Economic Strategies before Integration

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Is there a rational alternative to Hungary's integration into Europe? Reliance on the nation's own resources, the revival of a smaller or larger Comecon, reliance on EFTA, the North American Free Trade Association, the dynamic countries of East Asia all belong to the realm of dreams and political and economic romanticism, given the facts of economics and geopolitics. 68 per cent of Hungary's total exports go to EU member states, and the EU's share in the financing of Hungary's debt and in the total of foreign capital invested in Hungary is over 60 per cent. The West also provides 80 per cent of our foreign currency income from tourism.

Successful adaptation to the most important economic partner is vital to the survival of a small country sensitive to foreign economic processes. The level of the costs of adaptation is a major factor in the development of countries sensitive to foreign trade. For the external conditions of Hungary's development, the very existence of the Union is itself a relative advantage: Hungary has to accommodate to the unified economic environment and the documentation and administrative system of the Union and not to the different requirements for the markets of 12 or 15 member countries.

The costs of adaptation to its main market are unavoidable for foreign trade-sensitive Hungary; however, full membership in the Union may ease the process of catching-up and adaptation. Staying outside the Union would mean losing the opportunity of the financial subsidies available from the Union, which have thus far helped every less highly developed country that joined, from the countries of Southern Europe to Ireland, to achieve economic growth higher than the European average as well as a faster rate of modernization. The extent of the actual financial support available from the Union can be judged only when the new arrangement for funds, coming into force in 1999, is known, and the negotiations on accession have already started. Earlier foreign estimates ran to 17 per cent of Hungary's annual GDP, but currently the estimate stands at 4 per cent. Even that far more moderate amount would approximate to the average annual direct capital inflow of the years between 1990 and 1996. If all other conditions were to remain unchanged, full membership would increase the growth rate of the Hungarian economy by an average 1 per cent annually.1 Staying out would not only mean the loss of supporting funds but would also divert the current working capital flow, and might even result in the relocation of investments from Hungary to other Central European countries with more favourable conditions, with all the attendant losses in exports. Staying out would therefore do considerable damage to the country not only in the form of "lost profits", but also in loss of resources, both actual and potential, as well as lost jobs and exports.

Hungary's integration into the union is thus not some kind of a political objective for its own sake or a road that can be avoided at will, but an integral part of the strategy required to improve the country's standing. It should be noted that there are major interest groups both inside and outside Europe which, for a variety of reasons, are not interested in the Eastern enlargement of the European Union. That a large number of economic and political interest groups urge admission to the Union is not the essence of the bargaining position of Hungary. The various widely publicized foreign calculations and declarations grotesquely overestimating the costs of enlargement and belittling the value of the "dowry", the endeavours to postpone accession and the positions aiming at extending the conditions of admission by setting minimum limits on environmental protection and social policy, are all clear indications of the power of counterinterests regarding the Eastern enlargement of the Union.

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Béla Kádár

is Chairman of the Budget Committee of the Hungarian National Assembly. He was Minister of International Economic Relations in the 1990-94 government.