Country profile

1. HUNGARY IN FIGURES

2. SNAPSHOT

Conventional long form: Republic of Hungary/ Magyar Köztársaság
Conventional short form: Hungary/ Magyarország

Hungary is a landlocked country in Central Europe, bounded on the north by Slovakia; on the north-east by Ukraine; on the east by Romania; on the south by Serbia, Croatia, and Slovenia; and on the west by Austria. Its maximum extent from west to east is 528 kilometres; from north to south this figure is 319 kilometres. Hungary is predominantly flat. The Danube River forms part of Hungary's northwestern border with Slovakia, and then flows south through Budapest, dividing Hungary into two general regions. A low, rolling plain known as the Great Hungarian Plain, covers most of the region east of the Danube extending east to Romania and south to Serbia. Highlands along the northern border of the country extend eastward from the gorge of the Danube at Esztergom and include the Matra Mountains, a part of the Carpathian Mountain system. Mount Kékes (1015 m/3330 ft), in the Mátra Mountains, is the highest peak in Hungary. The area west of the Danube, known as Transdanubia, presents a variety of landforms. In the south rise the isolated Mecsek Mountains. In the north are the Bakony Mountains, a forested range in the Transdanubian Highlands, which overlook Lake Balaton, the biggest sweet-water lake in Europe. The Little Alföld (Kisalföld), or Little Plain, in the extreme north-western section of Hungary, extends into southern Slovakia.

The Danube is Hungary's most important river and transport route, offering easy access to central and south-east Europe. Since the inauguration of the canal linking the Danube to the Main in 1992, goods can be carried from the Black sea to the North Sea. Other major rivers, all tributaries of the Danube, include the Tisza, the longest river in Hungary. In October 2001, the last Danube bridge that was destroyed in World War II was reopened by both the Slovak and the Hungarian Prime Minister and European Commissioner Verheugen. The reconstruction of the bridge was co-financed by the EU Phare programme with € 10 million.

Budapest, the largest city, is the capital and also the cultural, economic and industrial centre of Hungary. Approximately 1.8 million people - 18 percent of the country's total population - live in Budapest. The capital is located along the two embankments of the Danube. The Buda side of the city reaches up to the hills, while the Pest side was built on the flood plain of the Danube. The 235-meter high Gellért Hill rises on the Buda side of Budapest, nearly in the centre of the town, offering a fine view to the capital. Seven public and two rail bridges span the Danube in its Budapest stretch. Among the many spectacular sights of the capital there is the Royal Castle and the Castle District. The extremely rich collection of the Hungarian National Gallery and the country's biggest library, the National Széchenyi Library is in the Castle too. On the Pest side rises the neo-Gothic building of Parliament. The numerous thermal and curative springs deservedly elevate the capital to the rank of 'city of spas'.

Other major cities include Debrecen (204,000), the trade centre of a major agricultural region; Miskolc (172,000), the location of iron-and-steel and other metallurgical industries; Szeged (158,000), a shipping centre for the agricultural products of the Great Hungarian Plain, also noted for its chemical and synthetic-textile industries; Pécs (157,000), home of the oldest university of the country and of small manufacturing industries; Györ (127,000), a traditional cultural centre of the Northern Trans-Danubian region with up-to-date motor vehicle and tool-making industry.

Hungary was the homeland of Franz Liszt, Béla Bartók and Zoltán Kodály, whose music was inspired by the rich national folk traditions. In the 19th century Hungary produced its first important native-born composer, Ferenc Erkel, who composed the Hungarian national anthem and the first Hungarian opera. Hungary is a highly musical country; its violinists and pianists are particularly celebrated virtuosi world-wide. Hungary has more than 5000 public libraries, and more than 100 public museums are maintained throughout the country.

In 2001 Hungary continued to strengthen the structures necessary to participate in Community structures. The decision of the Association Council on the participation of Hungary in the "Culture 2000" programme was adopted by the Government and entered into force in July 2001.

3. HISTORY

896
Pushed by a wave of mass migration, a group of the Finno-Ugric tribes, the Hungarians, who developed into a distinct ethnic group between 1000 and 500 B.C., arrive in the Carpathian Basin. They did not know at the time that they would be establishing their permanent homeland on this great plain surrounded by mountains.

973
Géza makes peace with I. Otto and takes up Christianism

873 – 1036
István, son of Géza, and as such a descendant of Árpád, leader of the settlers a century before, begins carving out a place for Hungarians in Europe. He bans ancient pagan customs, converts to Christianity and makes it the state's religion. From the moment he is crowned King in year 1000, Hungary is part of Christian Europe. In 1083 István is declared to be a "Saint".

1046
Revolt of the pagans led by Vata

1077 – 1095
King I. Saint László continues the work of István I.

