OP 2020: Hungary leaves the EU

Steen Jakobsen
Chief Economist & CIO

Summary:  EURHUF spikes to 375 as Hungary's leadership and the EU fight over Hungary's place in the union.

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. 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.