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Hungary - Russia Relations

Hungary depends heavily on Russian energy supplies. For years, Hungary was a political problem child of the European Union. Russia is Hungarys third biggest trading partner and ties between the two countries have strengthened in the recent years, to the consternation of western Russophobes.

Viktor Orban - during the first two decades of his political career - had been among the most vociferous critics of Soviet totalitarianism and anti-democratic developments in post-Soviet Russia. Furthermore, when he spoke about the Soviet Union and Russia, his words often exhibited a condescending undertone, sometimes featuring an anti-Russian, anti-Slavic resentment that used to be - and partially, still is - so prevalent in Germany and central Europe.

The refusal in 2014 of Orban and his ruling Fidesz party to join the new US and EU Cold War against Russia, which saw the Hungarian parliament approve a law to build the South Stream gas pipeline without the approval of the European Union, in addition to the populist economic policies Fidesz adopted against the largely foreign owned banks and energy companies, was met with an angry response from Washington and Brussels.

The revolution that broke out in Vienna in 1848 part of a wave of revolts that swept across Europe that year caused enough disruption in the imperial government to allow the Hungarian nobility to seize more political autonomy for Hungary. In June 1849 the Russian army came to the rescue of the Habsburgs and invaded Hungary through the Carpathian Mountains. The Hungrian revolt was crushed and its leaders hanged, although Lajos Kossuth, the leader of the revolutionary government, escaped to the Ottoman Empire. In Hungary, the suppression of the revolution was followed by a series of trials and executions, attended by circumstances of extreme cruelty.

During the Cold War, Hungary's most important ally was the Soviet Union, with which it has enjoyed particularly good relations since 1986, when Soviet leader Mikhail S. Gorbachev initiated his reform program. In the late 1980s, Hungary strongly supported Soviet foreign policy positions. In return, Hungary received Soviet support for its efforts at domestic reform.

In the 1980s, Hungary attempted to carve out a semi-independent role for itself within the Soviet alliance system in Eastern Europe. The origins of the Hungarian position lay in the regime's efforts to promote economic reform, which required Western involvement and support. The regime also sought to create popular support for itself by providing an abundance of consumer goods supplied by the West. For reasons of history and tradition, Hungary cultivated ties with Austria and the Federal Republic of Germany (West Germany).

Prime Minister Ferenc Gyurcsany [2004-2010] and others in his government seemed to magnify the importance of Russian-Hungarian trade relations, often suggesting that the relationship is symbiotic. As one might expect, however, Hungary actually suffered a huge trade deficit vis-a-vis Russia, with agricultural exports failing to balance out energy imports.

At the same time underestimating the value of top investors like Germany, the Netherlands and Austria. According to the Investment and Trade Development Authority of Hungary, the cumulated FDI of those three countries from 1990-2004 accounted for 29, 20 and 11 percent, respectively, of foreign investment in Hungary. Similarly, Hungary's Central Statistics Office reported this month that Hungary-EU trade accounted for 81 percent of Hungary's exports and 73 percent of its imports.

Though the black market undoubtedly played a large role in Hungarian-Russian trade relations, thus inflating officially reported figures, much of the GoH's focus on Russian trade seemed rooted in a comfort with old networks -- both personal and commercial.

For many Hungarian industries -- banking and construction, for example -- the competitive advantage lies in expanding East, with a focus on Russia and the Ukraine and without the perceived strings Western investors attach with respect to transparency. Center-left daily Vilaggazdasag has noted that "as a number of Hungarian industrial companies are preparing to expand their markets in Russia, some backing from the government might do them good."

By January 2007 the shut-off of the oil pipeline from Russia and renewed sparring between the Gyurcsany government and the opposition placed Hungary's ambivalent relationship with Moscow at center stage. The Government found itself undercut by Russia's suspension of the pipeline flow 08 January 2007. In a rare foray into foreign affairs, Orban denounced the Gyurcsany government's Russia policy, charging that Gyurcsany's pursuit of "separate pacts" with Russia risk turning Hungary into the "merriest barracks in GAZPROM." This is particularly evocative phrase which raises the specter of Communist times, when Hungary was often referred to as "the merriest barracks in the Warsaw Pact. Few Hungarians doubted Orban's anti-Russian credentials.

By 2008, Hungary's Russia policy was increasingly one which admits Hungary's economic interest in expanding trade but which underscores Budapest's enduring commitment to the West. This attempt to distinguish between trading partners and strategic allies represented a new approach but not necessarily a real change, especially when the traded commodity is energy.

Hungary's Russia policy was focused on implementing Hunagry's interests especially those of the business community. Exports to Russia had increased seven-fold within the past five years, representing six percent of Hungary's total export volume with an estimated value of USD 3 billion. But Hungary's trade deficit remained enormous given its energy dependence on Russia, and business dealings with Russia tended to be concentrated in very select hands.

Calculations regarding Russia could also cast a pall over broader security issues. Hungary's exports to Russia were still modest and far exceeded by both its exports to the EU as well as its energy imports. They may look significant to a government which knew that exports were leading a very sluggish economy (exports had increased by double-digit increments in each of the three years 2005-2008), but they gave Budapest little leverage in its bilateral relationship. Moreover, no matter how hard Hungarian officials tried to separate foreign trade from foreign policy, Hungary remained vulnerable to pressure on a host of issues where Russian interests were served by Hungarian silence.

