Hungary has been an impressive economic success since it joined the EU in 2004. But the 15-year marriage now seems in trouble after the EU initiated an Article 7 procedure against the country, citing Hungary’s – or really PM Orbán’s — ever-tighter restrictions on free media, judges, academics, minorities and rights groups, which in the opinion of the EU does not conform with the rule of law, weakens democracy and does not conform with EU values. A divorce is increasingly likely and we could see Hungary take steps to follow the UK out of the EU by end of 2020.
There is endless irony here: a major portion of Hungary’s economic success since 2004 comes from EU capital transfers. One estimate from KPMG estimates that EU membership’s net effect on Hungarian growth was at some +3.0% of GDP per year, but despite this high correlation the government in Budapest is seeking confrontation with Brussels whenever possible.
The pushback from Hungary’s leadership is that the country is only protecting itself: mainly protecting its culture from mass immigration. Plus, they maintain that it has a right to decide for itself. But an open economy with insular governance, immigration and press rules? It’s an unsustainable status quo, and the two sides will find it tough to reconcile in 2020 as the Article 7 procedure moves slowly through the EU system.
PM Orbán is even openly talking about how Hungary is a ‘blood brother’ with the renegade Turkey as opposed to a part of the rest of Europe, a big shift in rhetoric that has not gone unnoticed in Hungary — as well as among bureaucrats and politicians in Brussels.
That this change of tone coincides with EU transfers all but disappearing over the next two years is hardly surprising. But it will leave Hungary’s currency, the forint (HUF) on the back foot and take it to a new, much weaker level of 375 in EURHUF terms as the markets fear the disengagement or reversal of capital flows as EU companies reconsidertheir investment in Hungary.
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.