1095 – 1116
King Könyves Kálmán

1222
Proclamation of the Golden Bull by András II. The Golden Bull sought to restore the shattered legal system by banning many acts of tyranny and, not the least, curtailing royal power, and authorised the nobles to oppose the king by force of arms if the king or his successors should breach the Bull. This was done by a ruler whose first wife, Gertrude of Merano, was killed by a conspiracy of chief nobles, who were shocked by the life of luxury she led with her foreign companions at the court. (The best known Hungarian historical drama, Bánk Bán, by Katona József, relates this episode.)

1235 –1270
King IV Béla

1241
The Tatar forces of Bathu Kan defeat the Hungarians in an intense military campaign in the Battle at Muhi

1301
The Árpád-House dies out and the House of Anjou takes over the rule of Hungary

1308 – 1342
King Róbert Károly

1335 Royal meeting in Visegrád
Three countries conclude commercial agreement (Czech King János von Luxembourg, Polish King III Kázmér)

1342 – 1382
King I. (Great) Louis

1387 – 1437
King Sigmund von Luxembourg

1433
Sigmund is German-Roman Emperor

1437 – 1439
Rule of King Albert of the House of Habsburg

1439 – 1444
King Jagelló Ulászló

1456
Defeat of the Turks by János Hunyadi, who is declared governor

1458- 1490
The reign of Matthias Corvinus, the zenith of the Hungarian monarchy, that serves as an eastern fortress against threatening Turkish expansion.

1485
King Mátyás occupies Vienna and takes up the title “Prince of Austria”

1514
Peasant uprising and execution of its leader Dózsa György

1517
The Tripartitum is printed in Vienna by Werboczy

1526
Hungarian defences are overcome outside the town of Mohács, and Hungary is swept away by the invasion of the Turks. By 1541, Hungary is divided into three sections: the Turks capture a major, central part of the country; the Eastern section (Transsylvania) tries to re-establish its autonomy under Turkish domination; and a narrow stretch in the northwest region is ruled by the Austrian House of Habsburg. Horrendous loss of life ensues during this period. Hungary's population is scattered and most of its land is left uncultivated.

1526 - 1540
King János Szapolyai

1529
The country is split into two parts

1541
Buda falls into Turkish hands; country torn into three parts

1552
Veszprém, Drégely and Temesvár are occupied by the Turks. However, the siege of Eger is in vain – Dobó István´s victory

1566
Zrínyi Miklós´ sally, the fall of Szigetvár

1586
National Assembly in Torda: free practice of religion

1606
Vienna Peace Treaty: religious liberty for Protestants

1613 – 1629
Under Gábor Bethlen, principal of Transsylvania, the Principality of Transsylvania presents a model of freedom of religion admired in and marveled at throughout Europe.

1620 - 1629
Gábor Bethlen is king of Hungary

1645
The poet Miklós Zrínyi perpetuates the memory of the “Hero of Szigetvár” The epic describes one of the most romantic and heroic military and defensive acts in world history, the siege of Sziget.

1648 - 1660
György Rákóczi reigns in Transsylvania

1678
Imre Thököly leads the movement against the House of Habsburg

1686
Liberation of Buda after 145 years of Turkish occupation

1689
After 150 years, the Turks are expelled from Hungary by Habsburg led European troops. Hungary has to acknowledge the permanent claim to the Hungarian crown by the House of Habsburg.

1703-1711
The struggle for independence, led by Ferenc Rákóczi II, is a desperate attempt on the part of Hungarians to regain their autonomy, but the balance of power remains fixed for a long time. Habsburg rule is consolidated and a period of development follows in economic, cultural and basic living conditions. Thus Hungary begins its reconstruction. To obtain the necessary workforce, Hungary, with its population reduced, offers land and employment to Balkan groups fleeing Turkish rule and to groups in Western Europe, primarily those living in German states. Hungary becomes a multiethnic country.

1722
Pragmatica Sanctio (inheritance on the female line) approved by the National Assembly

1740
Death of Emperor Károly III, succeeded by Maria Theresia (1740-1780)

1777
Ratio Educationis: Maria Theresa´s decree on basic and middle level education

1780 – 1790
Rule of József II.

1785
Decree on serfs. Abolition of eternal serfdom.

1790 - 1792
King Lipót II.

1792 – 1835
King Ferenc I.

1795
Martinovits, leader of the rebellious Jacobite movement, beheaded

1809
Proclamation of Napoleon to the Hungarians

1811 –1886
Ferenc Liszt, Hungarian composer

1823
The National Anthem

1825
National Assembly called again in Pozsony, unsuccessful (Széchenyi offers a one year revenue of his properties to establish the Hungarian Academy of Sciences)

1835
King I. Ferenc dies, new King is Ferdinand V., but real power is in Metternich’s hands

1844
Hungarian becomes official language in Hungary

1848-49
Habsburg rule hinders Hungary's further development; Hungarians respond by revolting led by Lajos Kossuth. Hungary’s first independent Government set up under Prime Minister Lajos Batthyany. Vienna gives in at first, but regrets its decision shortly afterwards. The events lead to a war, and Hungarians fight with unexpected success. However, when they declare their autonomy, the young Austrian Emperor, Franz Joseph I., calls upon the assistance of the Russian Tsar. The Hungarians must eventually yield to superior forces and surrender.

