ECHO TV - Future of Europe

The post-2020 EU budget and the biggest losers of Brexit

Discussion about the biggest losers of Brexit with Dávid Szabó, Research Director of Századvég, and Csaba Szajlai, an economic journalist and Deputy Editor in Chief of Figyelő; and how the reduced cohesion funding will affect the Visegrád countries after 2020.

Good evening. Welcome. According to an Austrian analysis, negative impacts on the V4 countries are expected primarily in the long term and indirectly if the so-called hard Brexit is realized, that is, if the EU and the UK fail to agree on the conditions of the British exit rule by March 29th. Among the countries in the region, the Czech Republic would see the greatest economic output losses, up to 1%. In the meantime, last Thursday thousands of protesters demanded the resignation of Czech Prime Minister Andrej Babis in Prague, because they believe it is unacceptable that a person who is being prosecuted by the police for suspected misuse of EU funds is leading the government. By telephone we are now connecting with our Prague-based correspondent, Péter Balla. Hello Péter! According to Andrej Babis, the accusations are unfounded, and there is a political conspiracy behind the demonstrations with the obvious purpose of removing him from politics. What do local analysts say about this? What is really going on behind the scenes?

Hello! The whole "Stork's Net" case is about Babis allegedly taking two million euros from small business EU subsidies and having the "Stork's Nest" vacation home put in his child's name. Last week journalists managed to reach his son, who had raised certain issues, including that he might have been abducted and held in Crimea by his own father. This was the cause of the new wave of demonstrations, resulting in more than 20,000 people protesting in Prague’s Old Town Square, demanding Babis to resign.

Meanwhile, we are showing the viewers pictures of the demonstration. On November 23th, there will be a no-confidence vote for Andrej Babis. What is the most probable scenario in your opinion and in the opinions of other analysts?

The scenario became clearer by Wednesday afternoon. It looks like the whole opposition will cast a pro-Babis vote. Babis has a coalition partner, the Social Democratic Party, and the communists also support him in the background. The communists said on Tuesday that they would support the government, and the Social Democrats would withdraw from parliament during the vote. With this, there will not be enough votes, and the government will survive.

Let's briefly talk about other news. The Czech Republic can be one of Brexit's biggest losers in Central Europe. How did Czech politics and the public respond to this notion?

I have to say that the news about Brexit is often published in Czech public media. But, since everybody here is preoccupied with the current government crisis, there are no significant reactions to Brexit, despite the fact that the Czech Republic is an export-oriented country, and everyone understands that Brexit can cause a great deal of damage to the country.

We do not have a clear picture about what the conditions of Brexit will be, if it happens at all. Péter Balla from Prague, thank you very much for the information. We will discuss the question of what will happen with Brexit and the Czech Republic in the future with Dávid Szabó, Research Director of Századvég, and Csaba Szajlai, an economic journalist and Deputy Editor in Chief of Figyelő. Welcome gentlemen, I wish you a good evening. Do you agree that a possible hard Brexit would primarily in the long term and indirectly strike the countries of the region, especially the Czech Republic?

We could say that “one eye is crying and the other is laughing” since what we are talking about means that the Central and Eastern European countries, the V4, are embedded in the economic mechanisms of Western European. In general, the export volumes of the Hungarian, Polish, Czech, and Slovakian manufacturing industries are large. I am going to present a number to the viewers, although it is not of Britain, but of Germany, which has one of the largest economies and is one of the largest export powers in Europe. In Central and Eastern Europe, the volume imported goods is 13.4%. This is a huge amount considering the state of these economies in 1990. But, with regard to Brexit, the Czechs are more embedded in economic relations than the Hungarians. The Czech exposure is greater, but ours is great too. The whole region has more or less the same data. If a hard Brexit prevails, it will first of all be the processing industry that will have a strong impact on the Czech economy. As far as Hungary is concerned, the country in this respect may suffer fewer losses even in the case of a hard Brexit, since roughly 5% of our commodity turnover accounts for our annual export base to the UK. It is probable that this wound could be repaired in the Hungarian economy.

Before hearing the director's opinion, let us clarify for the viewers what exactly a hard Brexit means. It would mean that after Britain leaves the customs union and the common market, it could only trade with the member states of the European Union according to the WTO rules. This would result in the increase in duties on foreign trade and other costs, and I also read that it would lead to a drastic change in migration policy. What is the correlation?

