Hungary and the West: We need to talk about Viktor

Insight
26 November 2014

Prime Minister Viktor Orban still dominates Hungary’s political scene, in spite of recent large demonstrations in Budapest. But his political reforms and economic and foreign policies are raising more and more questions abroad as well as at home. If Orban thinks he can ignore such criticism, he is wrong: Hungary's economic development depends on its Western partners.

Worries about Orban’s intentions started soon after his election in 2010, when he quickly consolidated his Fidesz party’s grip on power, and purged political opponents from positions of influence. In 2011, German Chancellor Angela Merkel (among others) criticised measures to control the media; in 2012 the European Commission started infringement proceedings against Hungary for limiting the independence of the Central Bank and the data protection authority, and for compulsorily retiring 274 judges (who were replaced by more Fidesz-friendly figures).

But concerns about Orban have heightened recently as a result of two speeches. His inaugural speech to parliament in May, after his re-election, called for autonomy and 'communal rights' for ethnic Hungarians in neighbouring states, including Ukraine. It upset neighbours like Poland, where Prime Minister Donald Tusk suggested that it sounded too similar to Putin's line on ethnic Russians abroad. Orban’s speech to a gathering of Hungarian students in Romania in July 2014 caused even more trouble. In it, he proclaimed a shift from liberal democracy towards the construction of an “illiberal state" and cited Singapore, China, India, Russia and Turkey as models.

Does the reality of Orban’s policies live up to the rhetoric? Hungarians close to the ruling party argue that the rest of the West listens too much to Orban’s leftist political opponents. They claim that Hungary has been a reliable EU partner, whatever critics say. They point to Hungary’s successful presidency in 2011: it secured Croatian accession to the EU, and laid the foundations for the European Parliament’s involvement in the negotiations on the EU’s long-term budget.

Some foreign experts on Hungary suggest that however alarming the ‘illiberal’ label sounds, what Orban means is merely that the EU’s current approach to tackling the economic crisis is not working; and that the liberal model, which privileges the rights of the individual over the interests of the community, is one of the reasons for its failure. Orban, according to this interpretation, wants to build closer links with economically successful, albeit authoritarian states.

Even Hungarians who do not support Fidesz accept that some of the steps taken reflect a necessary if belated attempt to purge ex-Communists from positions of influence, where they could obstruct change and perpetuate the power of the Cold War-era nomenklatura.

Whether or not Orban’s motives were pure, the effect of his reforms has been to create strongly pro-Fidesz state structures, rather than a politically neutral administration. Murky links between business and politics have developed: in October the US government imposed visa bans on a number of officials, after repeated attempts to get the Hungarian authorities to tackle corrupt practices which favoured Fidesz-linked firms. And Orban has intensified pressure on civil society: in September police raided the Budapest offices of an NGO funded by Norwegian government grants, following Hungarian government allegations that it was funding Fidesz’ political opponents.

Economically, Orban has pursued populist policies, such as trying to reduce the role of foreign investors in key sectors. In September 2014 Deputy Prime Minister Zsolt Semjen said that nationalising the energy sector was the only way to guarantee security of supply for Hungarians, despite ample evidence that liberalising markets would work better. The government has also forced banks to take large losses in order to protect Hungarian borrowers against exchange rate fluctuations, and seems poised to buy up the assets of any banks that leave the Hungarian market as a result. In response, the Commission has expressed concern about Hungary's compliance with rules on state aid.

Orban might be able to thumb his nose at the Commission if his economic policies were a success. But from 2008-2013, Hungary’s GDP grew at the slowest rate in the Visegrad Group (which comprises Hungary, Poland, Slovakia and the Czech Republic and is often referred to as the V4).

The main victims of Orban’s domestic policies may be his own citizens, but his foreign and security policy could damage wider European interests. His statements often hint at a wish to revise Hungary’s borders, established after the First World War, which left Hungarian minorities spread across several neighbouring countries. His implicit encouragement of irredentism worries other countries, particularly Slovakia and Romania which have significant ethnic Hungarian populations. It also complicates co-operation within the V4.

As neighbours of Ukraine, the V4 should have been central to formulating the EU's response to Russia's annexation of Crimea and continued interference in the Donbass. The V4's experience of economic and political transition and of European integration should make them natural mentors for the new authorities in Kyiv. Instead, Orban has contributed to V4 disunity and questioned EU efforts to put pressure on Russia.

One European politician who has known Orban for many years suggests that his cultivation of Putin comes from a mixture of anger at the way other EU leaders treat Hungary and pure opportunism. Whatever the cause, Orban has tied his country closely to Russia, especially in the energy sector. In January 2014 he signed an agreement with Putin on expanding Hungary's Paks nuclear power station; 80 per cent of the project will be financed by a Russian state loan. In July, he restated his support for the South Stream gas pipeline from Russia to Europe (which would bypass Ukraine) – a project which the Commission has said is illegal in its current form.

