Should Hungary introduce the euro?

Besides ideological debates, Hungary also has to give an answer to a practical question concerning its European integration. Should we say goodbye to the forint and introduce the euro in our country?

Further towards the euro

02/27/2018 - 21:30
Hungary has matured enough economically to fulfill its treaty obligations – namely the introduction of the euro; but is it politically speaking ready? If Macron’s plan of the two-speed union becomes reality, the future Hungarian government has to give an answer in the forthcoming cycle to the question: with or without the euro?

Although with inconsistent intensity, the question of introducing the euro has been an ongoing part of the Hungarian public discussion since 2002, therefore since the creation of the Eurozone and before Hungary’s accession to the EU. The last time the question made it to the front page was in 2016 when in an interview given to the journal Magyar Hírlap, the Minister for National Economy Mihály Varga stated that Hungary can be ready to introduce the euro by 2020, provided that it can hold its current rate of growth. A year before Antal Rogán – the current Minister leading the Cabinet Office of the Prime Minister – also spoke of a similar perspective.

In the flood of the analyses following Mihály Varga’s statement one could often hear the voice of economist Zoltán Pogátsa who consistently started his interviews by saying that the introduction of the euro is not a political but an economical question. This is not entirely true. To be more precise, it should not be a political question but in reality it is. A good indicator of this is the continuation of the above-mentioned interview two days later, in which Mihály Varga claimed to the channel Hír TV that for now, Hungary has no intention of joining the Eurozone despite the fact that the Orbán-government had fulfilled all but one criterion of accession. This event sheds light on a contradiction within the governing FIDESZ party; experts say the introduction of the euro would be beneficial to the Hungarian economy however it appears to be against the FIDESZ’s party politics. Although Hungary is performing well on paper, the currency machination going on in the National Bank weakens transparency, creating mistrust in foreign investors. By introducing the euro, this is precisely the margin the government would lose. The question is how this would affect the country.

A good example of our neighbour

Probably because of the similar economic and geopolitical conditions, it is reasonable to look at the Slovakian example. The introduction of the euro in 2009 had improved the possibilities of job creation and economic growth in the country, not to mention its competitiveness. Contrary to the region’s other Eurosceptic countries such as Hungary, Czech Republic and Poland, Slovakia got into positional advantage because, as a result of the disappearance of transactional costs and exchange rate risk, it became a more attractive target to foreign investments. In addition, Slovakia’s well-timed accession during the economic crisis extended the shielding of the Eurozone upon the country and this resulted in much less negative impact of the recession than for example in Hungary. And we have not even mentioned French Prime Minister Emmanuel Macron’s plan of a two-speed union; if it came true, the countries refusing to enter the Eurozone would shift to the periphery for good.

The sides of the coin

But what does all of this mean to Hungary? Would it be worth introducing the euro here? Hungarian experts agree that Hungary’s economy could use the introduction of the euro. The National Bank is constantly dealing with the question; according to its studies Hungary would benefit from the euro if it could introduce the currency on an adequate exchange rate. Viktor Orbán passed over the governance to Prime Minister Péter Medgyessy in 2002, also by agreeing that in 2007 the country has to join the Eurozone. But how would Hungarians benefit from this? For the ordinary citizen, the most obvious advantage would be the lack of money exchange. 90% of the Hungarians travelling abroad target one of the EU Member States and in these, they would be freed from the financial disadvantages caused by exchanging money. From a macro-economic point of view, besides greater transparency and more stable exchange rates, trade indicators would also improve. One of the most crucial billions-worth questions of the post-crises restoration, the saving of the foreign currency borrowers, would also be settled. In addition to this, experts foresee shrinkage of the unemployment rate and growing of wages.

Naturally, the picture is not this perfect. The example of the southern states like Portugal, Spain, Cyprus and especially Greece shows that the premature introduction of the euro can easily throw the country on the brink of crises and can also affect negatively the economy of the whole Monetary Union. If the country’s performance is not stable enough, if sufficient potential of growth is missing and if the domestic currency is being calculated on a low rate compared to the euro, the newest one of the cyclically recurring world-economic crises can make the country bankrupt. As a result, it can get into a spiral of indebtedness from which it would take great sacrifices to get out. The devaluation of the domestic currency as a measure applied in these situations, would not be available because of the lack of independent monetary politics. But for now, Hungary’s situation resembles more Slovakia’s than Greece’s and for the first country’s economy, being part of the Eurozone during the crisis was beneficial, although it was also deeply affected by the participation in the aid package given to Greece.

Hungary would probably benefit the best from an intermediate solution that is often called the Danish method. Denmark has not installed the euro but tied its own currency to it and as a result, the country enjoys the advantages of the Eurozone and avoids its disadvantages at the same time. For Hungary, this method would be especially logical because, except for joining the ERM II system, the country has fulfilled all of its convergence criteria by 2013, when the excessive deficit procedure against Hungary stopped. Moreover, the fixing of exchange rate is treated flexibly by the EU; there is no provision about how long the countries can stay in the entrance-hall of the Monetary Union meaning that Hungary could get a taste of the conditions following the accession.

