“…the Union shall establish an internal market. It shall work for the sustainable

development of Europe based on balanced economic growth and

price stab ility, a highly competitive social market economy,

aiming at full employment and social progress…

(From Article 3 of the Lisbon Treaty)

The principal conclusions of this article can be summed up in the following points:

1. There is no doubt that Hungary has fallen back. The responsibility to a large extent belongs to the erratic policies of the left-liberal coalition that governed for three out of the five full parliamentary cycles since the election of the Antall Government in 1990.

2. The program of the Orbán Government represents a new approach. The urgent need for bold innovation is due not only to the consequences of Hungary’s crisis and the electoral mandate for change, but to the profound worldwide crisis of the dominant economic, social and financial theories. Without reforming both theories and policies, all the positive results of a global, open and liberal economy might be jeopardized.

3. The Orbán Government is not alone in struggling with complex policy challenges and conflicting policy priorities. Virtually all governments, including the American, the German, the French and the British, are navigating in uncharted waters. It is a time of trial and error and a time to avoid excesses and try to reconcile short-term and long-term goals and possibilities.

4. From both a Hungarian and a European and Western perspective, the programme of the Orbán Government appears to be neither “right-wing” nor “left-wing”, neither nationalist nor inward-looking, but “radically centrist or middle-of-the-road”.

5. Critical analysis and debate are the life-blood of democracy and a condition of success. But given the monumental dimensions of their task and their commitment to freedom and the common good, Orbán and his government deserve the benefit of the doubt about the validity of their policies not only within the country, but also from their EU and other Western community partners, as well as the “technocrats” of the international agencies.

The rest of this article is divided into five parts addressing: the main objectives of the programme of the Orbán Government, the legacy of the previous coalition, Hungary as a member of the EU and the Western community of democracies, the crisis of economic theories and the call for a new “social contract”, and for reaffirmation of the goal of the social market economy by the EU and its member countries.


The basic objective of the policies of the Orbán Government is to help Hungary become a more prosperous and more dynamic member of the European Union and of the world economy. This is a shared common interest of the Hungarian electorate and the country’s international partners.

Viewed from the outside, the principal objectives of the economic and social policies of the Orbán Government can be summed up in the following paragraphs.

To deal with the legacy and consequences of the eight years of the Medgyessy/Gyurcsány/Bajnai governments and of the international monetary, financial and economic crisis. In many respects, the weight of this legacy can be compared to the one inherited by the Antall Government in 1990. It should be remembered that it took the Socialist governments only eight years (compared to a much longer period of Communist rule) to bring Hungary to the brink of financial and social breakdown. It is also true that, during this period Hungary enjoyed a much more favourable external environment than was the case during the decades of Communism.

To restore fundamental macroeconomic balance, respecting the strict time-table set by the EU, reducing the country’s external indebtedness and creating a sound equilibrium between the private sector and the public sector and in general restoring the credibility of and the trust in – both domestic and international – Hungary and the Hungarian Government.

To develop the foundations of sustainable and sustained economic growth through a broad range of policies. These extend to macroeconomic, microeconomic, societal, legal, educational, and technological measures and policies, designed to stimulate the small and medium-sized enterprises and create more balanced regional development. These objectives also include a greater emphasis on the “real” side of the economy and an attempt to reduce the volatility generated by short-term financial dependence.

To balance the twin objectives of making the best of the opportunities offered by continued integration in the European, Western and global economies, on the one hand, and of increasing the “Hungarian content” of the economy and the policy autonomy of the Hungarian decision-makers, on the other. These objectives also include a closer and more fruitful integration and cooperation within the region.

