We Must Prepare for a Great Era of Growth

Good morning, Ladies and Gentlemen!

First of all let me express how privileged I am to have the chance to be here today. At the same time I have to tell you that we are proud of and have high respect for our outstanding professor of economy – professor Lámfalussy – to whom I wish all the best. Let me congratulate the winner, or should I say the awarded person who is with us today. It is always good to have a friend from Austria and especially one who is also highly respected at an international level. I really hope that this gesture, this friendship between the two National Banks, will serve to promote the continued good cooperation between Hungary and Austria that we greatly require both today and in the future. The fact is that in Hungary, a Hungarian Prime Minister must speak in Hungarian. So the point is that in Hungary the Hungarian Prime Minister is forced to speak the Hungarian language, which is a legitimate request on the part of the audience, not to mention the fact that there will soon be an election and it is better if the voters understand what the Prime Minister is talking about. And so, if you will allow me, I will now attempt to continue what I would like to say in Hungarian.

The question that the Governor of the Central Bank replied to with two short comments is a difficult one; the question of whether to join the eurozone or not. I am also one of those who prefer to play things safe and do not regard this as an ideological issue. This is a very practical issue. And when it comes to assessing practical issues, it is best to rely on experience. And so a false argument between pro-westerners, like the Russian zapadnik "westernisers", and the pro-easterners or more nationally affiliated politicians, economists and philosophers should not be fabricated from the issue of whether or not to join the eurozone, but we should instead stick firmly to practicalities. We must examine in detail the example of Southern Europe, and we must understand why, following initial success, the countries of Southern Europe who joined the eurozone earlier then encountered such serious and hard to solve difficulties. If we have examined this, analysed it and understood the reasons behind it, then I think we will have found the answer to the question of when it would be wise for Hungary to joint the eurozone. And the answer, I at least have drawn this conclusion, is roughly that if the gap in terms of the real economy between the zone and the country or group of countries that wants to joint it is too great, then that will have unavoidable negative consequences. And so we must move closer to the eurozone with regard to the real terms category of the economy before we can hold a rational discussion on monetary accession.

Ladies and Gentlemen,

And with that I have done my duty, meaning that I have given some sort of reply to the question set down in the invitation. But I thought long after receiving the invitation on whether it is in fact right for a Hungarian prime minister to attend this forum at all, because after all the European doctrine is that if a prime minister sees a governor of a central bank, then he should cross over to the other side of the street, because independence is so sacrosanct that it might even be endangered by a simple handshake. It was not silliness that led to the development of this doctrine in Europe, but experience. And so, while we may sometimes mock this way of thinking and, as Governor Matolcsy said, it is perhaps somewhat outdated, we should not forget that there was a good reason for the establishment of this doctrine in Europe. Because overly close cooperation between central banks and governments often led to bad economic policy, as expressed in budget deficits, being covered up with the help of the central banks. This is an unhealthy form of cooperation. And so, in addition to declaring the doctrine of cooperation, I feel that it remains justified to keep to the clear distribution of responsibilities that has always existed between central banks and governments, because it is no one's interests to try and cover up poor economic performance, the budget deficits that represent them and unsustainable budget practices using the tools available to the central bank. This would mean that we would be stripping the economy of an objective feedback system that political decision-makers will always require if they need to perform corrections to their own economic policies. And so the question isn't whether we should cooperate or not, but rather in what fields we should cooperate and in the interest of what objectives. And I believe than in view of the fact that increasing numbers of people have a similar viewpoint with regard to this issue in Europe, although I am certainly the odd one out among the list of extremely prestigious central bank governors present, I thought it would be perhaps better for everyone if I accept the invitation.

