Hungary Turns East as Europe Fades

February 14, 2014 Topic: Economics Region: Hungary

Hungary Turns East as Europe Fades

With the EU weakening, Budapest turns to a more balanced approach.

“We have a saying about ourselves: if you have a Hungarian friend, you do not need an enemy”, stated Hungary’s prime minister, Viktor Orbán, in a late 2013 speech at London’s Chatham House . The quip was meant to illustrate Hungarians’ propensity for self-irony and self-reflection but, looking at Hungary’s politics, this mantra reveals another national trait: staunch realism.

Indeed, Budapest has shown its calculated independence from a fixed set of allegiances on many occasions, always aligning and realigning its stances in accordance with its national interest. Hungary is now seeking closer ties with Russia , after signing a 10 billion euro agreement with Moscow to prop up its sole atomic power plant in Paks.

For some, this might be shocking. How can Orbán, a former anti-communist activist, choose to shift his country away from Brussels and closer to Moscow? He can, because he is a realist who fully comprehends that the current geopolitical complexities of Europe cannot be assuaged simply by relying on the European Union.

So why Russia? Obama’s pivot to Asia and subsequent disengagement from the Old Continent, coupled with the slow disintegration of Europe at the hand of self-imposed austerity and nationalism have managed to create a power vacuum. A renascent Russia only had to step in, using its gas resources as leverage, to occupy the space. Central and Eastern European countries have thus become the geopolitical battleground between a waning supranational organization and a resurgent global power. This tug-of-war has recently been on display in Ukraine, where the two antagonists have been pulling from all sides to gain political and economic sway over Kiev.

Understanding Hungary means understanding the political chess game between two opposing worldviews. Like all ex-Soviet states, Hungary shares a troubled history with Russia. After 1989, not knowing what to do with its newfound sovereignty, Budapest moved instinctively towards the West in the hope of keeping Moscow at bay. It joined NATO in 1999, followed by the European Union in 2004. For a while, it seemed that Russia’s influence had waned over the region. As the financial crisis deepened, however, the Union’s attention became increasingly focused on solving the problems plaguing the core Eurozone countries, leaving the other member states in the cold to fend for themselves.

This moment can be seen as a turning point in the dynamics of the European continent. The emergence of this two-speed Europe has marked the reversal of federalist sentiments in many member states. Some have fallen prey to nationalistic temptations, while others have tried to seek out alternatives to their economic woes, either by increasing regional ties or leaning back on Russia. Hungary is a very interesting case in point, being a member of both these camps. On one hand, it is one of the founding members of the Visegrad group of Four (the other three being Poland, the Czech Republic, and Slovakia), which has coalesced in an effort to create a close-knit security and economic community, operating inside the European Union. On the other hand, Hungary has warmed to Moscow, even advocating an EU-Russia reset over energy-security concerns.

A landlocked country, Hungary has few natural resources and has long been reliant on Russia to provide more than half its energy needs. Despite intense criticism from the opposition over the handling of the nuclear deal, the arguments underpinning the loan are economically sensible. Increasing the capacity of its sole nuclear power plant means lowering manufacturing costs for its industry and a significant increase in national competitiveness, which is something even the Germans can relate to. When finished in 2023, Paks is expected to supply
some 40 to 45 percent of Hungary’s electricity needs. ="#axzz2tdnaq6vi">

This is just the tip of the iceberg, for in reality the stakes are much higher. Hungary has been increasing its control over certain strategic sectors in an effort to bolster its negotiation tactics with the Kremlin. In 2012, the Parliament passed a law that would allow the state to buy strategic oil and gas reserves owned by its national energy company, MOL Group. The bill does not entail the automatic nationalization of all gas reserves, but instead gives the state the option to do so if necessary. Last year, the government bought important gas storage facilities from both domestic and international companies in order to increase its strategic storage reserves and enhance Hungary’s energy security.

Hungary’s most significant move has probably been the commercial war between MOL and its Croatian equivalent, INA . The two companies, worth around $7 billion each, have been struggling over management rights. In 2002, MOL bought an initial stake in INA, which was subsequently increased through a controversial deal that landed the Croatian PM a 10-year jail sentence . Full control of INA would turn Hungary into a regional energy hub, enabling Budapest to use this asset as a bargaining chip with either the Kremlin or the European Union. It may even challenge Russia’s dominance over Eastern Europe in oil and gas by offering an alternative to Gazprom’s infrastructure.