Eric Gaillard / Reuters A Roma woman, November 21, 2013.

Central Europe's Limping Tigers

Hungary’s Unorthodox Policy vs. Romanian Austerity

It is easy to forget that Greece was not the sole victim of the economic turmoil that has been shaking the European Union since 2008. The post-communist nations in the east of the EU suffered, too. True, they never felt a pinch comparable to the Greek one. Still, after 2008, the once booming region—in the 2000s, its countries were known as the “Central European tigers”—saw a sudden reversal of fortune. With one exception (Poland), the EU newcomers saw sharp reductions in both gross domestic product and domestic consumption, weak industrial production, and increases in public debt.

But now, after a couple of years of economic uncertainty, central Europe’s economy has bounced back—at least if the statistical data are to be believed. The first half of 2015 brought promising signs: major economies in the region grew by 3 to 4 percent, rates not seen for some of them since 2009. Hungary and Romania were at the forefront of the trend, with around three percent and nearly four percent growth in GDP, respectively, in the first half of 2015. Both also enjoy record low unemployment, at 7.8 percent and 6.8 percent, respectively, in 2014.

Hungary and Romania represent stark opposites in terms of their approach to the crisis.

Hungary and Romania are neighbors with similar economies based on exports, a cheap labor force, and high foreign investment. They also share a difficult past and a degree of historical tension, which still affects their relations with each other. Moreover, they represent stark opposites in terms of their approach to the crisis. Hungary has worked under Prime Minister Viktor Orban to adopt a managed and centrally planned form of capitalism, while Romania has opted for increasing neoliberalism in tune with German Chancellor Angela Merkel’s preferred austerity measures.

UNORTHODOX

Orban introduced his so-called unorthodox policy in 2010 by breaking off cooperation with the International Monetary Fund (IMF) and a few other financial institutions, whose aid of 20 billion euros he intended to replace with investment from eastern countries such as Azerbaijan, China, and Russia, which would not come with such strict terms. The decision turned out to be a somewhat poor one, since the eastern opening never brought the economic fruit expected by the government: no major new investment materialized during this time, with the possible exception of a controversial deal with Russia on the construction of two new blocks at the Paks Nuclear Power Plant. Meanwhile, total export to non-EU countries grew by over 20 percent, a proportion that could have been easily achieved without the change of political orientation. 

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