Ladies and Gentlemen,

Also included in this topic is the issue of base interest rates, with regard to which the Hungarian prime minister must be very careful to precisely determine the various scopes of authority, and despite the fact that the currencies of the emerging markets are currently rather volatile, it is my firm belief that governments must distance themselves from any public debating of questions concerning exchange rates. We can do one thing, and we must do so, and that is to practice an economic policy that is suitable for enabling our currency to be stable. And at this point I would like to draw your attention to a relationship that is obviously rarely the subject of debate in this regard, and that is that budget deficits in Hungary usually do well in the period between elections. There have been many examples of this. But what has never happened before is what we are preparing to do now. That the budget deficit will not increase in an election year. I recommend to everyone that you examine the figures for the budget deficit from 1990 until today, and you will see very interesting fluctuations, because prior to the elections, or rather in an election year, even the most rationally thinking government administrations have, for obvious political reasons, always allowed the budget deficit to increase unabated. What Hungary is attempting to make happen today is for there to be no such increase. And so if you examine the figures for the 2013 budget deficit and examine those for 2014, and you now also have available the opinion of the European Union on the subject, then you will see that similarly to 2013, the Hungarian budget deficit will also remain under 3 percent in 2014. This, in my view, is a huge, joint achievement on the part of Hungarian economists, people working within the Hungarian economy and the people working within the Hungarian Government, which is the result of their commitment towards the country, and which in my view is worthy of acknowledgement.

Ladies and Gentlemen,

The other thing we can do with regard to the forint is to practice an economic policy that results in a foreign trade balance, or rather a level of foreign trade, that enables a stable financial policy. If you take a look at Hungary's export-import balance and at Hungary's current account balance, then you will clearly see that the Hungarian economy is extremely stable and has been producing outstanding results for many years even in international comparison. And if we keep the budget in order and our foreign trade and current account balance is in order, then we have done everything that we can in the interests of enabling good central bank policies with regard to currency exchange rate issues, and this is where we must stop.

Ladies and Gentlemen,

Naturally central banks, although as I have mentioned they are rightly sensitive with regard to their independence, are not isolated and cannot be separated from the environment in which we live, from an environment which in this case is the European economy. And for this reason I would now like to say a few words about the status and future of the European economy, and within that, with regard to the future of Hungary. First of all, I would like to choose as my starting point the fact that it is clear from here in Europe that unprecedented changes are occurring throughout the world; old vanguards and powers are slipping into mediocrity and new political, economic and military power centres are being established. What we in Europe are experiencing as an economic crisis is in fact the redistribution of world power. We rarely speak about this in this way and I will also refrain from getting into details, but I would like to draw everyone's attention to the fact that it is worth examining the current military spending of today's emerging powers, and there you will find growth and numbers behind which there clearly lie rational deliberations. It is not worth arguing this, although the rate of growth of these factors clearly indicates that this is not simply an economic transformation, but also a military transformation and a redistribution of power, or perhaps these primarily.

Ladies and Gentlemen,

Viewing the situation from here in Europe it is also clear, no matter how painful it is to admit it, but we must do so and it is better to face reality, that if we do not make changes to Europe's politics then our continent will be the loser in this great global realignment. Despite the occasional optimistic and positive political statements, Europe has been losing continuously within this global reorganisation in recent years. And if we cannot affect change, then what that means for Europe is that we must accept the changes that are going on throughout the world. It will mean that we will have no choice but to accept them and be pushed out of the group that is capable of affecting the decisions that determine the future of the world. The clearest indication of this fact, without wanting to transform today's conference into a narrative of events, is when European leaders display even publicly that the most important criteria for them is how the market will react to their statements. With regard to today's subject and from where you are sitting, you obviously regard this as a positive thing and as good news, because you interpret this as meaning that economic rationality has come to the fore in the manifestations of politicians. And there may be some truth in that. But the fact is that when leaders are only able to talk about adapting to circumstances and lose their capability for dictating the direction of events and of making the decisions that are required for change, and instead are satisfied with the dimension of survival, it shows that there are definitely serious problems with leadership, with Europe's democratic, political leadership.

Ladies and Gentlemen,

Hungary is part of the European Union and the continent of Europe. This has been the case for 1100 years, since we established the Christian State of Hungary, and it will remain so in the future. And so what is bad for Europe is also bad for us, and what is good for the European Union is also to our advantage. Do not forget that 80 percent of Hungary's foreign trade and exports are directed towards the European Union.

