Institutional and policymaking risks are important factors for one of the EU’s more recalcitrant – and now riskiest – members.
Hungary prime minister Viktor Orbán. Photo: Reuters
Viktor Orbán’s Fidesz-KDNP alliance secured another convincing victory by winning in April a super-majority of 135 of the 199 seats in the national legislature, two more than previously.
This came about despite the polls predicting a closer contest due to the opposition mostly collaborating against him as United for Hungary, led by Péter Márki-Zay, the independent mayor of Hódmezővásárhely.
The ending of the political uncertainty and the fact the government has such a strong position from which to legislate would normally be expected to strengthen a country’s political risk profile, but not in the case of Hungary.
In Euromoney’s latest quarterly country risk survey, analysts downgraded nearly all of its risk indicators.
Clearly, the economy is partly to blame, due to the crisis in Russia and Turkey – key trading partners for Hungary. Inflation is also higher than the EU average, at 11.7% in June.
The country’s total risk score has therefore fallen sharply on a year-on-year and year-to-date basis, and its position in the global rankings has slumped. That makes Hungary the riskiest EU member state, pipping Italy:
The war in Ukraine is partly to blame. By sharing a border, the country is one of the easiest for Ukrainians to seek refuge, putting pressure on its finances, and social cohesion.
This is playing into domestic political debate in a country governed by a strongly nationalist administration and an influential far-right, highlighted by Orbán’s uncomfortable comments on racial mixing and the country’s illiberal laws, which includes gay rights.
The economy is equally vulnerable, given the preponderance of trade with Ukraine, and not least the country’s reliance on imported energy supplies, with Hungary obtaining some two-thirds of its oil and four-fifths of its natural gas from Russia.
Under a deal signed only last year with Gazprom, Hungary receives 3.5 billion cubic metres via Bulgaria and Serbia, and a further 1 billion cubic metres from Austria that is now at risk.
Unlike its western European partners, Hungary is putting its own energy-security first.
Orbán decried the invasion of Ukraine, but his government is intent on nurturing relations to ensure the supply-line from Russia, putting it at odds with the rest of the EU, which has a plan to reduce its demand for Russian gas by two-thirds by the end of this year.
That prerogative is just one of several political risks, with others concerning a high degree of corruption and institutional interference. This has been weakening the relevant factors in Euromoney’s survey in recent years, and led to rebuke from the EU and a potential freezing on funding due to “systemic deficiencies in the rule of law”.
ECR survey contributor Nicolas Firzli, a director of the EU Asean Centre (EAC) at the Singapore Economic Forum (SEF), believes the accusations of corruption and antiliberal tendencies laid at Orbán’s door are partly founded, “but they reek of hypocrisy”.
Hungary is not the only Central or Eastern European country suffering from these legal-political ailments, he notes, and singling out Budapest rather than, say, Warsaw or Vilnius, seems unfair.
Under Ursula von der Leyen, the European Commission has drifted further to the right, aligning itself increasingly with the most neoconservative policy planners and ideologues in Washington and Nato- Nicolas Firzli
Firzli notes that, earlier this week, Margaritis Schinas, vice-president of the European Commission, chastised the Hungarian government for the alleged “hate-mongering” of its members. By a cruel irony, he adds, Schinas, a Greek politician, is a member of New Democracy, a highly conservative political party prone to xenophobic populism.
“And, as it were, further to the far-right, in some of the highest echelons of the European Commission itself, we find ultra-nationalist Polish and Lithuanian politicians who wrap themselves in the mantle of virtue, attacking Budapest and Beijing for their ‘lack of liberalism’.”
The crisis is therefore deeper than in Hungary alone. There are ideological motivations at play.
“Under Ursula von der Leyen, the European Commission has drifted further to the right, aligning itself increasingly with the most neoconservative policy planners and ideologues in Washington and Nato,” says Firzli.
“The war in Ukraine merely accelerated that silent realignment, which could become unpopular with many voters in France, Italy, Spain, Hungary and the Balkans – accounting for more than half of the European population.”
As for Hungary, Orbán knows he has to kowtow just enough to ensure that his country’s EU financing is maintained. His government is therefore relenting by scaling down the tax breaks and subsidies, and doing more to cut down on graft.
It is a welcome move and, as Firzli points out, other countries should be following suit, but for now, based on Euromoney’s survey metrics, Hungary remains the EU’s riskiest member state.