The Guest Blog

Guest Blog: The End Of The Road For Compromise

Zoltán Cséfalvay|Minister of State for Economic Strategy

Making headlines about the demise of the euro is becoming a popular pastime, and in terms of current economic policy it is certainly a lot easier than the tightrope that many politicians are currently walking as they try to balance national needs with European Union imperatives, keeping voters, investors and businesses on side, managing the day to day crises at the same time as developing longer term economic strategy.

It is said that a week is a long time in politics; at the moment half a day is a long time in our economies.

There is clearly a strong commitment within the EU to keeping the troubled countries afloat but, inevitably, the differing priorities and needs of the EU member states mean that negotiations are lengthy, complex, and heated.

The result has been repeated compromise between the need for financial aid among the indebted southern European countries and the willingness of the northern European countries to pay.

Consequently, we find ourselves lurching from crisis to compromise and back again, driven on by fear of catastrophe. The impact of this economic rollercoaster and the resulting uncertainty is being felt not only across Europe but across international markets.

The biggest current threat to the economies of Europe and, more specifically, to Central and Eastern Europe, is economic uncertainty.

Uncertainty which contrasts with signs that the region is well positioned to become a center of rapid economic growth once the crisis has abated. The gap in terms of GDP between western and CEE countries means that the incentives and opportunities for growth are strong. Countries of CEE are well advised to start preparing for this now.

Politics needs to move beyond rescue, to build for the future and to deal with the causes of the problem, hard and intractable as they may appear.

Recently, as President of the Competitiveness Council of the EU, dealing with the long-standing and urgent priority of a European unitary patent system, I personally experienced that it is possible to achieve a breakthrough in a complex and apparently deadlocked issue. Political commitment can and will bring about the seemingly impossible.

Securing fiscal stability and promoting competitiveness are the biggest challenges Europe is facing today.

These have been the two main pillars of Hungarian economic policy since the government took office last year. Hungary has not shied away from taking tough economic and budgetary decisions, cutting expenditure and introducing some unusual measures such as temporary "crisis" taxes on specific sectors.

As a result, its budget deficit for 2011 has been reduced to below the 3 percent target and its debt ratio has been reduced to 73 percent from 81 percent of GDP. The government has promised an ongoing deficit reduction and committed to abolishing the crisis taxes in 2013, and it is determined to keep these promises.

The unusual and short term measures were necessary in order to gain time to start working on longer term deeper reform. Hungary is now launching wide-ranging structural reforms, including tax, education, pensions, public administration, and healthcare.

At the heart of these reforms are four policy priorities which aim to strengthen Hungary’s competiveness: cutting taxes, for example the flat rate income tax; reducing red tape by 1.8 billion euro; introducing flexible labor regulation; and, creating a smaller but more effective state.

Since Adam Smith, it is widely acknowledged that economic problems are embedded in politics and human nature. Today the grandfather of economics would point out that the roots of our current problems are to be found in the debt funded welfare state. Europe must learn again that welfare is a joint responsibility between state and citizen; that governments cannot redistribute wealth that doesn’t exist; and, that welfare follows from hard work. This is not easy, but it is right, and Hungary is committed to continuing along this path.


Zoltán Cséfalvay, Minister of State for Economic Strategy, Hungary