LONDON, December 20 (Reuters Breakingviews) – Caught between a severe economic crisis, a reclusive population and his country’s need for foreign capital, Hungarian Prime Minister Viktor Orbán will spend 2023 trying to make friends with the partners of – European Union that has been scorned for years.
Taking the road to Canossa seems like a no-brainer after the pandemic and the war in Ukraine have damaged Hungary’s landlocked economy more than its European neighbors. Inflation reached 22% on the year in October, more than twice the EU average. GDP growth is seen to slow to 1.8% in 2023 after growing 5.7% in 2022, according to the forecast of the International Monetary Fund. Meanwhile the Hungarian forint has fallen 13% in 2022 against the euro, and 18% compared to its pre-pandemic level.
Orbán, who has been in power since 2010, was re-elected for a fourth term in April with a comfortable parliamentary majority. But thousands of students and teachers took to the streets in October to protest against rising prices and stagnant wages. With a public debt of 75% of GDP and foreign investors reluctant to buy the country’s government bonds, the Hungarian strongman cannot turn the economy around without 13 billion euros of pandemic -EU and budget funds allocated to Budapest. For now Brussels has only approved the release of 5.8 billion euros of funds, after Orbán made concessions on aid and taxation of Ukraine. The rest is however held in retaliation for Hungary’s reluctance to give in to laws that suppress human rights and the independence of local judges.
The IMF warned Budapest against “untimely or incomplete delivery” of aid, a clear encouragement to mend fences with its EU partners. Without all the EU funds, Orbán will have to go back on his most populist economic measures. The price caps on energy and some goods led to an increase in demand for fuels, and also led to market distortions: retailers raised the prices of non-limited goods to preserve the – their margin.
To claim EU money, Orbán must implement reforms serious enough to convince the EU that the funds will not end up in the pockets of friends or businessmen close to his ruling Fidesz party. He has his work cut out for him: Hungary has dropped to 73rd in Transparency International’s global Corruption Perceptions Index, down from 54th a decade ago.
Orbán’s popularity at home appears less solid. The risk of economic chaos will provide him with a strong incentive to abandon his most defiant and illiberal positions.
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(This is a Breakingviews prediction for 2023. To see more of our predictions, click here.)
CONTEXT NEWS
European Union governments agreed on December 12 to conditionally release some of the 13 billion euros of pandemic and budget funds allocated to Hungary, after the Prime Minister Viktor Orbán has lifted his veto for a crucial aid package for Ukraine and for a minimum corporate tax in Ukraine. the EU.
The European Commission had previously withheld funds pending reforms on the rule of law and tackling corruption that it had demanded from Hungary for months, despite Orbán’s defiant stance.
Editing by Lisa Jucca and Oliver Taslic
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