In order to understand Hungary's Euro-policy it is necessary to take a deeper insight into its political history in the face of economic development and monetary integration.The Hungarian political system is characterised by bureaucratic elements such as the power being in the hand of political elites. Reforms are still being made according to power instead of considering social and economic benefits. This is mainly due to its communist historical roots. The early abundance for divergence had long-term consequences for social expectations, party for competition but most of all for bureaucratic politics. Politicians have been creating reforms in the face of winning social acceptance thro ...view middle of the document...
In response the government increased welfare provisions again to avoid "marketisation", which was done by introducing retirement benefits, increasing unemployment benefits and emphasising on public health care. (Vanhuysse, 2006) However, besides wanting to create a stable welfare state, "the government shared a belief in the benefits of a 'return to Europe' and tried to convince Hungarians that social confrontation is non-European, therefore it is to be avoided" (Greskovits, 2008). Nevertheless, this post-communist intention of welfare reform did not manage to solve the problem of macroeconomic instability. By 1995 government overspending pushed deficits to 10% of GDP and increased the already high public debts. Unemployment rose, and Hungary soon experienced a double-digit inflation (Eurostat).1995 brought a change of government (a coalition of Socialists and Democrats) that launched a stabilisation programme in order to restore macroeconomic stability. The new policies brought temporary success but made a considerable cutback on welfare spending and public employment. These policies created an overall shock among the population and resulted in a loss of trust in Socialist and Democrats and reinforced the welfare-oriented structure of political life. However, the new reform helped improve exports and foreign investments, and accelerated economic growth by 5% per year. Moreover, inflation dropped from 30% in 1995 to 10% in 2000, the national currency got stabilised and current account deficit got reduced. That time Hungary experienced a huge economic improvement. By 2000 government deficit got reduced for 3% of GDP and the debt from 80% of GDP to 55%. Chart III.1 in Appendix shows the sudden large GDP increase from 1996 to 1997 and a stable rise onwards. (KSH)However, with the rapid process of Europeanization, political elections in Hungary have become similar to those in Western Europe. During campaigns rivalry and interest-group politics gained importance. Politicians promised both economic and welfare protectionism and tried to implement a mix of them at the expense of fiscal overspending. (Sachs, 1995) Entering the Eurozone required fiscal reforms and an independent Central bank, however, bureaucratic politics started to struggle with control over the Ministry of Finance. Moreover, the coordination of fiscal and monetary policies proved to be more difficult than any of the governments expected. Politicians' aim of achieving central bank independence was out of control, which hindered the coordination of fiscal and monetary policies even after the EU accession. The change of presidents of the Hungarian National Bank (MNB) became more frequent, and the gradually Europeanised central bank laws improved policymaking authority. In addition, welfare politics continued to cause difficulties because the rather nationalist politicians usually could not reach their voters without first addressing their demands for social welfare. Politi...