Ladies and Gentlemen,

In the language of numbers, which after all are always the most austere and pure things. Europe represents 8 percent of the world's population and we contribute about 25 percent of the world's global production, while at the same time we spend 50 percent of the world's total social expenditure. This raises serious dilemmas in itself. But if we go further, we can also see that the total debts of the 28 member states of the European Union equal around 11,000 billion euros. Its annually due repayment, including interest, totals more than 2,000 billion euros. Together, the member states of the European Union generate 1,200 million euros of new deficit every single day. This is the reality. In view of which the only question is: who is foolish enough to finance this unsustainable system? And who is foolish enough to finance an unsustainable system cheaply, a system that is, however, uncompetitive without cheap financing? And so, Ladies and Gentlemen, it is absolutely clear that the road we are travelling today cannot go on forever, because the ground is slowly running out from under our feet. The Europeans, that is we, must honestly face up to the problem that we are up against a conjunctural difficulty. The trouble, the challenge, the crisis, wherever we call it, is not simply a chapter in the usual, conjunctural phenomena of the global economy that just happens to be unfavourable at the moment. It is in fact a deep-rooted, structural problem that is not so much the end of a conjunctural period, but rather the end of an era. And accordingly, I am convinced that this structural crisis cannot as a result be managed using the usual, conjunctural crisis management methods. In our language, the language of politics, this means that we need a new strategy; the European Union needs a new strategy. I would like to describe a few elements of this possible strategy now. It is worth thinking about these, because if a certain level of public sentiment does not develop in favour of a new strategy, then as a result of political logic – as you know we have this hurdle every four years, the elections – even the most outstanding governments can lose their mandate. This appears as such a haze or horizon-blocker in the eyes of politicians, that if there is no public pressure behind a change in strategy, then we can hardly expect democratic politicians who are elected for four years to – as József Antall said – risk the fate of the kamikaze to perform a strategy shift in Europe. This can only occur if the European demos – which does not exist at the moment, but if all the national demoi come together to form a European demos – forces political leaders to affect change.

Ladies and Gentlemen,

I believe that we must take unusual steps to preserve Europe's competitiveness. In my view there are six things that we must do, introduce, undertake to perform, if we are to be successful in the global competition.

The first, cliché-like, globally accepted point is the financial stability of the euro; the issue of the monetary stability of the eurozone. If we do not succeed in stabilising the eurozone, then no strategy aimed at preserving European competitiveness can be successful. This is a serious statement. Since we are not members of the eurozone, we here perhaps do not sense the seriousness of this statement, although it means nothing less than the acceptance of the fact that it is impossible to maintain a common currency – especially in a time of economic crisis – if there is no common governance behind it. And common governance also means a common budget, a common tax system, a common social policy and a common distribution policy. It means creating perhaps not fully unified subsystems, but certainly subsystems that are extremely similar and compatible. And so when we say that we must stabilise the eurozone, then that poses a very great challenge to those nation-states who are today members of the eurozone. We rarely talk about it, but we all feel the disparity that exists between maintaining national scopes of authority and the common European governance that is required for the stability of the eurozone.

Ladies and Gentlemen,

The second pillar on which we may build a new era is the acceptance of the fact that in contrast, those countries who are not members of the eurozone must be given the fullest possible freedom to develop their own economic policies. This is not what we do in Europe today. Today in Europe we determine central requirements with regard to economic policies, with regard to the economic policies of countries that are not part of the eurozone, which are irrational. How can we determine the exact same recommendations regarding economic policy for, to mention just a few countries that are outside the eurozone, the United Kingdom, Sweden and Hungary? Where is the single economic policy that provides a global solution in all three of these countries, in which the situation is of course totally different? Clearly no such policy exists! And accordingly, the European Union must recognise and accept that the countries which fall outside the eurozone must be given the scope of authority, the opportunity, the right to self-determination and the independence to develop and practice their own economic policy mixes.