1848 – 1916
Rule of Franz Joseph I.

1867
An agreement, a so called "Ausgleich"is reached between the Habsburgs and the Hungarians. Thus the Austro-Hungarian Dual monarchy is formed. Franz Joseph is coronated King of Hungary. The political deal is followed by economic prosperity. Hungary is quick in catching up with the developed regions of contemporary Europe.

1914-18
The boom is halted by World War I. Following the defeat as an ally of Germany, the Habsburg Empire, as well as the multiethnic Hungarian state, fall apart.

1919
Proclamation of the Communist Hungarian Republic of Councils by Bela Kun

1920
On 1st of March Miklós Horthy is elected as regent. In June 1920 the Peace Treaty of Trianon is signed, according to which millions of Hungarians become citizens of the new states emerging from the ruins of the former empire. This leaves little space for action for the coming governments of Hungary, reduced to one third of its former territory. The conservative Horthy leadership focuses on regaining the lost territories.

1939 - 1944
Hungary´s efforts to revise the border constitute a major incentive to enter World War II as an ally of Germany in a general atmosphere of nationalism and anti-Semitism. These policies doom the country to failure. Hungary is occupied by the German Wehrmacht in March 1944. Following unsuccessful attempts to leave the alliance with Germany, on 15th October Regent Horthy is forced to resign and Ferenc Szálasi's fascist Arrow-Cross movement, with substantial German help, takes over power. The Arrow Cross state administration collaborates in the deportation and destruction of about two thirds of the Hungarian Jewry (about 500.000 people).

1944
Provisional National Assembly meets at the Debrecen Reformed Church college to elect the National Government. On 28th December, the Provisional National Government declares war on Germany.

1945
Total collapse? Liberation? The end of the war is an ambivalent experience for Hungary. After a short lived attempt to establish a pluralistic democratic system, with the support of the Soviet military presence, Stalinist communists take over, liquidate all their political rivals and introduce an open dictatorship.

1946
Proclamation of the Peoples’ Republic of Hungary. In the following years Hungary´s political system alters radically. The dozen political parties revived or established in 1945 were reduced to four. Of the two peasant parties and two worker´s parties remaining, the last two, the Social Democrats and Communist Party, merged in 1948 to for the Hungarian Working People´s party. Political activity outside the Hungarian Woking People´s Party could only continue within the framework of a mass organisation, the People´s Front.

1947
In Paris, the peace treaty with Hungary, Romania, Italy, Bulgaria and Finland is signed. In accordance with this, Hungary´s borders are identical with those on 1 June 1938 (Trianon border), with the difference that Czechoslovakia receives three villages – Horvátújfalu, Oroszvár and Dunacsúny . Hungary is obliged to pay compensation to the Soviet Union of USD 200 million, to Yugoslavia and Czechoslovakia of USD 100 million.

1956
Revolution against the communist regime. The totalitarian regime comes into conflict with its own citizens, which results in the first major uprising in the Soviet zone after 1953 in East Germany. Led by reform-communist Prime Minister Imre Nagy, it evokes the world's sympathy, similar to the revolution of 1848-49. Yet world sympathy is not enough to overtake the Soviet army. The Hungarian revolt is crushed. However, the new leaders, headed by János Kádár, seem to have learnt from the mistakes of their predecessors: after six years brutal retaliation gives in to a more moderate policy. This is how Hungary becomes one of the more cheerful spots in the vast Soviet bloc.

1958
Imre Nagy and his closest allies are executed in June after secret trial.

1960
Socialist “collectivisation” of agricultural sector.

1962
Release of political prisoners of the revolution consolidation of the power of Janos Kadar

1968
Liberalisation of the markets and prices (“Goulash communism”); participation in military intervention in Czechoslovakia on the crushing of the “Prague spring” movement

1971
Amnesty and exile for Cardinal Mindszenty, who had fled to the US Embassy in 1956 and stayed there since.

1973
Hungary becomes full member of GATT

1978
Stephen’s Crown and the crown’s insignia are returned by the USA

1982
Hungary becomes member of the IMF; free travelling to western countries becomes possible

1987
Károly Grosz becomes Prime Minister formation of the first open, demonstratively independent political movement at Lakitelek

1988
Kádár is not reelected at extraordinary party congress; Grosz becomes Secretary-General of the Communist Party, too; Miklós Németh becomes Prime Minister, the formation of the first independent political organisations

Political events as of 1989

1989

28 January
Imre Pozsgay, member of the Politburo of the HSWP, says in an interview that 1956 was a 'popular uprising' and not a 'counterrevolution'.
The Committee for Historical Justice, founded by political prisoners of the 1956 revolution and the members of those who were executed, pushes and ongoing discussion for the exhumation and proper reburial of the victims

11 February
The Central Committee of the Hungarian Social Workers Party agrees on transition to a multi party system if the new organisations accept the leadership of the Party, during its two day closed session. By that time the following parties have been established: The Hungarian Democratic Forum (MDF, Sept 1988), the Alliance of Free Democrats (SZDSZ, Nov 1988), the Federation of Young Democrats (Fidesz, March 1988), the Independent Smallholders Party, the National Farmer´s Party, the Hungarian Communist Party and the Hungarian Social Democratic Party.

