EU must pressure Hungary into policy change

January 5, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The Hungarian government is taxing foreign companies and nationalising its private pensions to fill its coffers. It has taken forceful steps to muzzle the media, tame the courts and subjugate the central bank. This could hardly be a worse moment for Hungary to take over the chairmanship of the European Union. Doesn’t Europe have enough problems of its own?

To say the situation is a huge embarrassment would be an understatement. Hungary is already receiving aid from the International Monetary Fund. Crude nationalistic and populist policies are no way to deal with its crisis.

The European Commission has stepped up its inquiries about possible infringement of EU rules by the administration of Viktor Orban, whose Fidesz rightist party swept back into power last April with a two-thirds parliamentary majority. But the EC and Hungary’s partners have remained diplomatically prudent, for fear of adding fuel to Hungary’s nationalist fire. Unless Hungary retreats from its controversial policies, Europe will need to be more forceful.

In Budapest these days, isolation seems to be the goal, protectionism the tool, muscle the method. To cut the budget deficit, the government has slapped a “crisis tax” on the largest energy, retail and telecom companies operating in the country. Officials say this is not a nationalistic measure — it is just coincidence that foreign companies dominate the sectors subject to the supposedly temporary levy.

The media are threatened by a new law imposing heavy fines for their possible lack of “objectivity” or other broadly-defined transgressions. The government has all but ended the Hungarian central bank’s independence, ignoring a warning from the European Central Bank. And when Hungary’s Constitutional Court struck down a controversial tax last October, it was stripped of its budgetary powers within three weeks.

Fitch on Dec. 24 became the last ratings agency to downgrade the country’s debt to a notch above junk status. Yields on Hungary’s 10-year bonds are now hovering around 8 percent — among the highest in the EU. If Hungary doesn’t reverse course fast, it will become the latest country to discover that when populism is the intent, poverty most often is the result.

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