Hungarian economic minister tells the 'Post' that his country could learn from Israel's experience.

European nations must encourage more innovation as a means of creating sustainable economic growth, and they could learn from Israel’s experience in this area, a visiting Hungarian minister said Tuesday.

Prof. Zoltán Cséfalvay, Hungary’s minister of state for economic strategy and parliamentary affairs, met with The Jerusalem Post in Tel Aviv during a three-day visit to Israel, which included meetings with Science and Technology Minister Daniel Hershkowitz and Chief Scientist Avi Hasson.

Hungary excels in technological fields such as medicine, but its companies struggle to turn ideas into products, Cséfalvay said, adding: “Certainly that is an area where Israel is far ahead, not just compared to Hungary but to many European countries.”

Cséfalvay was in charge of research and development when Hungary held the European Union’s rotating presidency in the first half of 2011.

That was when he realized that most of Europe was suffering from a lack of focus on R&D. The 27 EU member states spend an average 1.9 percent of their GDP on R&D, well behind Israel and the United States, which spent about 4.2% and 2.7% respectively in 2011, he said.

The EU’s seven-year budget for research and technological development is expected to rise from 53 billion euros in 2007-13 to 80 billion euros from 2014-20 – thanks in part to Hungary prioritizing the issue when it held the EU presidency, Cséfalvay said.

Incidentally, Hungary continues to have influence over research and development policy, as it took over chairmanship of the 40-member pan- European Eureka network for industrial R&D from Israel the day after giving up presidency of the EU.

Ultimately the future of the European economy hangs on whether European leaders can solve the mounting sovereign-debt crisis, and Cséfalvay said he sees three possible scenarios – all of them with negative consequences.

The first solution is for some of the euro zone’s 17 members to return to their old currencies, or what Cséfalvay called the “Hotel California solution,” because, as The Eagles sang, “You can check out any time, but you can never leave.” In other words, he said, countries will be reluctant to take such a step because the cost of doing so is too high.

The second solution, he said, is for the euro zone to create a fiscal union with a common finance minister, coordination of taxes and budget policies – a move Hungary, which still uses its own currency even though it is eventually supposed to adopt the euro, opposes.

“Our aim is to carry out reforms and create a favorable business environment,” Cséfalvay said. “If our taxes are harmonized, how can we attract [foreign] companies?” Finally, he said, European leaders can continue moving from compromise to compromise without taking any substantive measures.

“That is the European way,” Cséfalvay said, adding that the uncertainty was hurting Hungary.

The OECD forecasts Hungary’s economy will contract by 0.6% in 2012, its debt-to-GDP still stands at 80%, and its credit status has been downgraded to “junk” status by all three major rating agencies.

Representatives of the country are in Washington this week seeking International Monetary Fund funding, or what Cséfalvay called “a safety net” that would help stabilize growth. Hungary was one of the few European countries currently operating without a safety net, he said, as the countries using the euro enjoy the automatic protection that comes with being part of the currency zone.

Talks between Budapest, the IMF and the European Commission broke down in December when Hungary’s center-right government indicated it was not willing to change a controversial law that gives the prime minister the power to name the central bank’s vice presidents and increases the number of political appointees to the council that sets the country’s interest rates.

Nevertheless, Cséfalvay expressed confidence Hungary would eventually receive the funding, saying, “I am certain that we will come to some kind of agreement.”

(The Jerusalem Post)