EU can’t afford to be soft on Hungary
By Pierre Brian√ßon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
A year ago the European Union sat in unease as Hungary took over its rotating six-month presidency term. Viktor Orban, the country‚Äôs prime minister, was already starting to make good on the populist promises that had given his party a two-third parliamentary majority. He was taxing foreign companies, threatening banks and silencing the media with a law making ‚Äúlack of objectivity‚ÄĚ an offence. He was also preparing to put serious limits on the central bank‚Äôs independence. EU officials and member governments expressed ‚Äúconcerns‚ÄĚ, and Orban toned down the rhetoric.
Hungary now inspires something worse than unease among its European partners. Even though Orban says he has made some concessions, he is in fact ploughing ahead with his most outrageous plans. A new law brings the central bank back under the government‚Äôs influence, and there are no signs that the regime is becoming less authoritarian. The bizarre twist is that at the same time Orban is asking for financial aid from Europe and the International Monetary Fund.
The rescuers are responding as they should, by demanding that Hungary reverse both the central bank law and last year‚Äôs regressive and fiscally disastrous 16 percent flat tax on personal income. But the Europeans are faced with a tough question: what to do with a country doing things that would have prevented it from joining the Union in the first place?
Hungary can hardly afford to ignore its partners‚Äô demands. Yields on the country‚Äôs ten-year bonds hover at around 10.5 percent, and the forint managed to lose more than 12 percent against the crippled euro last year. The country‚Äôs debt is now 82 percent of GDP, according to central bank estimates, which Orban‚Äôs team is bitterly contesting.
The government is suspected of wanting to use the central bank‚Äôs reserves to pay off part of its debt, just as it looted the private pension fund a year ago. That‚Äôs plausible. Orban has been likened to a wrong-way driver who keeps ignoring the signals of ongoing vehicles. It‚Äôs an apt metaphor, inasmuch as there are only two possible outcomes: a major accident, or a radical U-turn.