This article deliberately presents only one of the many existing points of views of this contorversial subject. Its content is not necessarily representative of its author's personal opinion. Please have a look at Duel Amical's philosophy.


02/27/2018 - 21:30
The Eurozone undoubtedly holds great prestige and with its 19 member states and 341 million citizens it can justifiably occupy a seat among the world’s most important currency zones. However, since the 2008-2009 crises it has played a secondary role after the American dollar. As voices supporting the introduction of the common currency are on the rise again in Hungary, as a result of good macro-economic numbers, it is worth inspecting why the currency, used since 2002, has been suffering in the past few years.

The leaders of the old continent were in no doubt led by an inspirational mixture of good intentions and healthy utilitarianism when they created the grassroots of a common currency in the last decade of the past century. Nevertheless, the time elapsed since then has shown precisely how this recipe was only made for Western Europe and its leaders. The child sicknesses started to show obvious symptoms mostly after the 2004 enlargement of the EU, which concerned 10 new member states.

Practical and emotional dimensions of the loss of sovereignty

Concerning monetary and fiscal policy, the playing field of the accessing narrows down dangerously in the financial field. The efficient management of inflation that easily becomes burdensome to the wallets of ordinary people, meets unbreakable walls, because the central bank appears to be completely lacking the tools it needs; it is unable to influence the interest rates as well as the money supply. Besides these, a lot of countries especially those that have gotten into a rising debt spiral since the crisis, are unable to fulfill the accession criteria (such as the ratio of the annual general government deficit relative to gross domestic product (GDP) must not exceed 3% and the ratio of gross government debt must not exceed 60%).

We cannot ignore the importance of the political-emotional charge either. In its history of one and a half decade, the euro has gradually become the main symbol of the efforts of the leading class which has been thriving to achieve centralisation and its imperial dreams. This step towards the creation of the ideal of federalists (the United States of Europe) can cause reasonable fear and antipathy within states interested in a Europe lead by strong nations. In post-communist countries, this feeling of grudge can be easily heightened with the bitter anti-imperialistic memory of decisions made in a distant centre.

Functional and structural inflexibility

Until 2008, the euro had proved itself perfectly competitive even compared to the American dollar, which is considered to be the world’s top one reserve currency. However, even after almost a decade, the euro is still suffering from the deleterious consequences of the crises.

Because of the rigid constraint of the euro opposed to a floating exchange rate, in terms of predictability, it had provided probably never-before-seen advantages on the continent. In a changed environment, all of this dissolved into thin air. The outer waves of shock, coming especially from the other side of the Atlantic Ocean, made its Southern peripheries (Greece, Spain) vulnerable. The Union’s response to the long agony of the fast-rotating governments in Athens was to guarantee the insurance of the investors’ belongings in Greece, and to spur the Member States to implement strict cost-cutting measures. These actions effectively put in danger not only Ireland but the Apennine and Iberian peninsulas’ stability.

It is remarkable how double-faced the system is in the sense of the relativeness of one or two smaller Eurozone member’s creditable performance, when the zone is observed as a whole. One negative forecast about the predicted change of the macro-economic numbers of the Berlin-Paris axle (which is considered to be the foundation of European integration), and the news are spreading like wildfire among investors, pushing the common currency into a negative spiral. Slovakia, that showed imposing growth before the crisis and quick recovery from the transitory fallback, is also a perfect example. In the name of common assistance, the country had to take part in putting together the aid package provided to Greece, and Slovakia’s performance fell back to approximately +0,6-1% between 2015 and 2017.

Germany’s reaching tentacle

The undoubted German economic primacy in Europe has been a political axiom on the political-strategical stage of the continent, for more than 100 years with smaller pauses. However, by the beginning of the new millennium, its frame informally institutionalized in the guise of the euro, is not only a catalyzer, but can easily explode the whole integration process, created with the cumbersome work of many decades. Berlin, that puts its strong national currency as a bet at the imaginary roulette table, did not only break a bank in imagination. Because of its wage-level kept relatively low (while the “French euro” is overrated with 6% compared to the country’s real economic performance, its German “brother’s” this ratio is 18% in negative range!) and its high ratio of retail savings, Berlin could book 261 billion € external trade surplus, just in 2016. This number meant approximately only 50 billion yearly at the turn of the millennium. This condition, enabling devaluation of even 40%, still guarantees a huge competitive advantage to the export-oriented German economy within the community that is entirely conserved by the fixed exchange rate that completely cuts out the fluctuations aimed at correcting the trade imbalances. The huge raising of capital based on this ventilating mechanism has opened new routes in the last decade to the Chancellery of Berlin, which is now able to step up on the continent as a loaner. By this, it lures away further resources from the periphery and pushes the states there into a deep debt trap.

In the light of this, it is worth thinking responsibly about Hungary’s monetary-fiscal future. The engine of an economic cooperation is driven more by the demolition of trade barriers, a customs union and the already-realized four freedoms, than by a common accounting tool.


This article deliberately presents only one of the many existing points of views of this contorversial subject. Its content is not necessarily representative of its author's personal opinion. Please have a look at Duel Amical's philosophy.

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