WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

As part of a wiiw series of events, essays and analysis commemorating the fall of the Iron Curtain, we interviewed our Hungarian Country Expert Sandor Richter to look back at the main historical milestones in his country and share his view on its current prospects. wiiw’s special report on 30 years of transition and convergence was published recently and is available here.

What was the economic situation in Hungary in 1989 and how was the general mood in society?

This is not easy to answer because in this particular period, the real units of time were not years but months, sometimes even weeks. There is so much that happened at that time. 1989 triggered a domino effect in Central Europe. In Hungary and also in Poland, a reform process was underway even before 1989. In 1989, round table discussions started on how to build up a new system. Everybody knew that there was a strong opposition movement under the surface that could emerge at any time. When the border to Austria was opened up in summer, it was clear there was no way back. In November, the Berlin Wall fell and in December, the Ceaușescu regime collapsed. This was very important for Hungary because many Hungarians lived in Romania. It was a time of a big euphoria.

How long did the euphoria actually last?

The first indication of a more sober reality came in October 1990, when the newly (in April) elected Hungarian government raised the energy prices without consulting anybody. That was typical for the communist era. People were really shocked. The reaction was the famous taxi strike that marked the end of grace period for the new government.

The disappointment carried on as foreign trade was liberalised. It was unavoidable to do it, but it was done perhaps too quickly and too radically. Suddenly, western imports flooded the country and many domestic enterprises collapsed because they were not competitive enough. Before, the car market, for example, was saturated by Trabant, Skoda, Lada, Wartburg, etc. Hungary produced the famous Ikarus buses that were very popular within the eastern bloc but not outside the region. Suddenly, nobody wanted to buy them anymore. Everybody opted for Mercedes and Volvo buses. That happened in all the countries of the region. This led to unemployment that people were not used to.

How do you assess the transition period in Hungary?

I want to stress that I see no way how e.g. the Ikarus factory could have been saved – without proper technology, expertise and marketing techniques. The old car industry, firms and products disappeared, new firms, typically foreign owned ones, came in via a huge inflow of foreign direct investments. You may like FDI or not, but they played an important role in the modernisation process.

All these dynamics give a very mixed picture. There were the collapsing state enterprises with uncompetitive products on the one side and the competitive, new, foreign enterprises that paid much better wages on the other side. Obviously, the best workers and engineers quickly moved to the foreign companies.

There actually was a real shock between 1990 and 1992 as huge parts of the economy suffered a terrible collapse. The average GDP declined by about 20 percent in the region, in each country.

Hungarians were very unsatisfied and unhappy, even more than in other countries, because during the Kádár era and the “goulash communism”, you could have a modest but undisturbed life in Hungary– as long as you did not work for the opposition in the underground.

In 1995, the Hungarian government imposed a radical stabilisation programme that was accompanied by a strong devaluation of the forint, a surcharge on all imports, radical cuts in fiscal expenditures and real wages in the public sector. All in all, the 1990s must have been a very difficult time for most Hungarians.

Not for most of them, there were layers of society who suffered and those who prospered. The problem was that in nominal terms, there was a good supply of health, education, housing services in the old system. But if you went to a hospital, there were not enough doctors, not enough medicine or technical equipment. It was frustrating. This entire supply of public social services was maintained unchanged during the early years of transition, as people were used to it. But the resources for the maintenance became radically smaller, while no government dared to initiate the necessary reforms to modernise the system.

I remember in 1995, Mr. Bokros proposed a health reform. The idea was for everybody to pay a symbolic price of one euro for visiting a doctor. The mere idea led to mass protests. There was absolutely no awareness for the unsustainable costs of a health system. Now, 30 years later, the system is as bad as it was at that time – no toilet paper, the food so bad that everybody brings its own, the buildings are partly ruined, etc.

Did the transition shock of the 1990s already trigger nationalistic, authoritarian tendencies in Hungary?

No. During the early years of transition, conservative and socialist governments alternated from term to term, like in normal democracies. Between 2002 and 2010, there were two successive legislative periods under a socialist-liberal government. Between 2006 and 2007, the government had to consolidate the budget and introduced very painful measures. Immediately afterwards, the global financial crisis unfolded. Imagine a country that has to consolidate itself twice within such a short period of time. People experienced a double shock that changed the political mood in the country. Before that, Hungary was a proper democracy. Not a perfect one, but manageable, similar to Western countries.

The conservative, right-wing opposition movement used the widespread frustration for very hostile campaigns. Orbán won the elections in 2010 in a landslide victory, obtaining a constitutional majority in the parliament. From that time onwards, a decade of propaganda against liberals and leftists began. It was mainly driven by various virtual enemies. First, against the former socialist Prime Minister Ferenc Gyurcsány, then against George Soros, later against migrants, NGOs, the Central European University, the Hungarian Academy of Sciences, etc. This is still ongoing. Allegedly, most of the private TV stations were bought by oligarchs surrounding Viktor Orbán.

What were people’s expectations linked to EU-membership and did they actually materialise?

Before EU-accession, people’s big dream was to belong to the core of Europe and to be internationally acknowledged as such. This indeed happened. Then, years passed and Hungary received enormous amounts of EU-funds which were reportedly not always used properly.

Recently, I had a talk with a FIDESZ-supporter who said: ‘We should not have any feelings of gratefulness as this money belongs to us. Over the last five hundred years, we defended Europe against the Turks and Muslims and this money is the payment for that.’

Is this a widespread view within the national-conservative milieu?

Yes, it is. This milieu is dominated by Orbán who actually feels very much offended by the EU that claims European values, the rule of law and sanctions of non-compliance. He is actually proud of not observing the rules and has difficulties to understand how it is possible that EU tells him what to do and what not to do.

What is your view on the recent municipal elections in Hungary, are you more optimistic given their outcome?

I think the Orbán system is eroding and the municipal election result is a sign of it. In Budapest, which has traditionally been liberal and open to the world, the opposition candidate Karácsony defeated the Fidesz-supported mayor, Mr Tarlós who was in office for nine years. This change is undoubtedly important, but I still don’t see the real weight of it. Is this only a temporary weak moment? I cannot say.