Ladies and Gentlemen,

My third thought is practically sacrilege in Europe today, because it concerns enlargement. The language of the European Union is extremely subtle. Where this leads could be the subject of a separate lecture. In this language, in this subtle language, there exists a phenomenon called enlargement fatigue. Meaning, in other words, that those who are already in the Union want the politics with which new members may be allowed into the EU like they want a sore thumb. And this is a mistake. I understand the political tension that enlargement entails. It is enough to think of the recent argument in England concerning the fate of foreign workers and immigrants, but having learnt from our own example we must nevertheless state that if in the mid 1990s, following the change in regime, when we could have been accepted into the EU; if Central Europe would have become part of the European Union in the early or mid '90s, instead of waiting until 2004, then Europe would have been much stronger than it was when the economic crisis hit. In other words, postponed and delayed enlargement is a waste of energy. It may go together with political conflict, but enlargement increases the strength of the European Union. Especially if it takes on new countries that have a significant potential for economic growth. Today, the Balkans is just such a region. And accordingly the postponement, delaying and deferring of the accession of the Balkan countries is not only bad for the countries of the Balkan region, but is also in conflict with the interests of the European Union, and so we European politicians must defeat our enlargement fatigue and the opposing winds of public opinion, and we must convince them that it is also in their interests for enlargement to continue.

Ladies and Gentlemen,

The fourth point of a new European strategy could be the free trade agreement with the United States. This is a difficult and complicated process. It is important to determine and protect national interests. But nevertheless, while maintaining all caution, I must say that if the European Union will be incapable of concluding an investment and trade partnership agreement with the United States as soon as possible, then we will hardly be able to retain our present position within the global economy. And so we Hungarians would like to see constructive and effective negotiations between the United States and Europe.

Ladies and Gentlemen,

The Hungarians have never shied away from free trade agreements, although we have always been aware that they sometimes pose internal difficulties for certain sectors of industry, but nevertheless, the fact that we have achieved a positive export-import balance of around 10 billion euros in each of the past three years is a clear example of the fact that the expansion of global free trade is on balance good for Hungary. The Hungarian economy is capable of exploiting the inherent opportunities and advantages.

The fifth thing that the Europe Union must face, and with relation to which it would be worth launching a new policy, is putting our existing relationships with Russia in order. This is a topic which must be handled with especially extreme care here in Hungary. And especially by my generation. As you all know, we are an anti-communist generation, and so our cooperation with Russia will always involve a certain element of suspicion and mixed feelings, but nevertheless – not to mention China, where political power is wielded by a communist party – if despite all understandable suspicion we are unable to rebuild our relationship with, now for reasons of geographical proximity, primarily Russia, if we do not find a way to incorporate the raw materials and energy resources that can be found there into the structure of the European economy, the I don't know from where Europe will be able to find resources to introduce into its own bloodstream. This is a "must", as the British say; it is something we must do, and re-planning [our relations with Russia] is unavoidable.

And finally, Ladies and Gentlemen, I would like to draw your attention to the report published this week by the European Union. It concerns the issue of energy. I will refrain from speaking about the difficulties faced with regard to introducing and protecting the reduction in public utility prices and in general energy regulation that affects families, and how the Hungarian Government is forced to stand its ground to achieve and protect these measures, because I am given more than enough podiums on which to do so already. What I would rather talk about is the contents of this report, which clearly states that energy supplied to industry in the United States is two to three times, that’s right, two to three times cheaper than it is in Europe. And in the other, emerging regions too – including China, which otherwise has no energy sources, and not to mention Russia – energy is much cheaper than in Europe.

In my view, economic competitiveness will be determined, for all countries and all economic communities, by three things over the next fifteen to twenty years. The first is political stability: order or chaos. Operating requires the maintaining of internal, if possible democratic order. The second is a well-trained workforce that is available at rational prices and whose knowledge can be developed further. And the third factor will be energy. And the role played by energy in competitiveness will increase. In a little stronger terms: those countries and economic entities that are incapable of supplying their economies with energy at a similar or cheaper price than their competitors will lose markets in the global economic competition. And so the question isn't what is the right form of regulation with regard to energy systems in Europe, what is the ideal, the textbook method, but rather: how can we possibly succeed in establishing a system that enables us to supply energy at the same price as the United States? This is the question to which we must find the solution. And in relation to this, my view is that we must push aside several doctrines, one of which is the doctrine of resistance with regard to nuclear energy, and a second of which is the role of the state in regulating prices. These are all factors that must be rethought, and the European Union must construct an energy system that can compete with American prices, if it wants to remain competitive with its rivals.