To find, through a bold trial-and-error approach, a new economic and social policy and structural macro and micro model that would fulfil three essential but also difficult requirements: (1) drawing lessons from the positive aspects of economic history and theory, (2) drawing lessons from the shortcomings of the current model of ultra-liberalism and of monetary and financial neo-orthodoxy, (3) assuring that this model would be compatible both with the external institutional and market environment and the specific features, problems and potential of the Hungarian economy. To make the “new Hungarian model” both successful and respectable is an ambitious but not unrealistic goal. Given the nature of the crisis, Hungary has no other option than to try it. The chances of success of this attempt will be influenced by cooperation and understanding of Hungary’s partners: governments, European and international bureaucracies and private corporations.

To reverse the trend towards a widening income and ownership gap and the marginalization of ever larger segments of the country’s population. These not only tend to aggravate political and social tensions, but in the long run could become the single most important factor in reducing actual and potential growth rate of the Hungarian economy. The situation of the Roma is part of this challenge, but far from being the only or the most difficult one.


The legacy of the 2002–2010 period 

The crisis of the Hungarian economy was the most severe in terms of the drop of GDP in the OECD countries in the wake of the worldwide financial and economic crisis. This was the result of the convergence of three major developments: (1) the unprecedented degree of fiscal and political recklessness of the Socialist-Liberal governments, (2) followed by severe austerity measures by the same coalition and (3) the lax monetary and financial policies allowing an excessive exposure of the banking system to short-term external sources of funds and the ensuing squeeze on bank-lending.

The key issues here include: reckless fiscal policies (both in creating unprecedented deficits and then trying to deal with the deficit), an enormous expansion of external indebtedness (both official and private sector), irresponsible monetary policies, confusing and ineffective social policies, corruption and graft and undermining the trust of the population in the political system, in the market economy and in Hungary’s international partners. It is generally assumed that the EU transfers have not been most effectively used. The tinkering with reforms during the Bajnai period added to the confusion. The miscalculation and misreporting of the fiscal numbers on both the expenditure and the income side did not stop with the Gyurcsány Government, but continued under Gordon Bajnai in 2009-2010. The deep social divide, between the winners and losers of the market economy, is one of the most worrisome aspects of this legacy.

The Socialist-Free Democrat governments effectively derailed Hungary’s convergence within the EU and wrecked the timetable for Hungary to join the Euro area.

Ferenc Gyurcsány admitted in a leaked address to his parliamentary faction that his government had been systematically lying in order to win the 2006 elections. Once confirmed in power, they pursued an equally reckless austerity policy in order to prove that they were the only ones with “sufficient expertise and credibility” to clean up the mess created by their own policies.

The cynical claim that their behaviour was not any different from what had become the standard added to the scepticism inside and outside the country about the economic prospects of Hungary and also undermined people’s trust in politics, in the market economy and in European and global integration.

Missing the “convergence” targets


Under the Socialist-Free Democrat coalition, Hungary consistently failed to fulfil the commitments accepted in the Treaty of Accession and in the framework of the subsequent “excessive deficit procedures”. The failure to live up to commitments was evident in terms of the macroeconomic “Maastricht criteria” as well as in terms of necessary reforms in the economic and social area. The conduct of government business was characterized by bursts of fiscal largesse followed by severe austerity measures and ill-thought-through attempts at reforming the social security system, the health sector, and the pension benefits. At the end of their governance, the legacy of the Socialist-Liberal governments included: a significant deterioration of the domestic and external debt problem, a decline in the living standards of large segments of the Hungarian population, a widening of the social divide and of the geographic imbalance between the prosperous and the depressed regions of the country, high unemployment and low labour participation rates, a top-heavy public administration, and a decline in the country’s potential growth rate.

All these ups and downs and the gradual loss of terrain of the Hungarian economy were well documented in the reports of the various international bodies: the Commission of the European Union, the Paris-based OECD or the International Monetary Fund. Yet, in a remarkable feat of lobbying and public relations, the Socialist-Liberal governments, while systematically pursuing “electoral fiscal” policies (to use the understatement of the international bureaucracies) and an erratic approach to long-term reform, time and again managed to regain their international credibility by never contesting the advice or doctrines coming from Brussels or Washington, including the most hard-line libertarian (and anti-social) expressions of the “Washington Consensus”.