15 March
After massive demonstrations of the opposition on the streets, the Manifesto of the Independent Lawyers' Forum asks for the formation of an opposition roundtable to push the Hungarian Socialist Workers Party for negotiation

16 June
The remains of Imre Nagy, Géza Losonczy, Pál Maléter, Miklós Gimes and József Szilágyi are finally laid to rest in Rákoskeresztúr Cemetery on 16 June. Nearly 250 thousand people lay flowers at Heroes´ Square; leaders of the opposition, like Viktor Orban, future Prime Minister and former political prisoners, like Árpád Göncz, future President, spoke at the coffins. The reburial and commemoration of the 1956 revolution became the most important symbolic event of the regime change

11 September
The Hungarian Government decides to allow East German citizens to immigrate to a third country. Approximately 6,500 East German refugees enter Austria from Hungary by the afternoon of the following day.

18 September
Signing of the Closing Agreement of the Roundtable Negotiation that laid the foundation of the new Republic; without blocking the agreement, two opposition parties, SZDSZ, Fidesz refused to sing the agreement and announced to propose a referendum to decide on the open question

7 October
The successor to the Hungarian Socialist Workers Party, the Hungarian Socialist Party (MSzP) is founded. Rezsö Nyers is elected Party President.

23 October
Mátyás Szurös, provisional President of the Republic, proclaims the Republic of Hungary from the Parliament´s balcony on the anniversary of the 1956 revolution.

26 November
A referendum is held, in which the public votes to dissolve the Workers´ Guard, to eliminate workplace party organisations, to hold the Hungarian Socialist Workers Party accountable and to elect the President of the Republic by parliamentary ballot. 58%of those of voting age participate in the national referendum.

1990

25 March
Free, multi-party parliamentary elections are held in Hungary for the first time in 43 years, with a turnout of 70%. Of the 386 seats, MDF acquires 165, SZDSZ 91, the Independent Small Holder´s Party 44, the Hungarian Socialist Party 33, Fidesz 21, the Christian Democratic Party 21, the Agrarian Alliance 1, the independents 6 and the joint candidates 4 seats after the second round on 8 April. MDF and SZDSZ agree on appointing Árpád Göncz, SZDSZ, as provisional President of the Republic, who appoints József Antall, MDF Party President, to form a Government.

3 August
Arpád Göncz is elected President of the Republic of Hungary by Parliament

1991

Association Agreement with the EU
The last Soviet soldier leaves Hungary´s territory two weeks before schedule

1994

Hungary submits its application for membership in the European Union on 31 March
Absolute majority for Socialist Party in Parliamentary elections; Gyula Horn becomes Prime minister

1997

Clear support (85%) for NATO membership at referendum

1998

Hungary starts accession negotiations with the European Union in March
A coalition of FIDESz, MDF and Smallholders wins the parliamentary elections; Viktor Orbán becomes Prime Minister

1999

Hungary becomes member of NATO

2002

A left-liberal coalition of MSzP and SzDSz wins the parliamentary elections in April; Peter Medgyessy becomes Prime Minister.

At the Copenhagen European Council (12-13 December 2002) the accession negotiations are concluded with 10 candidate countries, including Hungary.

2003

The Accession Treaty is signed in a solemn ceremony in Athens on 16 April 2003.

4. CURRENT POLITICAL CONTEXT

The New Government since 27 May 2002

Parliament

• unicameral system, Parliament (Országgyulés) has 386 seats
• elections held every four years, last elections took place on 7 and 21 April 2002 with a high turnout (71% in first round, 73,5% in second round); elections according to a combination of the proportional and first-past-the-post election systems
• the elections were free and fair and in line with international standards on democratic elections
• four political parties are represented in the new Parliament (see Table below)
• the Roma community is again represented in the new Parliament by four Members of Parliament (3 for FIDESz, 1 for MSzP)
• Parliament, as supreme legislative authority, has the final say on budgetary and legislative matters

Representation of the political parties in the Parliament:

