Should Hungary adopt the euro?

A growing list of prominent Hungarians, including conservatives, are supporting an initiative to launch a national referendum on the adoption of the euro in Hungary. More accurately, the proposed referendum is actually about Hungary joining the EU’s Exchange Rate Mechanism, which is the first formal step in having the euro replace the forint as Hungary’s currency. (The Fundamental Law does not permit referendums on changing the country’s currency, so focusing on the ERM is one way around this.)

The proposed referendum is spearheaded by a tiny upstart party called Polgári Világ (Civic World), attached to school principal István Pukli, who made national headlines by launching mass protests among teachers in 2016. Mr. Pukli is the party’s vice president and its most prominent personality.

While Mr. Pukli’s party has much work to do if it is to contest national elections in April 2018, its plan to hold a referendum on adopting the euro is supported by some of the most prominent former ministers and thinkers in Hungary, from both “sides” of the aisle. The following have indicated that they support the initative:

  • Péter Balázs, Minister of Foreign Affairs under the Bajnai government (2009-2010);
  • Péter Ákos Bod, former Governor of the Hungarian National Bank, university professor, former MP;
  • Géza Jeszenszky, Minister of Foreign Affairs under the Antall government (1990-1994), former ambassador to Washington and Oslo under the Orbán government;
  • Tamás Kolosi, founder of the Tárki public polling firm and a sociologist by profession, former prime ministerial adviser under the interim Németh government (1989-1990) and the first Orbán government (1998-2002);
  • Kálmán Mizsei, Deputy Secretary General of the United Nations from 2000 to 2016 and an economist by training;
  • György Surányi, Governor of the Hungarian National Bank from 1990 to 1991 and from 1995 to 2001.

The Polgári Világ party believes that adopting the euro in Hungary is the last chance to bind the country to western values and to the North-Atlantic world, rather than the authoritarian oligarchies of the east. The party emphasizes: “In 2004 we joined the EU–essentially by acclamation–to make our homeland blossom within the developed and strong union that safeguarded peace in Europe for 72 years. With this, the thousand year old dream of St. Stephen was fulfilled. At the same time, we also joined a value system, which includes the Reformation, the Enlightenment and the heritage of European democracies.”

Zoltán Keresztény, the fledgling party’a president, added that adopting the euro was the guarantee that Hungary would tear itself out of Vladimir Putin’s sphere of influence.

A proposed design for Hungarian euro coins by Anev Kámen. This includes: the insignia of St. Stephen, the Hungarian national shield, Albert Szent Györgyi, Lajos Kossuth, Béla Bartók, the parliament, the Puli dog breed, the Rubik cube and Ferenc Puskás.

There are not many polls that measure the levels of support of adopting the euro among Hungarians. But a Eurobarometer study from two years ago put the percentage of Hungarians who would like to replace the forint with the euro at 60%.

Still, as Gábor Vágó points out on the anti-corruption Átlátszó website, adopting the euro is not that easy, nor will it be a panacea for all of Hungary’s problems. First, Hungary needs to bring its national debt-to-GDP ratio down to 60%. In 2016, Hungary’s ratio was 75%.

More critically: Mr. Vágó believes that it is not in Hungary’s interests to adopt the euro in its current form. For instance, uniform interest rates set in Frankfurt cannot possibly serve both countries like Germany and Portugal well at the same time, as these countries–and others in the EU–have divergent labour markets, economic structures and productivity levels. This is the traditional conflict between the centre vs. the periphery.

Mr. Vágó believes that giving up the flexibility that Hungary currently enjoys in terms of setting its own interest rates would be a mistake and whatever benefits come with adopting the euro would not make it worth it. In the case of another financial crisis or shock, Hungary would have to adhere to economic solutions that have Germany’s interests in mind, first and foremost.

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