The crisis of global finance and the worldwide fiscal crisis 

According to a recent OECD report on the Euro area, the government deficits in 2009 represented 6.2% of the member countries’ GDP. For the US the deficit/GDP ratio in the same year was 11.3% and for Japan 7.1%. As for the gross public debt, at the end of 2009 it stood at 86.3% of the Euro area’s GDP, and at 84.4% for the United States, while for Japan the same ratio reached 192.7%.1 Both ratios for all three areas are significantly above the minimum standards of sound public finance as defined in the “Maastricht criteria” and in the Treaty of Lisbon. In contrast to the Euro area (and the EU countries in general), the US and Japan are not bound by any international obligations to respect any deficit or debt ratios (and certainly not by the perfunctory IMF Article IV examinations).

The poor state of the public finances in the three main pillars of the liberal world economic order – the Euro area, the US and Japan – is the result of the convergence of three major developments: (1) the direct and indirect costs of the financial crisis, (2) the recession and the general loss of economic momentum, and (3) banking and financial deregulation (and the mirage of “self-regulation” and “efficient markets”) combined with short-sighted, poor economic governance.

The relative share in the responsibilities for these sins of omission and commission among the various branches of government (of the executive and legislative branch as well as of the central banks and financial supervisory systems) varies from country to country.

For example, in the case of Ireland, fiscal policy was not the source of the crisis: in 2007, Ireland had one of the lowest ratios of deficit to GDP and government debt to GDP – by 2010 it had the highest deficit to GDP and second highest debt to GDP in the Euro area – as a result of the reckless behaviour of its banking system and the quasi-religious belief of its authorities (and of the European Central Bank, the EU Commission and of the IMF) in banking and financial deregulation.

Commemorating the 50th anniversary of the Hungarian Revolution behind barbed wire 

In 2007, Freedom House wrote in its report Freedom in the World – 2007: “In April 2006, Hungary’s ruling coalition government won reelection. However, later in the year, the country experienced major riots as a result of a leaked admission by Prime Minister Ferenc Gyurcsany that the government had been lying to the people about its economic performance and other issues. The unrest was described as the most serious since the 1956 invasion by the Soviet Union, but Gyurcsany, defying expectations, refused to resign and kept his job. In the wake of the unrest, he promised major fiscal austerity reforms.”2

In a recent newspaper interview the head of the Hungarian Socialist Party remarked that the Socialists had not only lost their general credibility with the voters but more specifically also the trust in his party’s ability to govern the country.

Thus, it is not surprising that the majority of Hungarians could not and cannot understand that the international “experts” in Brussels and Washington continued to believe in 2006, 2007, 2008, 2009 and even in 2010 that the only government that could put the Hungarian economy back on the “right path” of discipline and reform, comprised the same parties and the same “experts” and officials who had been responsible for the crisis in the first place.


The nature and achievements of Western and European integration

The emergence and consolidation of the Western community since the 1940s, of which European integration is an integral part, represents one of the most impressive political, institutional and economic innovations of all time. There is room for criticism and concern, for disagreement on numerous issues, but on the whole the record has been remarkable.

The principal aspects and achievements of European integration and, regardless of a different institutional contexts also of the broader Western community (which includes beside the United States and Japan a series of other smaller or mid-sized countries from Canada to Israel, and from Australia to South Korea) can be summed up under three key headings:

1. An unprecedented economic prosperity, social progress, and upward convergence in terms of living standards, quality of life, and human rights;

2. Dynamic, pluralistic democracy with accountable, elected executive and legislative bodies. No country can be counted as a full member of the Western community while there are any traces of an authoritarian system or legacy in its institutions and in its political practice. (This was true for Central and Eastern Europe, and also Spain and Portugal for quite some time, for Greece under the rule of the colonels, and South Korea until relatively recently, and it is still true for parts of the Balkans even today.)