And in September, after a meeting with Gazprom CEO Aleksei Miller, he halted the re-export to Ukraine of gas bought by Hungary; by doing so, he made Russia's cut of gas supplies to Ukraine more effective.

Though the US has loudly criticised Orban's democratic back-sliding and closeness to Russia, Brussels has more leverage with Hungary than Washington. What can the EU do with this awkward but democratically-elected man? So far, the member-states and the Commission have only grumbled, to little avail. As an organisation often criticised for its own lack of democratic legitimacy, the EU has hesitated to challenge someone who has a large majority in his national parliament.

If the political will to act exists, the EU has two types of tools it can use. First, the Commission can take action against a government which breaks European law and in the process goes against EU values. It allows the Commission to launch infringement proceedings. But such proceedings cannot address cases where a government acts contrary to the EU's values but does not break any specific EU law. In the case of the compulsory retirement of judges, the Commission based its legal action on EU rules against age discrimination in employment; but it had no standing to tackle more fundamental questions of the rule of law and independence of the judiciary. Hungary settled the case by compensating the judges but not reinstating them.

Second, the EU can address democratic shortcomings in a member-state through Article 7 of the Treaty on European Union, which enables the European Council to determine “the existence of a serious and persistent breach of EU values” in a member-state; and to suspend some of its membership rights, including voting rights. The European Council must decide unanimously (minus the country concerned) that a breach has taken place. Other countries would probably want to see evidence of much more serious misbehaviour than anything Orban has yet done before resorting to such a nuclear option.

Article 7 also has a ‘warning mechanism’: four-fifths of the member-states may determine that there is a clear risk of a serious breach of EU values in another member-state. This ‘yellow card’ permits a dialogue with the member-state in question before more radical steps are taken. But member-states are even afraid of using this mechanism. It would fuel debate about whether the EU should be able to interfere in the affairs of a member-state. It could also lead to an East/West split in the Council, if the Central Europeans believed that ‘old’ member-states were using Article 7 against them while overlooking failings in one of their own number. It is worth noting that in 2000, when Austria’s coalition government included the far-right Freedom Party, other member-states introduced political sanctions without using Article 7 that had been introduced by Amsterdam treaty and entered into force in 1999.

Doing nothing about Orban’s policies is not acceptable. He has challenged the EU’s role as the champion of democratic values, which was the basis of past enlargements and is the reason the EU has remained so attractive to countries like Ukraine. Inaction would weaken the EU’s power of example.

Some governments would like a proper debate about Hungary’s behaviour. In 2013 the German, Dutch, Danish and Finnish foreign ministers wrote to the Commission urging it to do more to promote respect for the rule of law in the EU. They proposed various measures to respond to breaches of EU principles that could be deployed before escalating to the use of Article 7. These ranged from political dialogue with the Commission about issues of concern to the suspension of structural funds (currently only possible if a country breaks the EU’s macroeconomic rules).

A majority of member-states have so far blocked proposals to enhance the EU’s role in policing the rule of law. Some, like the UK, fear that strengthening the Commission’s power would play into hands of eurosceptics; others, including in the Baltic States, worry that the EU would interfere with their policies towards national minorities. The General Affairs Council will revert to the issue of the rule of law in December, but there is no guarantee of progress. For the moment, therefore, more informal ways of handling Orban must be found.

The other members of the V4 have an important role to play. Some of them share Orban’s misgivings about sanctions against Russia; but they have developed a ‘brand identity’ as modern, successful European societies, and Orban’s populist nationalism threatens this reputation. They should work behind the scenes to shift Orban back into the liberal, market-oriented European mainstream.

British Prime Minister David Cameron should also speak up. Orban joined Cameron in his unsuccessful efforts to oppose the nomination of Jean-Claude Juncker as Commission President. Cameron’s views on the EU are sometimes compared with those of Orban. But unlike Orban, Cameron has been outspoken about the threat Putin's policies pose to Europe. Nobody has accused Cameron of trying to monopolise state institutions for the Conservative Party. Cameron could suggest that Orban join the UK in trying to reform and strengthen the EU, internally and externally, rather than chasing after illiberal democracies that have their own economic and political problems.

Perhaps the best hope is that other centre-right politicians in Europe can talk Orban round. He has benefited from the support of the European People’s Party (EPP), which unites most of the centre-right parties in the EU, including Fidesz. It is time for leaders like Angela Merkel of Germany or the new Polish Prime Minister, Ewa Kopacz, to remind Orban that almost 80 per cent of Hungary's trade is with other EU member-states, and that his main economic and political partners are still in the West, not in Moscow.

Agata Gostyńska is a research fellow and Ian Bond is director of foreign policy at the Centre for European Reform.