Recent political events – main dates

5. The Economy

1. Economic situation in general

Since 1997, economic growth has been impressive, with the Hungarian economy recording growth rates around 4 % a year. GDP growth at 5.2 % in 2000 was the highest since transition, mainly pushed by export growth rates of over 20%. Despite the worldwide economic slowdown, Hungary’s economy grew at 3.8% in 2001 and at 3.5% in 2002, however decreased to 2.7% year-on-year during the first three quarters of 2003. Household and public demand have been picking up since 2001, on the back of significant minimum wage and pension increases and a fiscal expansion, but could not compensate for the slowdown in external demand and corporate investment. Construction, which grew at double-digit rates in 2001 and 2002, also showed signs of weakness in 2003. Export-oriented manufacturing, the former engine of the economy’s growth is growing only slowly, but industrial production figures over the second half of 2003 show first signs of an export-led recovery. Foreign tourism, a major growth industry in Hungary, suffered from a rapid currency appreciation of over 20% in real terms against the Euro until early 2003. Inflation had remained high around the 10 % mark until mid 2001, but finally started to decline, to a year-on-year rate of 3.6 % in May 2003, before starting to increase again, to 5.6% in November 2003. The year-average CPI in 2003 was 4.7%.

The National Bank of Hungary follows since mid 2001 an inflation targeting monetary policy, aiming at achieving ‘price stability’ in the medium term. The forint is pegged to a euro with a wide intervention band of +/- 15%. The forint regularly trades in the upper part of the band. After a speculative attack on the band’s stronger side in January 2003, two other exchange rate related turbulences followed in the course of 2003. In June 2003, the government and the central bank moved the central parity of the currency’s intervention band down by 2.26%. This attempt at improving the economy’s external competitiveness has, however, been more than neutralised by a very tight monetary policy stance of the NBH. The reference interest rate stands at 12.5%. This is the highest nominal and real rate in the region. Capital movements have been liberalised, and the forint is fully convertible.

Unemployment is one of the lowest in candidate countries, standing at 5.8% during the November to January period of 2003-2004. High real wage increases, in 2001 to 2003, have started to lead to layoffs in some low-skills segments of the labour market. In late 2003 social partners agreed in their tripartite negotiations on more reasonable wage settlements for 2004, targeting nominal wage growth at 7-8%. However, wage bargaining is highly decentralised in Hungary. Therefore these agreements are only indicative, and not legally binding. Nevertheless, recent wage settlements in the private sector indicate a turnaround of the rapid wage growth trend. Wage agreements of the public sector for 2003 indicate a very small real wage growth only. This is expected to significantly contribute to the real wage moderation in the over all economy.

The external balance deteriorated considerably since 2002, as compared to previous years. It amounted to 4% of GDP in 2002, and was somewhat above 5.5% of GDP in the year 2003. Investment (FDI) decreased markedly in 2002, to 1.8% of GDP, and a further deterioration of this trend could be observed over 2003. This is a combined result of a subdued international investment climate, losses in both wage and exchange rate competitiveness, and also a rapidly increasing investment activity of Hungarian firms abroad, which neutralises inflows on the capital account. As a result, there was a net outflow of capital over the first half of 2003, and the current account deficit is financed primarily through the increase in net external debt.

Greenfield investments dominate, and the trend from low value-added to high-tech investment continues. This process was recently also marked by some established investors leaving the country for destinations with cheaper labour, which reflects a combination of high wage increases over the past couple of years, but also a natural modernisation process of the Hungarian economy. Thanks not least to the EU accession perspective, Hungary still enjoys high country ratings and easy access to international finance, therefore the financing of the external deficit does not appear to pose a sustainability problem. However, given the uncertainty that has been created in the markets by the inconsistent monetary and exchange rate policies, and the weak fundamentals of the economy, in 2003, risk premiums have risen considerably.

Privatisation was largely completed in 1997, but at present a final round of privatisation of several remaining state-owned companies, mainly in the banking, transport and steel sectors, is under way, in order to stimulate the Budapest stock exchange and to generate budget revenues. Thus, in September 2003, the major consumer bank Postabank was successfully privatised to Erste Bank from Austria. After an increase of the budget deficit to 9.2 % of GDP according to EU standards in 2002, the deficit rate on cash basis of 2003 still reached 5.6% and is expected to be somewhat higher according to EU standards. As the high 2002 deficit included considerable statistical reclassifications and a cleaning up of extra-budgetary funds (which would not have any effect on the real economy), the real improvement of the deficit stance in 2003 was relatively small. The main reasons for the slippage of the original target of 4.5% of GDP on the expenditure side was higher interest rate expenditure, higher mortgage loans expenditure in the generous housing loan programme, and the unexpected expenditure due to supplementary payments for mother care. Substantially lower personal income tax revenues and much lower than expected corporate profit taxes were the reasons on the revenue side. The overshooting of the deficit targets of the last two years, and several communication failures in the economic governance, led to a significant loss in the credibility stance of the government’s economic policy. These problems resulted in the resignation of the former minister of finance. The incoming minister announced the upwards revision of the 2004 budget deficit target from 3.8% to 4.6% of GDP, and launched an additional austerity package in order to ensure the fulfilment of the new target. While meeting the new target seems more credible, there are still several risks. According to the rise in the deficit rate, the public debt in 2002 increased to 56.3 % of GDP, and was around 59% in 2003. A new multi-pillar pension system with a high capitalisation component could bring fiscal relief in the longer term but provides further budgetary stress in the short term, through transfer payments from the budget to the second private pension pillar (which is not yet paying out) that amount to nearly 1% of GDP. Reforms of the ailing healthcare system are an important challenge, since the system is not only inefficient but could also threaten sustainability of the fiscal accounts in the very long term. In 2002, a part bailout for the ailing railway system brought some financial relief, and administrative and accounting reform is being implemented in steps. Although a long-term EIB credit was granted for improvements to railway infrastructure, and ISPA funds have been attributed, the lack of public investment in this area remains a problem. The government’s investment priority so far has been motorway construction, with a massive public investment programme under way. However, in the course of the ‘front-loaded’ redirection of fiscal policy that is under way since the beginning of 2003, certain delays could also occur in this area. With first EU funds flowing in, public investment into infrastructure will be increased from 0.4% of GDP in 2003 to 1.4% of GDP in 2004.