3. The fact that war has become unthinkable among the members of this extended Western community, i.e. the accomplishment of the goal of “perpetual peace”.

The European Union is not a super state, although over the years it has been increasingly assuming state-like characteristics. Yet, greater uniformity in all policy areas and an increase in the competence and power of the Union bodies (and in particular of the Commission) at the expense of national competences and freedoms, is not the solution to all problems.  Explicit or implicit attempts to move the Union towards a de facto super state and eliminate all room for national decision making could dangerously increase the fragility of the Union – both politically and economically.

Strong support of European (and Western) integration does not exclude frequent criticism. There is virtually no aspect of European integration or of the Western community that has not come at one time under heavy criticism in one or several member countries. This is a healthy phenomenon. A vigorous domestic or cross-border debate is the expression of democracy at work.

Hungary, the Euro-Atlantic Community and the “Copenhagen criteria” 

At a recent conference in Geneva, José Manuel Barroso, the President of the European Commission, recalled the pivotal role that the Hungarian uprising of 1956 played in the long road to the collapse of the Soviet Empire and long-awaited freedom of the Central and Eastern European countries to replace the communist regime through authentic democracy.

Today, Hungary is an integral part of the Western or Euro-Atlantic community. The essential conditions were the effective end of the communist system and the adoption and consolidation of a free, pluralist democratic political system and a functioning market economy. The principal institutional expressions are Hungary’s membership in NATO, in the OECD and in the European Union, in addition to its membership in universal organizations such as WTO, IMF, the World Bank and, of course, the United Nations.

At its historic Copenhagen meeting in June 1993 the European Council “welcomed the courageous efforts undertaken by the associated countries to modernize their economies, which have been weakened by 40 years of central planning, and ensure a rapid transition to a market economy…The European Council today agreed that the associated countries in Central and Eastern Europe that so desire shall become members of the European Union…” And then, the Conclusions of the Presidency went on to define the famous “Copenhagen criteria”:  “Membership requires that the candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights, respect for and protection of minorities, the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union. Membership presupposes the candidate’s ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union.”3

Before the 1994 Spring elections, the Hungarian government, first among the Central and Eastern European countries, prepared and submitted in Brussels a memorandum confirming Hungary’s determination to seek full membership in the European Union. Followed by a lengthy period of negotiations that included in particular not only the commitment to accepting the “Copenhagen criteria”, but also the adoption by Hungary (as by the other candidate countries) of the “acquis communautaire” as a whole and individually broken down into the famous twenty-nine chapters, i.e. all the rules and decisions of the EU from the start of the process of European integration back in the 1950s.

Membership means both solidarity and competition, the search for consensus, and the right of dissent. Hungary participates fully in the decision-making process. Membership in the EU and in the Western community implies both great advantages and important responsibilities. These implicit and explicit responsibilities and obligations vary among institutions. Also, by definition, there is a constant debate about the nature of the rights and obligations of member states, at national, communal, and institutional levels.

Falling behind in growth and in the convergence process

As the EU Commission noted: “The accession negotiations with Hungary were successfully concluded on 13 December 2002 and the Treaty of Accession was signed on 16 April 2003. In a referendum held on 12 April, a majority of Hungarians expressed their support for a membership of the European Union. Following ratification of the Treaty of Accession, Hungary will join the EU on 1 May 2004.”4

In 2002, Hungary did qualify for EU membership and not only for the general Copenhagen criteria, but for the detailed list of the so-called EU Acquis. During the next eight years it became a story of delays, false starts, and backsliding, as illustrated by the following quotes:

“The existence of special circumstances authorizes the Council to allow the correction of the excessive deficit in a medium-term framework…The convergence program submitted by Hungary in May 2004…plans to complete the correction of the excessive deficit by 2008, with the following annual targets for the general government deficit: 4.6% of GDP in 2004, 4.1% of GDP in 2005, 3.6% in 2006, 3.1% in 2007 and 2.7% of GDP in 2008.”5

“Hungary’s budget deficit has become the highest in Europe as a percentage of gross domestic product (GDP). Hungary must maintain a budget deficit of 3 % of GDP or less to adopt the Euro as its currency (replacing the Hungarian forint), and the government has conceded that it will miss its target date of 2010 for the switch. The 2006 deficit was expected to be 10 % or more.”