Ladies and Gentlemen,

These are the six things that Europe would need to implement quickly over the course of the next few years to reprogram its own future. Whether we will be capable of doing so or not, the future will decide. I would encourage the Governors of the central banks, in view of the fact that you are well-respected throughout Europe, to occasionally put forward your standpoints on these issues and help us to enable the European politicians to come to rational decisions.

Ladies and Gentlemen,

Since we are in Hungary, and it is here that we are hosting the distinguished Governors of the world's central banks, I must also say a few words about Hungary. In order to be able to soberly assess Hungary's performance, the performance it has produced during the past few years, it is important that we remember where we started out from. Even we Hungarians often forget that the first economic collapse of the European financial crisis occurred in Hungary. Everyone talks about Greece and Cyprus, but the first financial collapse, when the grim moment arrived when payment is due in the morning, but the money is still not available the evening before, first occurred in Hungary. This then lead to a three-year big IMF agreement, and if the IMF had not rushed to our aid and connected us to its life support machine, then Hungary could hardly have survived this financial collapse. We should not forget this. In 2010, the situation was still such that in answer to the question of which country presents the most risk with regard to its monetary system, the two main contenders were still Greece and Hungary. If we look at what category the countries that are in financial danger are talked about today, at how they are categorised, then it is very clear to what extent Hungary has moved forward. How it reduced its risks, how Hungary is today regarded as a country that, although often criticised and judged, has on balance nevertheless achieved fantastic progress over the past three to four years.

Ladies and Gentlemen,

It was a very difficult decision in 2010 whether we should achieve Hungary's financial stability through reducing the latitude of Hungarian administration and Hungarian sovereignty, or by instead increasing it. Both methods lead to success, but they each bear with them their own consequences. And in the autumn of 2010 we decided not to extend the expired agreement with the IMF. So we attempted to solve the situation not through reducing the scope of authority of the political and sovereign Parliament, which was elected with a two-thirds majority – and I will say a few words about how important this circumstance is later – and not through transferring powers to the IMF, but exactly the opposite: to achieve it through assuming responsibility and by extending the scope of national authority and influence.

Ladies and Gentlemen,

Our belief was that crisis management can only be successful if in fact the Government does not concentrate on crisis management. It is an interesting question, whether it is possible to manage a crisis while in fact not concentrating on crisis management. And what has happened in Hungary over the past four years leads us to say yes, it is possible. Because, although of course the crisis and its short-term manifestations must always be averted and remedied, the question is whether this is in itself our horizon, or if there is another horizon to which we must tailor the tools of crisis management, because there is always a choice. And in our opinion a horizon of this kind does exist, and in 2010 the Hungarian Government was already speaking of the fact that we must choose crisis management methods with which we at the same time also prepare the country for the post 2014 period, for the period following the crisis. And that we will handle the crisis in such a way that when we exit the crisis, our competitiveness in the world following the crisis can be much stronger that it used to be. This was our train of thought. And so we in fact used the crisis to enable us to reorganise the country. This is why we said, and continue to say, that with regard to crisis management, and in the case of this special kind of European crisis management, reforms are not enough. The EU is forever asking its member states to introduce reforms. That's not enough! Reforming the currently operating economic systems is not enough in itself; they must be radically renewed and totally reorganised. I will refrain from going into detail now, but I would just like to note that a new Constitution, a new Civil Code, a new Penal Code, a new Labour Code, and many other new regulations; a new tax system and a new vocational training system: these all go beyond what one could call a simple reform. I wouldn't call it a regime change either, because that has a certain and precise meaning here in Hungary, but I could call it a radical renewal. This level of restructuring of our national economies and their reorganisation from head to toe may represent the solution to the crisis throughout Europe.

Ladies and Gentlemen,

By this, I do not mean to say that Hungary is now protected from all of the effects of the crisis, but I would risk saying that, although we still feel the waves of the crisis and they sometimes still make Hungary heave a little, but on balance we no longer have to deal with managing the crisis, but must instead prepare for a great era of growth. I am convinced that if this economic policy can be continued in Hungary – and this has primarily political prerequisites, since we live in a democracy and things depend on the elections after all, but if we are able to continue on this course, if I may call it that – then Hungary will be looking ahead to an era of growth and development.

