The department responsible for Budapest's relations with the European Union has just been renamed and changed its address. In a modern building on the Danube embankment, whose waters rush by the color of wet straw, one encounters officials settling in and piles of folders right in the corridors. The chairman of the office for European affairs under the prime minister, Peter Gottfried, extends his hand in greeting: «Excuse me, but my office does not have a door yet.» He, more than anyone else in Hungary, knows how the negotiations on the country's accession to the EU went, since he participated in them at all stages.
The main thing is to prepare well
Officially, Hungary, together with nine other countries, joined the European Union on May 1, 2004, at a solemn ceremony in Dublin, when Ireland held the EU presidency. For Hungarians, this event had emotional and historical significance: the goal that the country had been moving toward for fifteen years, overcoming considerable difficulties, had been achieved.
«This enlargement was the best prepared in the history of the Union», believes Peter Gottfried. In his opinion, this is explained by the fact that many years before official accession, Hungary created a free trade zone with the EU and harmonized legal norms, and so on. Therefore, a year ago, when the country became a full member of the European Union, no radical changes occurred, although «integration is a long process, and it is still ongoing».
At the same time, neither overly rosy expectations nor overly pessimistic forecasts were justified. For Hungary, two processes were taking place simultaneously: market reforms and preparation for joining the EU.
Market reforms meant the opening of the market and the emergence of competition, including from foreign firms, but joining the EU made this competition even tougher.
«Such reforms had to be carried out anyway», notes the interlocutor. «The fact that they were taking place in parallel with preparation for joining the Union provided a certain clear framework. As a result, our country has not only traversed a difficult path, but also gained many benefits. Suffice it to mention participation in various EU funds and programs that involve the development of backward regions, aid to agriculture, and so on. In principle, accession gave us the greatest chance for success in reforming the country. But this does not mean that changes have occurred, are occurring, and will occur automatically: much depends on ourselves. We have to learn from our own experience that participation in the EU by itself does not solve problems.»
Such a phrase could be considered diplomatic, general, and even non-binding, were it not for one fundamental consideration. The fact is that in the last fifteen years, a very turbulent political life has been seething in Hungary. Political parties and alliances were created and dissolved, the forces in power alternated, and heated debates unfolded on the fundamental issues troubling society. The only topic on which there existed an unambiguous, indisputable, and unchanging public consensus was the question of the country's participation in the EU.
«Why?» the chairman of the office asks again. «Hungarians saw that the European project is successful. It is based on attractive rules plus democracy, plus the market, plus pluralism, plus human rights and other important values. In Hungary, everyone considered it important to become part of a structure ensuring freedom, economic development, well-being, and civil security.»
Hungary's accession to the EU in everyday life was reflected not only in the fact that in the Hungarian capital, on official buildings, as is proper, the European flag—blue with stars—flies next to the national flag. Much has indeed become like in the so-called old Europe; some previous problems of the country have been solved, but others that Hungary had not known are already appearing on the horizon. For example, immigration. The influx of foreigners is inevitable due to the difficult demographic situation, but for now it is limited to visitors from neighboring countries; among the workers one can hear Ukrainian and Russian speech, predominantly with a southern Russian accent: neighbors. Hungarians are quite well-disposed toward such immigrants; their presence does not create noticeable frictions. There are still few people from distant countries in Hungary.
«For now, there are already Chinese in the country, while other distant ethnic groups are practically not represented», notes Peter Gottfried. «But we are already preparing for the emergence of this problem. It should be noted that in Hungary the income level differs from Western European countries, and we also have no historical ties with distant lands. This affects our attractiveness to potential immigrants...»
Agrarian knot
Does the first success mean that everything in Hungary's relations with the EU should be viewed through rose-colored glasses? Of course not. When it came to difficulties, all interlocutors in Budapest unanimously pointed to the adaptation of agriculture to the new rules of life and work as the most difficult task of the current stage.
It would be unfair to blame the EU for Hungary's agricultural problems: they arose in full force even before accession, during the reforms of the early 1990s. Previously, this sector, united in 1,300 state and collective farms, had achieved high competitiveness by international standards. When state ownership of land was liquidated, the land began to be distributed, often returned to its former owners. As a result, 2.5 million landowners appeared, half of whom had not previously been connected with the agricultural sector. They began to lease out their land, and some plots ceased to be cultivated. Subsidies and credits to the sector were reduced, and old sales markets were lost. New owners of enterprises processing various types of raw materials, for example sugar beet or oilseeds, including foreign ones, did not always show interest in continuing this activity. Many workers of these farms were left without land and work. Numerous industrial enterprises that had operated in the era of collective farms also disappeared.