In February 2010, “the Council examined a communication from the Commission assessing action taken by Latvia and Hungary, and…Poland, in order to bring their government deficits below 3% of GDP, the reference value set by the EU treaty. The Council shared the Commissions view that, on the basis of current information, all three countries have so far acted in a manner consistent with its recommendations, and that no further steps are needed at this stage under the EU’s excessive deficit procedure…Hungary has been subject of a procedure since July 2004, since when the Council has issued recommendations on corrective action on three occasions. In its latest recommendation, in July 2009, the Council set 2011 as the target for reducing its deficit below 3% of GDP.”6

The view from the IMF 

In the autumn of 2008, Hungary was the first member of the European Union “in three decades to turn to the IMF for funds to avoid financial collapse…”7 While the European institutions also participated in the rescue package, the lion’s share was assumed by the IMF.

It can be argued that this was contrary, if not to the letter, but certainly to the spirit of the treaties of the European Union. The whole purpose of economic and monetary integration and the increasing transfer of power to the EU institutions was that Europe could and ought to be able to take care of the financial problems of its own members rather than asking for the help (and interference) of a “universal institution” like the IMF.

Thus, the IMF, the resources of which had been underemployed for years was ready to step in, not only with ready money, but also with its by now traditional, pro-cyclical (instead of the counter-cyclical approach that had been at the basis of its original Articles of Agreement), austerity conditions.

During the 2002–2010 period, despite Hungary’s poor record, IMF staff maintained faith in its government as can be illustrated with quotes from IMF Staff Reports:

“With fiscal consolidation on track for 2007 and 2008, short-term risks have receded, especially due to the favorable international environment…Staff continues to recommend a shift from the current band to a floating exchange rate regime. Despite new strains, the financial sector remains sound…Financial markets have forgiven policy errors and tolerated policy errors. The erosion of Hungary’s growth potential coincides with its fiscal deterioration…From 7.8% of GDP in 2005, the fiscal deficit rose to 9.1% of GDP in 2006, as against the budget target of 6.4% of GDP…In mid-year, the deficit threatened to run away to 11% of GDP…”8 “…The resolute fiscal policy measures renew the prospects of stepped-up gains from integration into Europe…” (2007)9 “We thank the authorities for, as always, their generous hospitality and the frank discussions, and wish them well with their endeavors…” (2008)10

The tone of the IMF experts remained trusting even after the outbreak of the global crisis:

“In November 2008, in order to provide for sufficient funding, Hungary turned for assistance to international institutions (EU, IMF, World Bank); furthermore, in line with the measures coordinated at EU level, measures promoting liquidity, safe and prudent operation of the financial system have been implemented in the past year…In Hungary, in view of the fragile external position of the country, the negative effects of the crisis could not be mitigated by fiscal stimulus measures. The Government, to partially offset the declining revenues forecasted due to the repeated downward adjustments of the growth projections, adopted several decisions on budgetary expenditure cuts.  As a result of the already increased stock of external debts, the deficit of the income on debt as a percentage of GDP will presumably remain higher than in previous years. The credit extended by international institutions played a major part in the increase of external debt; its servicing and repayment will be due in the forecast period.”11

