Flip, then flop: on Hungary’s opening to the East

Since its landslide victory at the general elections in 2010, Hungary’s governing Fidesz party and its leader, Viktor Orbán, have been pursuing an ‘opening to the East’. Behind this should lie a reasonable rapprochement with Russia and the resource-rich countries of the Caucasus and the Arab Peninsula. But petty political goals seem to play a more important role. The policy’s successes have been marginal, while its long-term cost looks frightening

Given Hungary’s reliance on Russian energy on the one side and its exports to Germany (accounting for one-third of the total) on the other, the country needs to balance its relations with East and West. Its membership in the EU and NATO and its principally zapadnik culture tie it to Europe. Cooperation with Russia was pursued on a pragmatic basis by previous Hungarian governments, appalling the right-wing Fidesz opposition.

But upon being sworn into office, they took a U-turn. Claiming to work for a ‘friendship’ with Russia, they are going a lot further than their predecessors. There is hardly a change of conscience to account for the party’s newfound Slavophilia - and it is not bringing any results.

  Brave new world

In Mr Orbán’s world, turning towards the emerging East means showing his back to the ‘declining’ West. The government’s talk of a struggle for economic freedom against the IMF and the EU, and its ‘unorthodox’ economic governance, only serve to distance the country from Europe. In last Tuesday’s Die Welt, Mr Orbán laments that the EU is not buying the Hungarian ‘success story’, because the tools used differ from their doctrine. But in reality, this story is far from being a success. The economy still shrank in 2012 and, according to the IMF, it will continue to do so this year, making Hungary the only country in recession in the region except for troubled Slovenia. Many controversial social and legal measures have further rotted Budapest’s relationship with Brussels. Still, there is not much the Berlaymont can do - take the ‘nuclear option’ of suspension of voting rights - and even less it is willing to.

Whilst opening to the East is a good thing, closing down to the West - if only symbolically - is an unforgivable crime. It hurts the country’s economy, it hurts its society, it hurts its culture. The motives? Officially, the government is working on a ‘new social and economic model’ to replace the Western-style welfare state that, according to Orbán, has failed. But make no mistake: we are not talking about the new T. H. Marshall but a political opportunist. Mr Orbán has used his two-thirds majority in Parliament to pursue a vigorous programme of centralisation. There seems to be an affection for Putin’s vertical system of governance and a rejection of Brussels’ leash in it.

While they are not actually doing anything, the European bodies have never hidden their malaise regarding the quality of democracy in the new Hungary. (In Orbán’s constitution, the country’s official name is no longer Republic of Hungary, but simply Hungary - also a highly symbolic move.) It seems that even the lax economic control that Brussels can use to influence processes in Hungary is too much for the country’s jackanapes leader.

Panem et circenses

Fidesz has an astonishing track record of hot-headed populism. Born within the Democratic Movement in the late 80s, it was throughout the 20 years of Hungarian democracy, and once in government between 1998 and 2002, a harsh critic of Russia.

In early 2009, Hungarian PM Ferenc Gyurcsány agreed with Vladimir Putin to set up a joint venture for the construction of the South Stream gas pipeline. Fidesz politicians, then in opposition, accused the government of high treason for increasing the country’s dependence on Russian energy. This despite the Socialist-Liberal majority Parliament  having reaffirmed the priority of South Stream’s EU-backed rival, Nabucco.

In government, they changed course. The state purchased Surgutneftegaz’ 21% share of the national energy giant MOL - a package the board would not let Surgut use to take part in the decision-making. It does let the state, though. Mr Orbán announced in October last year MOL’s quitting of the Nabucco project and declared full support for South Stream instead. Fair enough: no one knows if Nabucco is ever going to be built, whilst the construction of South Stream is already underway. Russia claims to have enough gas to supply Europe for at least a hundred years - and diversification is needed, but stability more so.

Interestingly, while advocating outright friendship with Russia, Hungary’s government does maintain a populistic touch of anti-Russian sentiment. Notably, Moscow Square, a major traffic junction in Budapest has recently been renamed, much to the Kremlin’s dismay. But it is no less apparent in a number of more significant measures, such as MOL’s nationalisation.

Diplomatic non-starter

Russo-Hungarian mingling should be all about gas. Hungary’s long-term gas contract expires in 2015 and it is absolutely crucial to get favourable terms in a new one. This affects a plenty of households (although not the poorest ones, which still use wood heating): cheap gas means more votes. Now Mr Orbán is very much aware of that: he has recently enacted a controversial price cap on electricity and gas and then petitioned for ‘lower household bills’ to support the measure. But he seems to have forgotten to create the conditions for a good deal with Russia. Making the distributors swallow the loss instead of the people does perhaps generate some support, but in the end it is the economy at large that suffers. Making a good price with the supplier would be the real step forward, but there is no leverage left to do so.

One thing the government could have done to please Moscow is to grant Surgutneftegaz ownership rights for their share in MOL, argues Zoltán Sz. Bíró in Mozgó Világ, a periodical. But Mr Orbán was proud to announce that Hungary had ‘seized MOL back from Russia’.

South Stream is certainly no lever anymore, since Russia has managed to get Croatia and Slovenia into the project - writes Sz. Bíró. All Hungary’s reluctance to join would have achieved, he argues, is for the pipeline to run south of its borders. No one wants that: the biggest fear has long been that Russia’s clashes with Ukraine will eventually leave Hungarian households without heating, which almost happened in early 2009.

Hungary’s only nuclear plant at Paks needs refurbishment; perhaps this project could interest Moscow. But, given the uncertain economic climate - in large part generated by the hasty governance – it is unlikely that they will take the headache.

Investment from Azerbaijan was promised by President Ilham Aliyev. In a symbolic move, Mr Orbán then authorised the transfer of an Azerbaijani inmate from a Hungarian prison to Baku. Ramil Safarov had been sentenced to life for murdering an Armenian fellow-student with a hatchet while at a Hungarian military academy in 2005. The Azerbaijani authorities had allegedly assured Hungary that Safarov would continue to serve his sentence in Baku, yet he was pardoned and welcomed as a national hero. Armenia, deeply offended, broke diplomatic ties with Hungary, the US and the EU were shocked: Budapest had flopped, aggravating conflict in a region where Western powers have long striven for peace.

Alone in the canoe

From all the investment that Mr Orbán foresaw, be it from Russia, Azerbaijan, Saudi Arabia or China, not a penny has entered the country. The deadlines to pull up trading houses in Moscow, Beijing and Riyadh have just been overrun for the third time. And the new long-term gas contract is likely to favour Russia more than Hungary, much like the MOL-deal, in which Surgut made half a billion euros. The Eastern opening is not working.

But it is a real bee in Mr Orbán’s bonnet. He needs funds without having to make political concessions. A stable, growing economy would ease the EU’s burden on him and it would legitimise the cooling of relations between Brussels and Budapest. What he needs is Eastern money. Russian money.

At the same time, he cannot but play with the people’s fear of Russian expansionism. Yet in the Kremlin’s pragmatic eyes, this two-faced rhetoric is not an issue. A lack of interest is.  

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