John Osullivan

Cameron’s friend in Brussels

The controversial Hungarian prime minister is perfectly placed to be a bridge between Britain and Germany in EU negotiations

Cameron’s friend in Brussels
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The Spanish, in their local elections, just elected a bunch of radicals who oppose the austerity needed to keep Spain in the euro. Poland on Monday elected a Eurosceptic challenger from the conservative Law and Justice party. And leaks from the Euro-summit suggested that David Cameron will respond to this rare combination of crisis and opportunity by demanding… well, not much in the way of reforms and concessions.

Admittedly these leaks may be feints to mislead all sides about London’s negotiating strategy. It’s early days. Nor is Poland yet a reliable ally for Britain in such negotiations: its government will be divided between a Eurosceptic president and a pro-Brussels administration until at least October. If Cameron is looking for such a partner in the meantime, he will probably turn to Hungary, which under Viktor Orban’s ‘national conservative’ government is one of the Continent’s few openly Eurosceptic powers.

To be sure, Hungary’s Euroscepticism is more ambiguous than the British variety. Hungary is committed to join the euro eventually — and always will be. It combines receipt of large subsidies from Brussels with strong resistance to federalist interventions (likely to increase when the subsidies from Brussels dry up in a few years). Above all, although Hungarian politicians share the British Eurosceptic’s visceral suspicion of Brussels, they have no interest in a Hexit.

Instead, they seek a redistribution of powers from Brussels back to national capitals. That brings Orban theoretically close to David Cameron’s supposed moderate Euroscepticism. Rumours in Budapest suggest that the two men get on; they established mutual trust in resisting Jean-Claude Juncker’s coronation as EU Commission president.

What makes Hungary an unusually influential Eurosceptic partner, however, is that the main European patrons of the Orban government include the mainstays of conservative Euro-federalism: Chancellor Angela Merkel and the German government. Merkel’s party and, even more so, Bavaria’s Christian Social Union regularly protect Orban’s Fidesz party — their partner in the European People’s Party — against itchy-fingered Eurocrats anxious to bring ‘nationalists’ to heel and the socialist left wing of the bipartisan ‘majority’ in the European parliament. CDU and EPP leaders were prominent among foreign supporters of Orban in Hungary’s local, national and European elections last year. (Hungarian flags were ubiquitous at Fidesz rallies and European flags at socialist ones; the left was routed.) This relationship remains a crucial lifeline for Orban and Fidesz in EU politics. It will be on display in Budapest next week when Orban will join in events celebrating Helmut Kohl as ‘The Chancellor of Unification’ — German and European both, apparently — on the grand old man’s 85th birthday.

Orban is therefore emerging as a diplomatic dancing partner for the two principal powers in the talks on European reform. His sympathies pull him towards London, his interests towards Berlin. He needs the trust of both. And he will inevitably come under closer scrutiny from both advocates and opponents of reform.

Orban is one of the few European politicians who might benefit from such scrutiny because his image abroad is so negative. He has been described as ‘neo-fascist’ by John McCain, denounced as ‘illiberal’ by US State Department officials, and hailed (apparently jocularly) as ‘dictator’ by Juncker. These epithets and the allegations on which they rest are either false or grotesquely exaggerated. Hungary’s lively, competitive media outlets lean rightwards but have uncovered official scandals and corruption without being closed; its elections were manifestly open and fair; the government has accepted decisions of the Constitutional Court overturning its laws and regulations; and anti-government demonstrations wind peacefully through Budapest under police protection. Such things don’t happen under neo-fascists.