The 2009 The National Security Strategy of the Republic of Hungary states "Russia continues to be an important factor in international politics because of its geographical scope, its natural and human resources, its military potential, and its nuclear power in particular. The dangers emanating from the countrys internal instability have decreased, but have not yet completely disappeared. The comprehensive modernisation of its economy has not yet taken place despite the more favourable economic and financial outlook, and the functioning of democratic institutions is not entirely in line with European norms, either. Russia has established partnership relations with NATO, and in order to achieve its goals of socio-economic modernisation with the EU. It is a mutual interest for Russia and the states and organisations of the Euro-Atlantic region to be each others stable and predictable partners.

"Economic relations with Russia and Ukraine are of strategic importance to Hungary. We strive for the development of bilateral relations with Russia in all their aspects. We support the co-operation between Russia and the West based on mutual interest to extend to the widest possible range of fields, as well as for such co-operation to be facilitated by an ever more dynamic EU-Russia co-operation with stronger perspectives, and by political dialogue and practical co-operation between NATO and Russia."

When Prime Minister Viktor Orban took office in spring 2010 with a two-thirds majority, he transformed the country in ways that were in conflict with many of the EU's core values. Since then, Hungary's relations with the bloc and its member states continued to deteriorate. And so did relations with Germany - Hungary's most important economic partner - and formerly also Hungary's most important political ally.

As fighting continued in eastern Ukraine, by early 2015 Hungarian Prime Minister Viktor Orban reinforced his relationship with Moscow and provided Putin with a platform. In doing so he was weakening the EU. Hungary grudgingly agreed to imposing sanctions, but made a point to stress that it was against the practice. Orban repeatedly said that these sanctions hurt Hungary's economic interests as well as those of the European Union and don't have the desired political effect.

Russian sanctions were expected to harm USD 100 million in Hungarian agricultural exports. The Hungarian pork and poultry sector would be hit hardest by the Russian ban. Hungary is a major exporter of agricultural products. The Russian import sanctions on agricultural products announced on August 6, 2014, which impose an immediate year-long ban on some agricultural imports from the EU and other countries, hit Hungarian agricultural exports significantly. The Russian Federation is by the far most important agricultural export market for Hungary outside the European Union and ranks at number 8 among all destinations.

Orban played tough, which might not turn out well for him in the long run. His games were turning into a high wire act, threatening to keep Brussels off balance. At times Orban made half-hearted promises to uphold the EU's policy toward Russia; at other times, he allowed himself to be flattered by Putin, his self-declared political role model. Or, when it came to economic interests, he allowed himself to be put under pressure.

In January 2014, the Hungarian government made a surprise announcement that they were awarding a USD 17 billion nuclear construction project to a Russian state-owned company after indicating to interested foreign investors since December 2010 that they were planning an open tender for bids. Hungarys government subsequently classified nearly all contracts related to this project for a period of 30 years in 2015. Transparency International has criticized Hungary for lacking transparency.

Hungarian sociologist Pal Tamas, an expert on Russian-Hungarian relations said in February 2015: "According to Russian state philosophy, Orban is like the Biblical Jonas who was swallowed by the whale - in this case, by the EU - and who is giving signs from within the whale's belly .... And since there are other small ones inside the whale, Orban's signs could encourage them, too. This would be to Putin's liking."

The green LMP party urged action 09 January 2017 against Russias influence seen by the party as increasing during the past six years. Pter Ungr, LMPs expert on the subject, called it sad and unacceptable what his party sees as Hungarys decreasing sovereignty caused by Russias actions. Ungr said that Hungary was crucial for Russia in its global war of disinformation and stated that the country was being influenced by Russian propaganda spread over the internet.

It was clearly in the interests of the Hungarian economy and the Hungarian people for Hungary to maintain relations with Russia that are based on mutual respect and founded on common sense, Minister of Foreign Affairs and Trade Pter Szijjrt said on Hungarian M1 television on 02 February 2017.

In recent years there has been major pressure on Hungary from America and Western Europe to stop maintaining pragmatic cooperation with Russia, he added. According to the Foreign Minister, the changes in global politics are now proving that it was right to maintain relations based on mutual respect and founded on common sense with Russian, because it is now increasingly clear that the worlds leading powers and politicians are also interested in forging relations with Russia.

It would have been more comfortable for Hungarian foreign policy to get in line with the chorus of people continuously criticising Russia, but Hungarian diplomacy is directed from Budapest and is only prepared to make decisions that serve the interests of the Hungarian people, he noted.

With regard to the sanctions against Russia, Mr. Szijjrt stressed: Hungarian enterprises incurred damages of 6.7 billion dollars in lost export opportunities between 2013 and 2016; this money is missing from the revenues of Hungarian companies and has endangered Hungarian jobs, and accordingly it is in the interests of Hungarian enterprises and the Hungarian economy for export opportunities to Russia to reopen.

Since the annexation of Crimea and the outbreak of war in eastern Ukraine, since the eruption of the refugee crisis and especially since the ominous year 2016 that brought with it a Brexit and the election of Donald Trump as US president, Putin and Orban's voices now carry greater weight across the EU - and internationally.




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Page last modified: 06-04-2018 11:52:39 ZULU