EU funds 12 June 2023, 12:29pm

Hungary could slowly fade out of the EU - Zsiday

Portfolio

According to Viktor Zsiday, an investment expert at Hold Fund Management, Hungary could gradually 'fade out of' the European Union, which could be fatal for Prime Minister Viktor Orbán's government. He sees the lack of EU funds as a sign that the country is becoming a less permanent member of the EU. This loss of credibility could lead to a capital flight, which could threaten the Hungarian economy. Is a de facto Huxit not far away?

Viktor Zsiday, an investment expert at Hold Fund Management, wrote in an opinion piece on Monday that the loss of EU funds poses serious problems for Hungary. He sees the receipt or non-receipt of EU funds as a measure of how secure Hungary's EU membership is.

The European Parliament's opposition to Hungary taking over the rotating presidency of the Council next summer also suggests that Hungary is seen as less desirable, and Zsiday says this loss of faith could have serious consequences as

investors may start to withdraw capital, which could threaten the Hungarian economy.

It is a mistake to think that working capital or Eastern funds can replace EU money, Zsiday said. EU subsidies are non-repayable and increase foreign exchange reserves, while working capital investments involve profit expectations and foreign exchange outflows. Eastern countries are not a long-term alternative either, as the benefits of Hungary's EU membership would no longer be there and Hungary would have to wrangle with debt traps, among other things.

The examples of Moldova and Serbia show that "independence" does not guarantee economic progress,

he writes in his analysis.

Zsiday believes that Hungary exiting the EU (or Huxit) could not take the form of a formal withdrawal, but rather a gradual waning of de facto membership. The lack of funds from the EU and negative perceptions of the EU could lead to a faster capital flight. He stresses that

the question is not only about resources, but also about whether Hungary should remain part of Europe or be squeezed between the East and the West.

In his article, Zsiday points out that without EU funds, Hungary's preparation for the lack of EU funding is impossible. It's not just about resources, but about the country's belonging to Europe. In Zsiday's view, Hungary's exclusion would not allow it to become a neutral and wealthy Switzerland, but would rather put it in a situation like Serbia or Moldova, which are isolated between the two worlds.

Hungary has agreed to a judicial reform requested by the European Commission as a condition for transferring cohesion funds. However, Brussels expects several other details to be added to the legislation, which has been in force since 1 June, in order to make some €13 billion of funding available to the Hungarian government. Also, the EU still expects further reforms to unblock coronavirus recovery funds (RRF).

Recently, they have been criticising and attempting to isolate Hungary on more and more fronts in the EU. The German government supports the European Parliament's proposal to negotiate the postponement of Hungary's rotating presidency scheduled for the second half of 2024, but there are also a number of rule of law concerns about Hungary. Germany and other member states would also take away the veto power from the Hungarian government in the European Council and instead strengthen the system of qualified majority voting.