“…while Hungary escaped a financial meltdown, a sharp recession was not avoided: real GDP contracted by almost 7%, high public and external debt (about 80 and 140 of GDP, respectively),…low reserve coverage, large-scale currency mismatches, and the economy’s growing reliance on external funding have allowed vulnerabilities to persist…” (The January 2009 Stand-by report still projected only a 1% drop in the 2009 GDP.)12

However, once the Orbán Government came into office the tone of the IMF became more patronizing and sceptical:

“The government formed in mid-2010 has taken a decidedly new direction in economic policies. The new government led by Prime Minister Viktor Orbán let the IMF/EU-supported program lapse and has stated that it is not seeking a successor arrangement…”

“…The new government’s focus is to jump-start the economy…The government’s focus is to quickly stimulate the economy through income tax relief for households and corporations, enhanced family benefits, and targeted support to Small and Medium Sized Enterprises (SMEs). To reconcile these policies with the limited fiscal space provided by the EU’s Stability and Growth Pact, the government is primarily resorting to temporary revenue measures targeted at largely foreign-owned sectors and dissolving the funded second pension pillar. ..(The IMF) Staff pointed out that the government’s strategy is risky as it needs…to trigger a strong response in economic activity, which may not materialize…. Staff expects medium-term growth rates to remain below pre-crisis averages…. Discussions centered on the viability of the authorities’ economic strategy, with staff advocating a more cautious approach…”13


The crisis in the world economy of the last four years has brought home once more the importance of theories and possible flaws in dominant doctrines and the need for balance and common sense in policy making. The dangers of systematically reducing the responsibilities of central banks and supervisory authorities at a time when barriers to trade and investments were globally reduced and lifted were clearly spelled out time and again. (See e.g. Alexandre Lamfalussy: Financial Markets in Emerging Markets. An Essay on Financial Globalisation and Fragility, 2000) One of the major dangers was identified in “the increasingly dogmatic character of today’s dominant monetary and financial theories and the policies and institutional reforms that they inspire. This dogmatic approach includes: the blind belief in the unlimited efficiency of financial markets, the excessive emphasis on short-term financial objectives and considerations at the expense of other economic and social variables, and the implicit or explicit transposition of the “stock-market approach” to the analysis of all economic structures and problems.” (Otto Hieronymi: “Agenda for a New Monetary Reform” (1998).14

The clash of theories had never been fully settled: the dominance of the “new orthodoxy” seemed to be justified by the performance of the world economy – both in the major OECD countries and in the principal “emerging markets” i.e. China, India and Brazil. Yet, the growing dominance of finance at the expense of the “real economy” increased the fragility of individual economies and contributed to the widening gap between “winners” and “losers” both within national economies and between countries, within rich and poor societies alike.

Clearly, the economics profession has failed us. It has failed us because it has become increasingly abstract and removed from the true problems and potential of the modern economy. Theories became more and more rigid and simplistic – dressed up behind an array of impenetrable formulas and models.

The solution is not to replace one set of dominant doctrines with another “paradigm”. The intellectual and political consequences of the swift dethroning of “Keynesianism” by “monetarism” and “Friedmanite” militancy ought to be a fair warning: the replacing of one oversimplified orthodoxy with a new oversimplified orthodoxy in the 1970s and 1980s is among the factors responsible for our troubles more than three decades later.

The crisis of “global finance” is threatening “globalization” itself

Following a series of “regional” financial crises over the last 30 years, the crisis that broke out in 2007–2008 became a worldwide phenomenon, threatening the very foundations of the modern integrated liberal market economy. The concerted efforts to save the system from a total melt-down were successful. The key to this dramatic rescue operation was the unprecedented injection of liquidity and de facto abandoning of all restraints on central bank financing. The objective was to save the financial system – to allow banks to function and survive and to avoid a collapse of the markets for shares and other financial assets.