My judgment might be questioned on this, since the Danube Institute, where I work, receives official funding. So let me add that the Orban government has faults. It has brought in heavy-handed restrictions on hostile NGOs and media. It is also retreating from free-market economics. The Hungarian right, like most Europeans, saw the 2008 crash as a market failure that discredited market economics. Moreover, when Orban came to power in 2010, the Hungarian socialists had bequeathed him an enormous national debt, which he believed could not be financed by another round of austerity on already burdened taxpayers. So he imposed special taxes on banks, utility companies, owners of private pensions and others with ‘deep pockets’. If this had been presented as an emergency measure in a unique crisis — which it was — it would have been reluctantly accepted by international agencies and the markets. But the Hungarians talked it up as a bold initiative in economic nationalism. Worse, the policy then began to succeed. Orban paid down the debts, emancipated Hungary from IMF/EU supervision, oversaw a modest rise in growth, and enjoyed an exchange-rate coup of Soros proportions when he compelled banks to convert mortgages denominated in foreign currencies into Hungarian forints only a month before the Swiss franc floated sharply upwards. This saved householders and banks from loss of income equal to about 2 per cent of Hungary’s GDP. Briefly, Orban became a hero of the international markets.

There are dangers in this kind of coup. Politicians who have bucked the market once are tempted to believe they have the Midas touch. The Orban government had already extended its regulatory sway over the domestic economy (Sunday retail closing, encouraging domestic ownership of banks) and foreign investment (restrictions on foreign-owned supermarkets, etc). Much of this is small‑c conservative protectionism of domestic producers on the model of UK Greens. But for a country with modest domestic capital resources, it carries a heavy risk of discouraging foreign investment. It also courts unpopularity with young and urban voters accustomed to cheap goods, convenient opening hours and weekend socialising at the shops.

Joining Cameron and Osborne in renegotiating a relationship with the EU, however, raises different risks. One major issue is off the table: Hungary, like all Central European countries, is committed to the free movement of labour within the EU, whereas controlling such movement may be the single most important goal of British Eurosceptics. Restricting immigration into Europe from Africa, Asia and the Middle East, on the other hand, is something London and Budapest have already endorsed separately. But that fends off a new threat to their sovereignty rather than reversing old ones.

Other kites flown in Whitehall are that the two governments might co-operate in strengthening the EU’s democratic procedures, seeking formal exemptions from ever-closer union, crafting a general defence of national sovereignty against Brussels, and ensuring that as non-euro countries they cannot be subject to decisions taken by the eurozone nations without their consent. These are extraordinarily modest aims, though the last is also a necessary one because Germany — the silent partner in this alliance — will make discussions on Brexit the forum for developing a stronger fiscal governance for the eurozone and the EU.

A theoretical solution has long been fairly clear: Germany would take on eurozone debts in return for subjecting the budgets of eurozone states to collective fiscal discipline. But no one has yet produced a believable mechanism for such discipline. Such a deal looks more likely to reproduce the original euro structure with even risk of future financial meltdowns. Reasonably enough, Germany will not keep taking on ever larger debts without clear safeguards. So what most people suppose to be Germany’s favoured reform, a unified euro, is a dead letter. Nor is Germany ready to reform the euro in another direction, by dividing it or leaving it, nor to go beyond the minimum needed to keep everyone inside the currency.

In short, immobilism — a strong resistance to any political change — is the underlying German policy on Europe and, indeed, on Ukraine and most other things. Its costs are borne by the unemployed of Italy (13 per cent), Portugal (14 per cent), Greece (15 per cent), and Spain (24 per cent) and by the taxpayers of northern Europe who through debt ultimately finance the transfers sent to the Mediterranean. There is no end in sight.

Europe is apparently surprised by the modesty of David Cameron’s early demands — and perhaps misled. But if those demands really are the full extent of London’s goals, then they amount to consolidating the immobilism of German policy. They don’t pretend to require treaty changes, or to offer any serious restoration of powers to Westminster, or even to revive a stagnant and discontented Europe. Does such a thin agenda need allies? Is Orban’s support necessary for it? Might he do nothing and still gain kudos with Mrs Merkel as the man who persuaded the Brits to be compliant? Or might he urge something bolder on Cameron? It would be in character and justified by the needs of Europe’s crisis.

Immobilism rules. But since it keeps producing crises and losing elections, it can’t be said to succeed.