The correlation is that British migration policy in this case would be forced to look for other resources instead of the highly-skilled, risk-taking, and aspiring Central-Eastern European workers. Britain would be forced to turn back completely to the workforce of the British Commonwealth or former British colonists. From this point of view, it is very interesting that those who were campaigning for Brexit specifically because of the immigration policy eventually could create virtually greater immigration as a result of the process. And, about the other part of the question, the conditions Anett described would actually mean a super hard Brexit, and such hard conditions would make us concerned too. Even in case of a hard Brexit, that is without British membership in the customs union and in the common market, we would like to minimally create a free-trade zone or a similar cooperation between the European Union or European Economic Area and the UK. It is in the interest of all of us. This is also emphasized by the British. Even those in favor of a hard Brexit emphasize the need for a free trade agreement with the European Union, but it is also necessary to establish such agreements with the rest of the world, notably the United States, and also with the successor states of the British colonial empire or with East Asia.

In fact, in the economic and political sense, it is a stalemate. We are member states of the European Union, so it cannot work that the British quit but keep all kinds of advantages. Earlier, there were plans that the British would have an agreement with the European Union based on the Norwegian or Swiss example. This is quite the challenge that they presented to the European Union's decision makers. I think that the European Union must be firm, as Brexit affects the 27 member states. Keep in mind that Great Britain is in a special status as a net contributor to the European Union's common budget, but they can reclaim a lot and enjoy special treatment as well, just like Denmark or Sweden.

March 29th is still far away, but we know very well that British domestic politics have been subject to the negotiations of Brexit. Some say that Prime Minister Theresa May's stability has been wavering. Indeed, the issue is far from being over. Meanwhile, during our conversation we are showing a graph to the viewers. The population of the countries of the Central and Eastern European region is primarily interested, beyond the economic indicators, in what will happen to the workers. Here is the chart. It shows the number of registered workers in Great Britain in 2017. How would the current Brexit terms protect the interests of the region's workers?

The British say that in fact everything will remain unchanged, as far as labor market conditions and regulation are concerned, but this is still awaiting refinement. The Hungarian national interest, on the other hand, is to have more people come home to Hungary or closer to Hungary from those who are working in Britain. It is natural to be worried about Hungarian workers in the UK, but we need to see that they are contributing to the UK’s GDP. We Hungarians are interested in solving the tight labor market problems in Hungary. It is highly likely that the British interest is to regulate the labor market in a liberal way, since it would mean a huge cut if they applied new rules. But, it is certain that the current EU regulatory system will not work.

Director Szabó said that a regulated exit, both politically and economically, would be in the interest of Hungarians and of the inhabitants of the region. What would that be like?

A regulated exit largely means that regardless of the circumstances under which Britain will leave the EU, the key is to not have a negative impact on the economy, security, and other cooperation between EU member states and the United Kingdom, so some continuity and stability should characterize the further relationship. Referring back to the previous question, this is also in the interest of Hungarian workers in the United Kingdom. I think that our workers can cope with any kind of labor market regulation. The most important thing is that they can plan ahead. The most important thing is that under the present conditions, by the end of 2020, the guarantees of their stay and equal treatment are provided. Later, other rules will probably apply to them, less favorable than the rules now, which are based on free movement. The point is that they can be prepared. And, the interest of the Hungarian economy is to know exactly, preferably years ahead, the exact customs regulations, investment rules, and investment incentives that will be open between the United Kingdom and Hungary.

Another interest of all of us, and here we turn to our next topic, is the EU budget that we can expect after 2020. The European Parliament adopted the negotiating starting points for the post-2020 budget last week. We'll continue after a short summary.

Based on the proposal of the European Commission, the Visegrád countries will have about 25% less cohesion funding after 2020 than in the 2014–2020 cycle. The committee's proposal affects the V4 negatively because the Visegrád countries are among the 11 major beneficiaries of EU funding, and these resources cover most of their public investment. Due to the economic needs caused by Brexit and immigration, the Commission revised the system for allocating aid from cohesion funds and put in place criteria in the resource allocation system for efforts in the areas of unemployment, the relocation of immigrants, innovation and, the reduction of carbon dioxide emissions. Brussels decision makers also noted that the drop in funding provided for the V4 is to some degree the price of the region's economic successes. The change in conditions is thus partly a result of the dynamic development of Central Europe, to which the funding received over the last two fiscal cycles contributed greatly.