Ladies and Gentlemen,

And now, please allow me to share a thought with you in closing. I am sure that you remember the heated debate that accompanied each decision of this nation-renewing policy. I would not like to put forward arguments about whether they were good or bad now, but instead I would simply like to draw your attention to the simple political fact that since then, others have also introduced these same measures. Hungary is a country of ten million. It can be regarded as perhaps middle sized within Europe, and as small in global comparison. And so it must know its place. Meaning we should take great care when talking about which of our measures have been transposed by others. The flea coughs, as they say in Hungary. It is better to avoid finding oneself in situations of this kind. But nevertheless, we can perhaps draw the political conclusion which is I think a French expression and which states: never tell the fountain you won't drink from its water. And I think this is also true of European economic policy. Because bank taxes were introduced in other countries too weren't they, and others have also made changes to the pension system, and the system of surtaxes on various sectors have also been introduced elsewhere. It has also become clear that in time of crisis targeted regulatory systems are what is needed and not normativity. One need only look at the youth unemployment support packages authorised by the European Union, which are very similar to the Hungarian Job Protection Action Plan, and the list goes on.

Ladies and Gentlemen,

Central Europe has taken the lead in these innovations, these political and economic policy innovations recently. And in closing, I would like to say a few words with regard to this fact. I have been speaking about the European Union, and I would assume that the other speakers will also be talking about the EU. Nevertheless, here in Central Europe we must draw your attention to the fact that the opportunities for development within the European Union also do not follow similar horizons. And it is with suitable modesty, but with suitable self-assurance, that we must declare: here is this bloc of 80 million people, the Central European region. From the Baltic States, through Poland and down to Croatia. This is a bloc of 80 million people. That's almost the size of Germany. And this region has radically different opportunities for development in a positive sense compared to Europe's other regions. And accordingly, the people of Central Europe should prepare for a situation within the next few years, if our links to the German economy remain strong, which will be a great help, and if Austria sorts out a few issues, because we also need Austria here in Central Europe, and so as such the region can indeed be the engine of European economic growth in the upcoming period. This requires a concentration of power. I know that in modern, PC, democratic language, power has negative connotations, and so does concentration. And the two together certainly bring forth negative reflexes from the mind of many. But if you look at what, after all, is the prerequisite of successful economic policy in times of crisis, then you will see that it is the concentration of power. Austria is often criticised for having had a grand coalition government for the best part of forty years, of however long it is, apart from one or two, very short, adventurous intermissions. Austria is forever the subject of criticism because of this structure. But if one looks at the figures, the figures for the European economy since the Second World War, then Austria is the most successful country in Europe. And it is impossible not to bring up the question of whether this continuous concentration of power, the political concentration of power that has been established in Austria since the Second World War and which is practiced according to a grand coalition model, is not after all related to the fact that they are the country of the European Union with the most successful economic system. And now that the Germans have also established a grand coalition, beyond the mathematical constraints, isn't is true that some form of power concentration in government is required if we wish to realise a large scale policy of renewal within Europe? And the answer is yes. This is what, in my opinion, the two-thirds majority in Hungary is really about. The Hungarian two-thirds majority brought about an unparalleled power concentration in Hungary not through a grand coalition, but through the supermajority system. Had this not come about, our policy of renewal could not have been launched in Hungary, let alone realised. And for this reason I would like to encourage the leaders of Europe, Europe's voters – there will be European Parliament elections soon, after all – and Hungary's voters to not to forget about factors such as political strength, the ability to govern and the concentration of power when weighing up their decision, because the question of whether our governments are able to practice a successful or an unsuccessful economic policy may depend on this later. It is my firm belief, based on the things I have mentioned, that Central Europe has a bright future ahead of it, and after very many years we Hungarians can once again state with joy: thank God we are part of Central Europe.

Thank you for your kind attention.

(Prime Minister’s Office)