chapter  16
20 Pages

The Hungarian agony over Eurozone accession

WithOLIVÉR KOVÁCS

The advent of the Great Recession sets into motion a comprehensive refinement of the macroeconomic policy toolkit to include more pro-growth and prodevelopment features. This was especially the case because the European Union (EU) has proven not to be a facilitator of developmental integration (Csaba 2014). As the history of the Eurozone demonstrates, the mere fulfilment of the entry criteria in mathematical terms does not guarantee successful integration afterwards. Additionally, uncertainty regarding the future has begun to intensify (Kovács 2014), mainly due to the juggernaut effect of the recent financial and economic crisis as well as the subsequent lacklustre crisis management. It would be pointless to behave with the naiveté of Tuzenbach1 in this situa-

tion. The relevant homework must be completed by each member state, as the urgent need for uncertainty-reducing macroeconomic stability has not diminished. An examination of the evolution of economic development theory per se suggests that contemporary scholars should refocus on the role of the state and its institutional settings by going back to its origins. It has been argued that the public sector in general plays a critical role in socio-economic development (Evans et al. 1985); however, trust and confidence are of paramount importance in this regard (Akerlof and Shiller 2009). This contribution demonstrates that Hungary must also do its homework. In the Western scientific world of politics, financial markets and the media, the

current Hungarian governmental policy has been varyingly evaluated with respect to the country’s economic situation and its EU-conformity. The variety of views is understandable, as there is no effective and efficient opposition to the ruling party, and thus the otherwise adequate system of checks and balances is suffering. In addition, at the moment, the administration enjoys a two-thirds majority in

parliament, meaning that it has absolute legislative power, and the support of 3840 per cent of the population. Formally, this scenario meets the requirements of democracy, but in practice a kind of authoritarian system has emerged due to the impaired mechanism of checks and balances. Although this form of governance has produced improvements in certain areas, certain costs must be reckoned with. This is one reason behind the partially conflicting perceptions about the Hungarian rule of law and the long-term effectiveness of the country’s economic governance. The present chapter is intended to temper these views by calling attention to important nuances. It first addresses the issue of Hungarian macroeconomic instability from a comparative perspective – specifically, in a comparison of the Visegrád countries (the Czech Republic, Hungary, Poland and Slovakia – henceforth, V4). In so doing, it highlights the Hungarian ‘lagging behind’ phenomenon and calls for a more systemic approach to the Hungarian Eurozone accession. The chapter then focuses on the relationships between governance, institutional quality and innovation; the synergy among these factors drives the dynamism of the innovation ecosystem upon which the potential reduction of socio-economic cleavages (the foundation of healthy socio-economic development, including enhanced integration in the EU) greatly depends. Finally, the chapter unravels the major intertwined social and political factors behind agonising uncertainties and derives some general implications from the Hungarian différance.

Macroeconomic (in)stability