EU exerts pressure on Hungary

The spiraling debt of a member state is typically not a positive development for the European Union. But, in the case of economically depressed Hungary, debt has emerged as an important bargaining chip as Brussels seeks to rein in Prime Minister Viktor Orbán, whose populist policies are widely seen as a setback to his country's democratic development.

Reacting to controversial legislation that is perceived as harmful to the independence of key Hungarian institutions like the judiciary and the Central Bank, the European Commission (EC) launched a legal crackdown against the country Jan. 18 in an effort to bring Orbán's policies back in line with EU principles.

In a Jan. 18 session, the EC voiced grave concerns over the so-called "cardinal laws" that Orbán pushed through at the end of 2011 with the aid of his right-wing Fidesz party's two-thirds majority in Hungarian Parliament.

The EC is targeting three issues it feels are incompatible with European principles. In particular, they are targeting a law lowering the retirement age for judges and prosecutors, separate legislation regulating data protection agencies, as well as a law curtailing the independence of Hungary's central bank. The passage of these laws sparked a series of demonstrations, the largest of which drew some 70,000 protesters to the streets of Budapest Jan. 2.

After a series of stark letters and warnings from the EC failed to generate a reaction from Orbán, the EC announced it was launching infringement proceedings against Hungary and threatened to sue the country if it did not address concerns regarding the independence of its judiciary.

"We want Hungary to go on being a responsible member of the European Union," EC President José Manuel Barroso told European Parliament members in a Jan. 18 session attended by Orbán. "[The European Commission] does not want the shadow of doubt over the democracy of any member state."

 "At the same time, the commission is sending a wider information request to Hungarian authorities on the issue of independent judiciary," Barroso added.

The announcement sparked a mass rally in Budapest of some 100,000 pro-government supporters, who chanted anti-EU slogans as they marched through the streets Jan. 21, illustrating Orbán's unabated popularity at home.

The EU's biggest trump card in these negotiations is Hungary's dire economic situation. Riddled by a debt amounting to some 80 percent of national GDP, Hungary must make payments on a 20 billion euro bailout loan it received from the EU in 2008 this year, with an installment of some 700 million euros due in February and the same amount at quarterly intervals, plus an additional 300 million euros in June and 500 million euros in September and December, according to Reuters.

In December, the controversial central-bank law prompted Standard & Poor's to downgrade Hungary's debt to "junk" status, just as Orbán's negotiations with the EU and International Monetary Fund (IMF) on a new round of financing collapsed.

At the heart of the dispute is new legislation allowing the prime minister to directly appoint central-bank deputies without consulting the body's governor, thus limiting the financial regulator's impartiality. In an increasingly interconnected market, experts fear such a measure could wreak economic havoc in the entire EU. The IMF in particular has made changes to or the suspension of this law a prerequisite for additional financing.

"Institutions have to be independent first in order to be credible," said Piotr Maciej Kaczyński from the Centre for European Policy Studies, a Brussels-based think-tank. "We saw what problems this caused in Greece, and that was only the Statistical Office manipulating numbers. Imagine what could happen if a central bank is similarly affected."

Orbán, who had until recently ignored international criticism, appeared to be more conciliatory to the latest set of EU demands. In an interview with national radio following his Jan. 18 appearance in European Parliament, Orbán said he did not see "any particularly difficult issues" in the dispute with the EU, pledging to abandon plans to regulate the central bank.

His acquiescence may be rewarded with a loan of 17 billion to 20 billion euros from international lenders by March or April, Hungarian officials told Reuters Jan. 23, one day before Orbán was scheduled to meet with the EC.

Meanwhile, Brussels officials emphasized the changes promised by Orbán should go beyond cosmetic measures to prevent the country from slipping into semi-authoritarianism.

"There is more at stake than an infringement procedure," Liberal MEP Guy Verhofstadt said in the Jan. 18 parliamentary session.

If the current infringement procedures fail to result in real reform, the EU has the option of invoking Article 7 of the accession treaty, thus stripping Hungary of its voting rights as a member state.

"Should the issue not be solved in a political manner on the basis of the infringement procedure, the strongest [measures] should be considered," Kaczyński said. "What's at stake is the democracy of Hungary."

Markéta Hulpachová can be reached at
mhulpachova@praguepost.com