2. Bilateral trade

The economies of Hungary and the EU are increasingly integrated: In the first half of 2002, Hungary’s share in the EU’s trade with the rest of the world reached 2.57% of EU exports and 2.51% of EU imports. Since the start of the change of regime, the main trend in Hungary’s trade policy has been continuous trade liberalisation. Hungary’s overall trade has grown with extraordinary dynamism: While export volumes have increased by more than 50% since 1989, imports have tripled. Hungary’s export and import figures with the EU have quadrupled since 1989. The trade deficit (€ 1.62 billion in 2000 and € 614 million at the end of July 2003) reflects Hungary’s efforts to re-equip the economy with capital goods. The current account deficit is mainly due to the modernisation of the economy and the import of consumer goods. Since privatisation from the second half of the 1990s was no longer a relevant source of FDI creation in Hungary, these figures reflected the attractiveness of Hungary as a location for foreign investment, based on competitive total labour cost, a liberal foreign trade regime and a predictable and business-friendly policy framework. Up to 2002 the trade deficit was largely covered by the huge inflow of foreign direct investment (FDI). Due to a strong decline in overall corporate investment in 2001 and 2002, a sharp increase of wages and delays in policy making, the FDI net inflow amounted only to € 1,281 million in 2002 (1.8% of GDP). Cumulative FDI inflows per capita at the end of 2002 amounted to € 2,908 billion.

From January till July 2003, Hungary’s exports amounted to € 29.7 billion, and its imports to € 34 billion. These figures show an 18.6% drop in total exports and a 15% drop in total imports compared to 2002. From January till July 2003, the overall share of Hungarian exports to the EU amounted to 74.4.1%. The share of EU imports stood at 56.6%. Hungary exports mainly machinery and electrical goods (51% share of total in the first half of 2002), followed by transport equipment.
Hungary aims to enhance its presence in East Central Europe and South East Europe and in key markets like Russia and the United States. Among the objectives of Hungary’s external economic policy is the further increase of commodities and services exports, the diversification of such exports, the promotion of Hungarian direct investment abroad, including capital investment, and the protection of domestic markets, if need be.

6. HUNGARY - EU RELATIONS

1. The main steps towards EU-membership

Hungary concluded an Association Agreement with the European Communities in December 1991, which has been in force since 1 February 1994. The Agreement covers trade-related issues, political dialogue, legal approximation and other areas of co-operation, including industry, environment, transport and customs and aims at progressively establishing a free-trade area between the EU and Hungary.
In March 1994, Hungary was the first country of the region to formally apply for EU membership. At the Luxembourg European Council in December 1997 it was finally decided to launch the accession negotiations with six of the applicant countries, among them Hungary.

The negotiations with Hungary were launched on 30 March 1998. Since then, Hungary participated in eight meetings of the Accession Conference at ministerial level.

A so-called Regular Report on the progress of each of the candidate countries on the way towards accession is published every autumn. In these reports, the Commission services identify the remaining shortcomings and tasks to be carried out prior to accession to meet the political, economic and legal "Copenhagen criteria" for accession, with particular emphasis on enforcement and institutional capacity. The latest Regular Reports were published on 9 October 2002. On the basis of the Regular Reports, Accession Partnerships were drawn up, which outline the most important short- and medium term priorities that have to be tackled by the respective candidate country in the near future.

In December 2000, the European Council in Nice endorsed a "roadmap" for the completion of the negotiations, including a calendar for dealing with all topics (so-called "chapters") over three Presidencies from the beginning of 2001 to mid-2002.

The intention was to enable the fulfilment of the European Council's determination (stated at Laeken in December 2001) to bring the accession negotiations with the candidate countries that are ready to a successful conclusion by the end of 2002, so that those countries can take part in the European Parliament elections in June 2004 as members following ratification of the accession treaty by the European Parliament and the Parliaments of the 15 Member States and of the candidate country.

