s probably the same situation in all of Eastern Europe," he says pragmatically. "Somehow the people managed the leap to a capitalist society, and now everyone considers themselves an ‘almost Western European’. But now we see how long people can hang in the air before they come down from that initial leap, and no one really knows where they will land. And that’s the difficult part about it -- the waiting and the uncertainty."