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Hungary's Different Path: Austerity Not Stimulus

Hungary's ambassador to the U.S., Bela Szombati.

As other national governments worldwide have launched economic stimulus programs, often with borrowed money, Hungary, a former communist country, has taken the opposite approach, its ambassador to the U.S., Bela Szombati, told GlobalAtlanta.

Hungary has cut government spending, lowering its annual budget deficit from 10 percent of gross domestic product three years ago to less than 4 percent today, said Mr. Szombati, who braved a blizzard in Washington and snow in Atlanta to get to a World Trade Center Atlanta event on Feb. 12. 

Hungary "took some very courageous, very painful and very unpopular steps," such as cutting the salaries of government employees and the pensions of retirees, Mr. Szombati said.

He predicted, however, that Hungary's economy will emerge stronger because of its austerity.

"Inflation is going down," he said. "The combination of inflation going down and addressing the balance of the budget, also drives down interest rates. It becomes easier to have access to credit. And therefore, we will see better conditions, generally speaking, for the economy picking up and also for Hungary to be much better than it was before."

Hungary, already a member of the European Union, is striving to be admitted to the euro zone, the group of 16 countries that have the euro as their national currency. That will require Hungary to reduce its annual budget deficit to around 3 percent of GDP, a goal analysts believe can be reached in about two years.

Last year, Hungary's economy contracted by more than 6 percent and now is essentially flat, Mr. Szombati said. Growth is expected to return in the second or third quarter of this year, he said.

As Hungary, a nation of 10 million people in central Europe, waits patiently for its cuts and fiscal discipline to yield results, and to become a member of the euro zone, other euro zone countries are struggling with high, potentially unmanageable debt.

Greece, for example, has an annual budget deficit of 12.7 percent of its GDP and there are fears in the bond market that it might default on its government debt unless it gets a bailout from other European Union countries.

Hungary was forced to seek help from outside sources when the world financial crisis erupted in late 2008. Hungary's debt load was already so high that it could not borrow additional funds and had to turn instead to the International Monetary Fund, World Bank and the European Union for financial help.

"Being a member of the European Union helped," said Mr. Szombati. "Being a member of the euro zone can help you even more."

But memberships in those groups is a two-way street, the ambassador said.

"Being a member of the euro zone doesn't just mean that you can expect assistance from other economies, it also means you have to be responsible," said the ambassador. "Being a member of the euro zone cannot mean you want to have a free ride."

Cutting budget deficits is painful in the short term, but worth it, said Mr. Szombati.

"I'm sure it will," he answered when asked if Hungary's economy will be stronger in the long term because of the austerity measures. "Not only in the long term but in the mid term as well."

The ambassador's trip to Atlanta was organized by John Parkerson, Hungary's honorary consul for the Southeast U.S, head of international programs at Clayton State University and attorney at FSB FisherBroyles. Also speaking at the World Trade Center event was Geza Vass, director general of Hungary's ministry for national development and economy, who discussed the country's advantages for foreign investors, including a 19 percent corporate income tax rate.

Several dozen Atlantans traveled through falling snow to attend the World Trade Center event, including John McIntyre, director of the Center for International Business Education & Research at the Georgia Institute of Technology; Witold Zabinski, managing partner of Atlanta company Corporate Strategies International Inc. and Ricardo Hubler, director of the global business growth for the Metro Atlanta Chamber.

Mr. Szombati brought the embassy chef from Washington along on the trip to prepare Hungarian food for the World Trade Center attendees.

Immediately after the ambassador's visit, Mr. Parkerson left for Veszprem, Hungary, where he is teaching international business for two weeks at the University of Pannonia as part of a faculty exchange program with Clayton State.

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