In the Regular Report of 9 October 2002, the Commission considered that altogether 10 countries will have fulfilled the economic and acquis criteria and will be ready for membership from the beginning of 2004, bearing in mind the progress achieved by these countries, the track record in implementing their commitments, and taking into account their preparatory work in progress. The European Council in Brussels on 24 and 25 October 2002 endorsed the recommendations of the Commission.

The accession negotiations included 29 chapters and the chapter on "institutions".

The European Council in Copenhagen on 13 December 2002 eventually concluded the negotiations with the 10 countries mentioned above, incl. with Hungary. It decided that these 10 countries would become members of the European Union as of 1 May 2004.

The EU continues to monitor the accession preparations by means of two sets of Monitoring Tables, which were finalised in February and May 2003 respectively. The European Commission published on 5 November 2003 a Comprehensive Monitoring Report, taking stock of the state of play of the preparations six months before the date of accession (see details under 5.)

The negotiating process has been accompanied by regular meetings of a number of bodies under the Europe Agreement, such as the Association Council (once per year, last (9th) meeting in November 2002) and the Association Committee (once per year, last (11th) meeting in June 2003), the EP-Hungary Joint Parliamentary Committee (twice per year, (last (19th) meeting held in March 2003). These fora provide the occasion to review progress in Hungary's preparations for accession, notably in the light of the Accession Partnership priorities, and in bilateral relations under the Europe Agreement. In addition, a system of eight sub-committees was established as a forum for technical discussions.

2. Financial assistance for the reform process

From 2000 onwards, the Community foresees a combined total of around € 220 million of Pre-accession assistance to Hungary on an annual basis from the three Community instruments.

The PHARE programme that has been providing support to the countries of Central and Eastern Europe since 1989 allocated to Hungary € 1 030 million during the period 1992 to 1999, € 119.8 million in 2000, € 108,8 million in 2001 and € 130.7 million in 2002. In 2003, Hungary will be entitled to € 120.7 million, including € 101.7 million for the 2003 Phare National Programme and € 19 million for the 2003 Phare Cross-Border Co-operation Programmes respectively with Austria, Slovenia, Slovakia and Romania. In 2003, Hungary has also received an additional allocation of € 5.3 million to establish a Phare External Border Initiative, which will provide funding for projects respectively in the border regions between Hungary and Ukraine and Hungary and Croatia. The Financing Memoranda for the 2003 Phare National Programme and for the majority of Phare CBC Programmes have already been signed.

Hungary received € 88.3 million from ISPA (Instrument for structural policies for pre-accession) in 2000, € 90.8 million in 2001 and € 94.2 million in 2002 and will receive € 94.5 million in 2003. The support was roughly divided in equal terms for environment and transport projects. During the first three years of its operation, 100% of the ISPA allocation has been committed.

The Hungarian SAPARD programme (Special Accession Programme for Agricultural and Rural Development) was adopted by the Commission in October 2000. It foresees the improvement of the competitiveness of the agricultural sector and processing industry focusing on environmental protection and seeks to enhance the adaptation capabilities of rural areas. The average annual public expenditure will amount to € 50.5 during the period 2000-2006, of which € 38.7 million will be the EU contribution. Hungary signed the Multi-annual Financing Agreement and the Annual Financing Agreement for 2000 in March 2001, the Annual Financing Agreement for 2001 in October 2002, the Annual Financing Agreement for 2002 in June 2003 and the Annual Financing Agreement for 2003 in July 2003.

Following the national accreditation of the SAPARD Agency, the Commission audited the implementing and paying systems and adopted the decision conferring the management of aid to Hungary on 26 November 2002. By the end of September 2003 around 40 million Euro (EU contribution) had been committed by the SAPARD Agency (corresponding to 541 approved projects). This is about 25% of the total Community funds available to Hungary for the years 2000 to 2003. By the third quarter of the year the first disbursements by the SAPARD Agency to the beneficiaries had been carried out.

3. Recent EU-Hungary relations

4. The next steps following the Copenhagen summit (12-13 December 2002)

On 19 September 2002, all parliamentary parties and the government concluded a Joint Declaration on Hungary's accession to the EU. The Declaration that is the second of its kind after a first official Memorandum in 2000 states that Hungary's membership in the European Union will be a significant contribution to the re-unification of Europe and that of the Hungarian Nation, accomplishing democracy, welfare and human rights. The Declaration also stipulated the order, in which the different legal steps necessary to conclude accession should be carried out: The Constitution needed thus to be changed prior to the referendum to be held on accession. An amendment to the Constitution was required, e.g. for the introduction of an empowerment clause, allowing Hungary to transfer sovereignty to an international organisation, for the EP elections, the clause on the National Bank etc. The Joint Declaration foresaw the adoption of constitutional changes by 31 December 2002 at the latest by Parliament, and the proposed changes to the constitution were indeed unanimously agreed by the Parliament on 17 December 2002. In early December, an agreement was reached between the Parliamentary parties to hold the Referendum on accession on 12 April 2003, i.e. four days before the Accession Treaty will be signed in Athens. Hungary will thus be the third new Member State holding the Referendum after Malta and Slovenia. Around 84% of the Hungarian population voted in favour of EU accession, while the participation was rather low with less than 46%.
The final text of the Accession Treaty was agreed in early February 2003.