However, the promoters of market fundamentalism and of the supremacy of finance seem to have retained their intellectual and policy making positions – in the banks, in governments, in think tanks and in international organizations and bureaucracies. Short-term thinking continues to prevail. Concerted long-term reform is off the agenda. The three main pillars of the international liberal order (and of the world economy as a whole) – the United States, Europe, and Japan (even before earthquakes and a tsunami hit that unfortunate country) – have been speaking with discordant voices.

The short- and long-term costs of the financial wreckage have been and will continue to be borne by the real sector, by taxpayers, the unemployed and companies whose income, assets and prospects will suffer for years to come. Moreover, we cannot be sure that the current estimates of the overall costs for the “real economy” will not have to be revised upwards in the years to come.

Is the IMF the solution or part of the problem?

Since late 2008 the IMF has managed once more to overcome the image of failure at the level of economic analysis and institutional dynamics, of failure at the most crucial moment in post-war economic history. Thus, there is a constant reference also in Europe to drawing on the “expertise” and “know-how” of the IMF in preventing future monetary and financial crises. Yet, the track record and the policy recommendations of the IMF have been seriously criticized and not only by the opponents of globalization ever since the 1970s, but most recently (finally) also from inside the organization.

As early as the mid-1990s the importance of the intellectual and material contribution of the international financial institutions to the success of the “transition from communism to the market economy” was questioned. It was argued that “(T)he actual performance of the international financial institutions has fallen short of the expectations…of the leaders and citizens of the so-called transition countries, and of the (self)-assigned role of the institutions themselves.”15

In a “post-mortem”, a blue-ribbon American task force set up in the wake of the Asian financial crisis, concluded (correctly) already in 1999, that unless the IMF undergoes a major overhaul it was unlikely that it would play a significant role in preventing the next major international financial crisis – as it had not done with the previous ones either.16

Most recently, IMF’s Independent Evaluation Office (IOM) wrote as follows on IMF’s performance in the run up to the financial and economic crisis: “the IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches. Weak internal governance, lack of incentives to work across units and raise contrarian views, and a review process that did not ‘connect the dots’ or ensure follow-up also played an important role, while political constraints may have also had some impact… “the IMF missed key elements that underlay the developing crisis” (it highlighted poor analysis of the US financial system, of which IMF staff were) “in awe”..the IMF praised the US for its light-touch regulation and supervision that permitted the rapid financial innovation that ultimately contributed to the problems in the financial system. Moreover, the IMF recommended to other advanced countries to follow the US/UK approaches to the financial sector.” (Cf. Robin Heighway-Bury on the website of the Bretton Woods Project).17


A “new social contract” and the need for mutual trust

In his speech to the Hungarian Parliament in June 2010 about his government’s first economic “action plan”, Prime Minister Orbán called for a “new social contract”. The current government, which came into office after a landslide electoral victory in April 2010, has faced from the start the daunting challenge of reconciling a set of three complex objectives: (1) restoring macroeconomic balance, (2) assuring economic recovery and creating the conditions for sustained and sustainable growth, and (3) breaking the stop-go cycle and helping to create a new departure for a more balanced and more equitable competitive market economy that would enjoy broad political and social support.

There is no question that Hungary has to maintain a relationship of mutual trust with its partners in the European Union, with the various organs of the Union, including the services of the Commission, with the IMF, OECD and other major organizations of which it is a member. Hungary’s success is in the interest of the various organizations and bodies, just as a positive perception by its partners is in Hungary’s interests. It is also clear that a positive view of Hungary and of the policies of the Hungarian government by companies, banks, investors and the general public is in the country’s vital interest. This trust and confidence can be earned through plain speaking, transparency and the “truth of numbers”. But it also has to be based on the common set of values underlying European integration and construction of the Western community.

The Antall Government’s record: the attempt to build a “social market economy”

Today, the record of the Antall Government (1990–1993) looks better and better both in terms of short-term crisis management and in-depth reforms, and in its legislative programme, which created the legal and institutional basis of the market economy. This fact looks dramatic especially when compared with the twelve years of governance by the Socialist-Liberal (MSzP-SzDSz) coalition.

