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economy György Matolcsy Hungary Commentary

Hungary’s opposition wants to drag country into euro currency trap, writes central bank chief

Hungary will be unable to catch up with the first world

editor: REMIX NEWS
author: György Matolcsy

Next year’s election is, in fact, about whether the institutions of the European Union, together with a liberal Hungarian leadership group believing in the European United States, will be able to bring Hungary into the eurozone in the short term. If so, the path of domestic catching up to the developed world will be closed. If not, we can continue the national upswing, the economic catching-up and the processes of EU reform that began in 2010.

What exactly is the euro?

The European common currency is a European, primarily French, response to the collapse of the bipolar world system, the new hegemonic role of the U.S. and German unification. The French and later EU members outside the German zone thought that a united Germany would gain dominance with the omnipotent German mark, so a common currency was needed.

They were wrong. The euro eventually — as a result of the reforms of German Chancellor Schröder — created the German Europe instead of a European Germany that everyone, even the Germans themselves, feared.

The first 20-year balance of the euro

At first glance, the euro is a European success story because most members of the euro area are among the best in the world in terms of development and living standards. However, these countries actually rose to the top when they still had a national currency, and it is now clear that they could not have done that with the euro as a currency. Everyone who adopted the euro suffered, and the ones who kept their national currency won.

According to a study by the Center for European Policy research institute in Freiburg, Italians and French lost the most, between €4.3 trillion and €3.6 trillion in almost two decades. Only the Germans and the Dutch won with the euro — at least in principle. In fact, their victory was not because they were comfortable with it either. The euro also eventually led to a competitive disadvantage for them.

All the other countries lost, making the whole of the EU worse off with the euro. Although it may seem that the Baltics have won by adopting the euro, in addition to their good economic results, they have also suffered historical social losses (high unemployment, emigration of young generations, disintegration of their societies).

It is true for most eurozone member states that their 20 years before the introduction of the euro were significantly more successful than the first two decades spent with the euro. Moreover, Slovakia, which has long been a success story for the euro, fell further behind the EU average by nearly 6 percentage points in the decade before Covid-19.

The euro and the V4 countries

Poland, the Czech Republic and Hungary have gained a lot by not following Slovakia and Slovenia into the eurozone immediately after joining the EU. That is why Romania — who didn’t join the common currency either — may also be among the winners. Bulgaria and Croatia are unlikely to lose any more in the near future with membership of the eurozone, because these two countries have not been able to have a successful monetary policy without a euro either.

The countries of Southern Europe, with or without the euro, have lost ground compared to the northern EU member states in the first two decades of the history of the single European currency. The strongest impact of the euro on the V4 group is that, with the exception of Slovakia, they have been able to make a historic leap of progress within Europe in the last two decades without the euro.

Compared to the southern eurozone countries — Portugal, Spain, Italy and Greece — they have achieved stronger economic dynamism and catching up in the first two decades of the euro. This is true even for semi-northern/semi-southern France. The historic repositioning is best seen in foreign trade and investment relations between Germany and the V4, where we have overtaken the southern euro group over the past two decades.

Today, the V4 group, especially the countries using the three national currencies, can be the engine of growth for the EU because they have retained more room for maneuver in autonomous economic and monetary policy. Hungary may have been the most successful among the EU victims of the 2007-2009 global financial crisis in terms of economic and budgetary consolidation, growth and catching up, as it did not have to comply with the general rules of the euro area.

Early accession to the euro would be a disaster

Given all this, it is not surprising why an opposition victory would mean a dramatic turnaround and economic disaster for Hungary. According to the still secret but already leaked plan, either a street anarchy or an election victory could be used to trigger a referendum that would circumvent the constitution and bring the country into the eurozone.

It is not possible to leave the eurozone, only by leaving the EU, which no one in their right mind would do. This would seal Hungary’s fate together with that of the euro.

Title image: The largest, 500 euro denomination banknote.