Brussels, 30th January 2013

Excellencies, Ladies and Gentlemen.

First of all, let me please thank you for having me here today.  Well, it is not easy to find an answer why you have invited me.  It is obvious that there are stronger and more populated countries in the European Union whose impact on our community is much bigger than Hungary’s. I am aware that a country of Hungary’s size cannot say grave things but can say interesting things.  I will keep this wisdom in mind throughout my remarks.  Hungary is the land of freedom fighters, therefore this invitation to be provocative as ultimatum for being here is something that gives me pleasure. One reason for inviting me could be: it is difficult to decide for the unbiased observer, while easy for the biased ones, what to think about Hungary.  Is it a black sheep or is it a European success story? It is true that in the last two and a half years we have done almost everything in a different way than all the others.  We have taken a different road to reach the common targets such as budget deficit under 3 %, decreasing state debt, increasing employment and starting growth.  Maybe this is a reason why I was asked to address you here today. Everything I will say just now is based on experience.  I do not reject neither the theoretical approach, nor the argumentation based on logic, but I will speak now based on practice and experience.

I have seen the European Union as prime minister of a candidate country. Long time ago.  At that time the Union seemed to be victorious, optimistic and ambitious.  As prime minister of a candidate country, I had the chance to see the foundation of the Euro-zone and I was lucky enough to experience the joy and happiness caused by the reunification of the continent that had been divided because of Communism. I am sitting among the prime ministers today as well, may I say again, but can hardly recognize ourselves of ten years ago. The purpose of what I have to say is not to give a lecture here, but to launch a debate. Accordingly, I will present, dear President, if you allow me, seven theses.

Thesis number one: the relative position of the major players in the world economy and in world politics is changing rapidly.  The weight of Europe has been declining in terms of production and trade.  It is a real danger that between the emerging East and the revitalizing United States, Europe “will fetch up in a no man’s land”. Speaking in the uninspired voice of realists, we have to say that the realistic objective for us in the near future is not to reverse the trend, but rather to stabilize the situation.

Thesis number two: in order to have the chance to increase our share in the world economy and world politics, it is not enough to cure our internal problems or simply renew the continent – we need to implement a new geopolitical concept as well.  We have to find the way to unify Europe’s developed technology, infrastructure, innovative industry and sophisticated financial system with those practically unlimited natural resources which are to be found East of us, mainly in Russia. Aligning this with Atlanticism is one of the most difficult intellectual and political challenges of the future. For Central Europe this is going to be a serious point on the agenda, because we require security guarantees under these new circumstances not only regarding defense rather than energy, traffic routes and free trade as well. This is dictated by historical experience and this is what provides the deep geopolitical and historical foundation of the Visegrad 4 cooperation.

Thesis number three: the crisis of the European Union and the crisis of the Euro-zone is basically a crisis of competitiveness. It is often quoted that Europe’s share of the world’s population is 8%, while we account for 25% of the world’s production, but 50% of social expenditures.  This list of numbers raise a serious dilemma itself, but here comes the yet darker other side of the coin: the total state debt of the EU27 reaches 11 thousand billion Euros, the yearly payment of this sum with interests are more than 2 thousand billion Euros, and the member states of the EU produce approximately 1.2 thousand million Euros of new debt every day. Who is the crazy one to be ready to finance a system like this? And above all, who is ready to do so from cheap sources, which are indispensable for competitiveness? It seems to me that the European Union is in need of an economic system change. I am not in a position to speak on behalf of Europe, but I can definitely speak on behalf of Hungary.  Instead of chasing the illusions surrounding the welfare state, we have converted to a workfare state. It is true that in our ex-Communist countries, welfare states have never been built up, as opposed to Western Europe. Today this seems to be an advantage.  Hungary’s last two and a half years were about this.  We have understood that reforms, including structural reforms, are not enough.  We have understood that we need something that is deeper and something that is more general.  And we have identified this as a renewal and reorganization of our economy and society, concentrating and focusing on workfare society.  We have shifted the focus of budget income from taxes charging work to taxes charging consumption. We have introduced a flat tax on the income side and a high VAT on consumption. We have reduced the duration of unemployment aid from 9 months to 3 months, several hundreds of thousands of people who could not find a job have been involved in the public work programs, we have abolished the early retirement schemes and we have transformed the total social benefit system. The result is astonishing: we are among the five European Union member states who are able to decrease their state debts, our budget deficit has been under 3% for the third consecutive year, and now we are very close to being abrogated from the excessive deficit procedure we have been under since our accession in 2004.

Thesis number four: policies which could be solutions for the internal problems of the Euro-zone have not been completed yet. What are these internal problems? For example the differences between the state bond interest rates within the Euro-zone are still significant. In the meantime, it will soon become unavoidable to come to terms with the internally coded contradiction that surplus in the balance sheet of Germany necessarily appears as deficit for other Euro-zone member states. Meanwhile, nobody knows how the countries with a level of debt surpassing 90% of GDP could stop their growing indebtedness on their own. The question therefore must be asked: if they are not capable of this on their own, who can assist them in this effort and in what way? A stronger economic-financial coordination could be useful for the future, but it is not an answer to the current problems.

Thesis number five: deepening the European Monetary Union must not result in less flexible economic policies and must not cause an ideological and doctrine-based way of thinking.  The economies of the Euro-zone countries are in strong interdependence with each other, therefore it is justified to conduct a deep and strict coordination of economic policies in the Euro-zone. In the meantime it is, of course, unimaginable that for example Sweden, Hungary and Bulgaria would need the same type of economic policies. Thus parallel to the ever deepening economic and financial union of the countries belonging to the Euro-zone, those whose economies are not so directly interlinked with each other shall retain the high level of freedom in choosing their economic policy tools. At the same time, this deepening cooperation cannot bring about the closing of doors before those not yet members, and the flexibility of the latter group cannot lead to separation from those in a deeper integration. The common policies and the single market must constitute the navel cord between us. Let’s put it this way: I agree with Chancellor Merkel, who said that we all have to do our homework.  However, it is not so simple to say whether all students should do the same homework if we want all of them to pass the exam. Following this logic and standing on the ground of common sense, Hungary is a defender of the diversity of economic policies inside the European Union.

Thesis number six: those countries who are already able to reduce their state debts, or at least have the chance to turn back before reaching the 90% of GDP, should not give up their solid and disciplined fiscal policies in order to find an easier way towards growth. While appreciating the crisis management steps made by the ECB, we have to state as well that central banks can assist only those crisis management policies through which governments are totally committed, 200% committed, to keeping the budget deficit under 3% and continuously decreasing state debt.

Thesis number seven: it is very simple: Hungary has become a European success story.  In case of fair treatment, after eight years, we should be abrogated from the excessive deficit procedure.  Economic growth will start in this year and will be accelerating continuously in 2014 and 2015. Our record high trade balance surplus will be sustained, employment will continue to rise, state debt will continuously be reduced and the budget deficit will continue to be kept under 3%. We are getting out of the trap of energy dependency, we are decreasing our indebtedness denominated in foreign exchange to avoid being exposed. Hungary is a country which has not set getting out of the crisis as a target. Instead, we are preparing for the post-crisis world and its competition.

I invite you to wish the Hungarians success in this effort. Thank you very much.

(Prime Minister's Office)