In fact, the most important reforms took place during the first four years after the end of Communism. Also, Antall’s policies were more radical and more “market-conform” than those in the countries that opted for a so-called “shock therapy” in the 1990s (including Poland and the Russian Federation).

The choice from the start by the Antall Government of the “social market economy” as the model for the transformation and reconstruction of the Hungarian economy was also far-sighted in the light of the growing awareness today of the high economic and social costs of the excesses of monetarism and market fundamentalism. At the time, in the early 1990s, this option had been derided as old-fashioned, not only by the opposition parties (especially the “experts” of the Free Democrats) who claimed that Hungary needed a “shock therapy”, but also many foreign leaders and experts, including those of the IMF, World Bank or of the European Commission and of the new European Bank for Reconstruction and Development. In fact, even some of the German politicians argued that their “social market economy” was not an “export product”. By now, as shown in the quote from the Lisbon Treaty at the beginning of this article, building and safeguarding the “social market economy” have become part of the fundamental objectives of the European Union. It is to be hoped that this common goal will not remain a dead letter and the concept of the social market economy will effectively guide the policies of both the EU and of its member countries.


1 OECD: EURO Area, OECD Economic Surveys, Volume 2010/20, December 2010, Paris, 2010

2 Freedom House: “Hungary” in Freedom in the World 2007, Washington, 2007

3 European Council in Copenhagen, 21–22 June 1993, Conclusions of the Presidency SN 180/1/93 REV 1

4 European Commission: Comprehensive monitoring report on Hungary’s preparations for membership, Brussels, 2004

5 Council of the European Union: Council Recommendation to Hungary with a view to bringing an end to the situation of an excessive government deficit, 14309/3/04 REV 3 (en) JD/lu 1 DG G I EN, Brussels, 26 November 2004

6 European Council: “2994th Council Meeting, Financial Affairs”, Press, Release 6477/10, Brussels, 16, February, 2010

7 Bod, Péter Ákos: “The Financial Landscape – Seen from a Converging Country”, in Hieronymi, Otto (Ed.): Globalization and the Reform of the International Banking and Monetary System, Palgrave Macmillan, Basingstoke, 2009, p. 138.

8 International Monetary Fund: Hungary: 2007 Article IV Consultation, Staff Report July 2007 IMF Country Report No. 07/250


10 International Monetary Fund: Hungary: 2008 Article IV Consultation, IMF Country Report No. 313 September 2008

11 International Monetary Fund: “Hungary and the IMF: IMF Executive Board Approves i12.3 Billion Stand-By Arrangement for Hungary”, Press Release, November 6, 2008

12 International Monetary Fund: Hungary: Fifth Review Under the Stand-By Arrangement, and Request for Modification of Performance Criterion, IMF Country Report No. 10/80, March 2010

13 International Monetary Fund: Hungary: Staff Report for the 2010 Article IV Consultation and Proposal for Post-Program Monitory, IMF Country Report No. 11/35, February 2011

14 Hieronymi, Otto (1998) “Agenda for a New Monetary Reform”, in Futures, Vol. 30, No.8 pp. 769–781, Pergamon, Elsevier Science Ltd.

15 Hieronymi, Otto: “The International Financial Institutions and the Challenge of Transition and Reconstruction in the Former Communist Countries of Central and Eastern Europe” in Szabó-Pelsőczy, Miklós (Ed.): Fifty Years After Bretton Woods – The New Challenge of East-West Partnership for Economic Progress, Avebury Ashgate Publishing, Aldershot, 1996, p. 135

16 Peterson, Peter G. and Hills, Carla A.: “Future of the International Financial Architecture”, Foreign Affairs, November/December 1999, New York

17 Heighway-Bury, Robin: “‘Groupthink’ IMF slammed for mistakes before crisis”, Bretton Woods Project, 17 February 2011

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