Does the EU argumentation stand?

Well, to me it seems to be a little bit circumlocutory at first glance. The experts of the European Commission say that the Mediterranean countries need to catch up because since the 2008–2009 global economic crisis, they are still in a lousy situation, as they cannot reach the level of economic output as before 2008. By contrast, the Central European countries, namely us, the Poles, the Slovaks, and the Czechs, can grow quite well. The region is performing astonishingly. At the same time, the argument that the Mediterranean countries need to be supported now is not entirely correct, as the level of development of the Mediterranean countries has not yet produced by the Central and Eastern European region. The best indicator of this is the GDP growth rate. In this respect, perhaps the Czechs are ahead of a Southern European country, namely Portugal, but Hungary could not pass nor catch up to neither Spain nor Italy in this respect. Greece has fallen far back, so they are probably not a point of reference. The essence is that the Central and Eastern European region must be helped in order to catch up. We have not benefited from the funds and income that the Mediterranean countries have. In fact, we now get much less money than these countries received in the 80s to assist them to catch up. So, I see not entirely professional reasons but a kind of political pressure. We all know that there is a Polish case, a Slovak case, and a Hungarian case before the European Commission and the European Parliament. I think that there is sort of a regulation factor in this story. At the same time, we have to keep in mind that the situation is not yet completely final.

Are we being punished?

Well, some would like us to be punished. I believe that the countries of this region have realized their power after more than ten years of European Union membership. They are able to use the European cohesion and structural funds so that they can make a real contribution to the quality of life of those living here and to economic growth, while at the same time the Western European net contributing elite also benefit from cohesion policy. So, this is a success story. To knock over or diminish a success story can be only of interest if there are other political considerations beneath the surface. This is how I interpret the case. These states that came to power and consciousness now do not want to stand behind the globalist future envisioned by Brussels, and, therefore, Brussels is trying to put political pressure on them. We do not have to complain but have to actively get involved in coalition building and fight to defend our interests.

The question is whether the decision will be made before the EP elections. We will come back to the topic. Dávid Szabó, Csaba Szajlai, thank you for the analysis. On the occasion of the centenary of the regained Polish independence, the history book entitled The Bridge Builders: The Portrait of the Hungarian–Polish Relations was published. Our colleagues spoke with the creators of the book on its launch.

Politicians, diplomats, intelligence, scouts, volunteers, writers, historians, university professors, refugees, athletes, soldiers, artists, and translators. Poles and Hungarians, who dedicated their lives to the Polish–Hungarian friendship. The album entitled Bridge Builders tells their stories. The book premiered at the Polish Institute on the 20th of November.

At the event, the editor, Miklós Mitrovics, said, “the creator's goal was to help readers understand the true nature of the Polish–Hungarian friendship. We present 33 outstanding, extraordinary life stories. The book shows that they are mostly ordinary people. Although there is a politician among them, the majority represents the simple person who many times, as the result of a tragedy, starts a new life and from then on serves the Polish–Hungarian cause. I believe that if Hungarian people read this and see that it is not a fiction but rather the reality, they will better feel and understand that this friendship is ours, that this is not forced from above. Indeed, Polish–Hungarian friendship has never been led by big politics, but by simple people." The life stories were researched by nine authors, and the editor illustrated the text with nearly 400 photos. One of the 33 special people is József Trojan Marián, an artist who is remembered by his daughters in the album.

"Our dad was such a connecting link between the Hungarians and the Poles. He lived his life accordingly. That meant everything to him."

"I hope that thanks to this album, more people will get to know his work and his personality. That's why we tried to write not only professionally, as art historians, but also as human beings, through the eyes of children who could see their father creating and working feverishly. My sister wanted to show this too, so perhaps our writing is the most personal in the book."

Miklós Mitrovics concluded with the idea that bridge builders are always needed and will always be needed, as without them the “Polish-Hungarian two good friends” phrase would be empty. We want nothing more than to have similar connections in the Hungarian–Polish friendship in the next hundred years.

Dear viewers, with the news of the Visegrád Four, we are counting on seeing you next week. Thank you for being with us and goodbye.