The dissolved state collective farms were not replaced by cooperatives - marketing and other kinds - which play a very important role in the leading agricultural countries of the EU, starting with France and Italy. They currently account for 5-7% of the total number of Hungarian farms. They are supported, efforts to establish joint production and marketing are encouraged, but they do not play a decisive role.
Under such conditions, great hopes were placed on EU accession. After all, the EU pursues an effective Common Agricultural Policy and has substantial funds: spending on the agricultural sector is the largest item in the European Union's budget.
The sectoral ministry admits that the entire Hungarian economy had time to prepare properly for participation in the EU, except for agriculture. What does that mean? Oddly enough, first of all various bureaucratic procedures. It was necessary to reorganize institutions, train specialists and programmers who would handle all stages of the extremely complex matter of obtaining European subsidies from various funds. It was very important to teach the farmers themselves: what European subsidies exist, what they can be obtained for, how to draw up documents, what procedures are provided. This turned out to be the weakest point.
The result is this: farmers, firstly, expected more money from the EU, and, secondly, they sometimes do not know how to obtain even the amounts they are entitled to. The crisis spilled out onto the streets, and in March of this year it even reached Budapest in the form of mass demonstrations...
In other words, the agricultural sector is at a transitional stage, when adaptation to new conditions of life and work is taking place. The structure and sales markets are changing... In this regard, the republics of the former Union are gaining increasing importance for Hungary as an EU country. Those who are over 30 probably remember Hungarian salami and peas, wine and canned vegetables, ducks and pâtés... It is enough to look into the Budapest Old Market Hall (an architectural monument of the late 19th century), to see the abundance of food products there and to breathe in the delightful aromas of the great Hungarian culinary culture to understand with one's salivary glands: oh, it would not be superfluous from time to time to have a slice of Szeged or Debrecen sausage and a sip of Tokay!
Wind in the sails of cooperation
"The year of EU membership passed for Hungary almost unnoticed," says György Gilyán, State Secretary at the Ministry of Economy and Transport and government commissioner for developing relations with eastern neighbours. "By this point, 99% of all regulatory decisions had been adopted in Hungary, and everything worked as if our country were already in the EU. So there were no earthquakes. Of course, theory is one thing and practice is another... One must also take such a factor into account. Accession and its consequences cannot be considered something that happens from day to day. It is a long process that will take decades. The initial stage alone will last 5-10 years. It is one thing to adopt legal norms, another to prepare the corresponding state apparatus or transform the thinking of the population. Nevertheless, much has already changed, and the main, most painful changes already occurred about 10 years ago.
There is a simple and objective criterion that allows one to assess the effectiveness of the reforms that took place. Are foreign investors coming into the country? Are they ready to entrust their money to it, are they confident that the invested capital will pay off? Perhaps in this area the Hungarians have been especially successful over the past decade and a half. What is the recipe for their success?
"First of all, it is necessary to win the trust of investors," explains D. Gilyán. "In the first half of the 1990s, we created an investment environment in which all regulatory mechanisms were the same as in the countries from which capitals could come. Investors knew these rules and trusted them. Then they had to look at the remaining parameters: what production could be like in Hungary, what costs, sales, and so on. All this depends not on benefits, but on a stable business environment and stable regulation. At the same time, it is necessary to ensure the entire system of ancillary services: banks, business structures, legal assistance. Not the last factor is the friendly attitude of the population towards foreigners.
When Hungary was joining the EU, there were fears that this would negatively affect trade and economic ties with the republics of the former Union. But such fears did not materialize, rather the opposite.
Firstly, some restrictions disappeared. For example, customs duties adopted in the EU turned out to be half as high as those previously in force in Hungary. Quantitative import restrictions were lifted (only the EU-wide quotas on imports of certain types of steel from Russia remained), whereas earlier there were limits on purchases of textiles, cement, timber and so on. Restrictions on transit have now been lifted.
Secondly, objective needs in trade with countries located further east force Budapest to take steps for the accelerated development of infrastructure, primarily transport. ("In the 1990s, Hungarian goods were mainly sent to the West, and we always had roads to Vienna. Now we need to transport more to the borders with Ukraine and Romania, and there the transport infrastructure is worse.") Brussels helps to correct the situation.
Thirdly, the country's participation in the EU increases the confidence of international investors and large transnational companies that develop production here with the aim of exporting products to third countries. In the past year alone, foreign direct investment in Hungary amounted to €3.5-4 billion.
Our markets have become more important for Hungary than they were five years ago, but have not yet reached the levels that Budapest would like. The Ministry of Economy and Transport expects that the current growth rates of trade and economic cooperation will be maintained in the medium term. In any case, there are all conditions for this.
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