Amid global slowdown, Eastern Europe decries cut in EU development funds

Representatives of four central European nations known as the Visegrad group (V4) have said the EU Commission’s (EC) plan to cut development funds by 20 percent in 2021-2027 financial cycle is “unacceptable” amid a slowing worldwide economy.

Richard Horcsik, Hungarian parliament’s head of parliament’s European Affairs Committee ruling from the ruling party Fidesz, said that representatives of the V4 will ask their respective governments to stand against the proposed cuts.

The Visegrad group is comprised of Hungary, Slovakia, Poland and the Czech Republic. These countries received substantial sums from the EU Cohesion Fund from 2014 through 2020.

According to the EC website, the funds are meant to projects such as infrastructure projects, “trans-European transport networks, notably priority projects of European interest as identified by the EU”, and sustainable development.

“It aims to reduce economic and social disparities and to promote sustainable development”, the EC says on its website.

Horcsik noted in a press conference after the meeting that the V4 were "living learners" of the EU and its cohesion funds, spending significant amounts on modernizing their underdeveloped regions.

For Hungary specifically, the cuts would mean cuts of 24 percent, bringing EU fund contributions to roughly 18bn euros, Tamas Schanda, Hungary’s State Secretary for Innovation and Technology, said at a press conference in May.

Funding

Zoltan Pogatsa, a Hungarian political economist and lecturer at the University of West Hungary, said in an interview that EU funds have been essential to Fidesz’s success.

The Fidesz party, headed by Prime Minister Viktor Orban, has been in power since 2010. Fidesz is considered a far-right, nationalist and anti-immigration party, which champions Hungarian industry and has shepherded a healthy economy since it took power.

While Fidesz employs nationalist rhetoric, it isn’t above using international funds to fuel its economic needs, according to Zoltan Pogatsa, a lecturer at the University of West Hungary who focuses on the economics of EU integration.

Hungary was part of the Warsaw Pact during the Cold War, meaning it was in the Soviet bloc of influence.

During this time, the government owned the majority of large corporations. Then, in the late 1980s, the Soviet Union began dissolving and Soviet satellite states like Hungary began to break away.

Hungary, like many former Soviet-aligned countries, entered the Western sphere of influence without a capitalist system to fuel economic growth.

Hungary went on a selling spree, privatising previously nationalised corporations, beginning in the late 1980s, which lasted “until almost everything was sold”, in the early years of the 21^st century, Pogatsa explained.

Then, Hungary joined the European Union in 2004, which gave the country access to the EU Cohesion Fund, a 63.4bn euro pot allocated to member states whose gross national income is less than 90 percent of the EU average.

These funds are used for infrastructure and environmental projects, and Orban has used them expertly, Pogatsa said.

Before Fidesz took power in 2010, Hungary was governed by the Socialist party for years. Their rule was marred with corruption and inefficiency, and this included its use of cohesion funds, which were hardly touched, Pogatsa said.

A country can use about two to 2.5 percent of its gross domestic product (GDP) from cohesion funds, but Orban “was able to use double that because of leftovers from socialists”, Pogatsa explained.

Fidesz centralised allocation and use of the funds, which meant an increase in infrastructure projects.

“That’s a very efficient way to use the funds in terms of absorption, but not necessarily efficient in terms of usefulness in the economy”, Pogatsa continued.

Hungary’s average GDP growth since Fidesz took power has been between 2.2 and 2.6 percent, depending on the source.

Pogatsa places the average growth at 2.2 percent, which “is not very good. It’s not bad, but in an international comparison with such huge resources flowing in, it’s not impressive.”

Further economic growth?

Hungary, along with Poland, have been heralded as up-and-coming economic powerhouses in Central Europe.

Both nations have low unemployment rates – roughly three percent, each – and wages have been growing for workers in these states.

While Hungary’s economy grew a record 5.3 percent in the first quarter of 2019, there are signs of a slowing world economy, fueled by the continuing trade war between the United States and China.

Orban announced economic measures to boost growth in July, including tax cuts, in hopes of further job creation.

“If our expectations for the prospects of the European economy are proved correct,” Orban said in an annual policy speech, Hungary will need further measures “to protect the economy,”.