The Prime Minister and the Foreign Minister signed the Accession Treaty in Athens, and the President of the Republic will sign the Hungarian law promulgating the Accession Treaty.

INFORMATION AND CONSULTATION PROCEDURE IN TRANSITION PERIOD; OBSERVER STATUS OF ACCEDING COUNTRIES

Following the conclusion of the accession negotiations and as agreed in Copenhagen, the 10 acceding countries are being closely involved in the EU decision making by the introduction of an information and consultation procedure. On the basis of this procedure, the Secretariat General will transmit to the Missions of the acceding States all proposals or communications that could result in decisions being taken by the Council, in parallel to the transmission to the Council. All proposals concerning the enlargement process and the Europe Agreements are, however, excluded from this rule. Every accession country can then request consultations to be held within an Interim Committee and, if this is not sufficient, on Minister level. Protocols of Council meetings, consultations with the EP and Committees and classified material are excluded from consultations. After the signature of the Accession Treaty, acceding countries will be given official "observer status". This means that, besides the information and consultation procedure, acceding countries will have the right to comment on all issues, but no right to vote yet.

24 Hungarian Parliamentarians also received "observer status" in the European Parliament since 1 May 2003. Similar to the Council, they have the right to comment, but not to vote yet.

In the spring, the EU's new Personnel Service EPSO launched a tender to employ altogether 500 auxiliaries with knowledge of one of the languages of the acceding countries to cover the areas, which are in most urgent need for additional personnel (regional policy, agriculture, employment etc.). Within seven years after accession, the Commission intends to employ 3.441 permanent staff from acceding countries, out of which 489 are foreseen for Hungarian citizens. The selection procedures will start in December 2003 with the first A8 Concour.

5. The results of the 2003 Comprehensive Monitoring Report on Hungary

On 5 November 2003, the European Commission published the 2003 Comprehensive Monitoring Reports. While the report demonstrates that Hungary has generally met the commitments it made in the accession negotiations, progress still needs to be made in the following areas:

a) Hungary must take immediate and decisive action to address the following four issues of serious concern in the agricultural chapter if it is to be ready by the date of accession:

b) Secondly, in certain areas Hungary partially meets the commitments and requirements and needs to make enhanced efforts in order to complete its preparations for accession.

Chapter 1 - Free movement of goods

Chapter 3 - Free movement of services

Chapter 5 - Company law

Chapter 7 - Agriculture

Chapter 9 - Transport

Chapter 13 - Social policy

Chapter 19 - Information society

Chapter 20 - Audio-visual and culture

Chapter 21 - Regional policy

Chapter 22 - Environment

Chapter 23 - Consumer protection

Chapter 24: - Justice and home affairs

Chapter 26 - External relations

Chapter 28 - Financial Control

6. Transitional periods agreed with Hungary in the accession negotiations

In accordance with the individual needs of the future Member States transitional periods were agreed upon in the negotiations to provide the accessing countries with the time needed to adopt and implement the Community legislation in certain sensitive areas.

Hungary received transitional periods in all areas, for which it had put forward an official request. The transitional periods are in detail:

Free Movement of Services

Hungary has been granted exclusion of two specialised institutions from the scope of application of the banking directives.

Free movement of Capital

Hungary has been granted a transitional arrangement for five years after accession during which it may maintain its national provisions on the acquisition of secondary residences. Hungary has also been granted a transitional period for seven years after accession with regard to the acquisition of agricultural land. However, EU nationals who want to establish themselves as self-employed farmers and who have been legally resident and active in farming in Hungary for at least three years continuously are excluded from the scope of this transitional period. Furthermore, a safeguard clause for additional three years has been introduced on request by Hungary, based on serious disturbances in the land market and managed by the Commission.

Agriculture

• 1) Phasing-in schedule until 2013 with 25% in 2004, 30% in 2005, 35% in 2006, 40% in 2007 and 10% increase every year from 2008
• The new member states are offered two options to complement direct aid paid to a farmer under any CAP scheme - subject to authorisation by the Commission:

  By 30%, financed by the candidate countries rural development funds and national funds up to 55% in 2004, 60% in 2005 and 65% in 2006. From 2007 the new member states may continue to top-up EU direct payments by up to 30% above the applicable phasing-in level in the relevant year, but in this case the financing will have to be provided entirely from national funds,

or

Up to the total level of direct support the farmer would have been entitled to receive, on a product by product basis, in the candidate country prior to accession (2003) under a similar national scheme increased by 10%.
However, the total direct support the farmer can be granted after accession under the relevant EU scheme including all complementary national direct payments may in no case exceed the level of direct support he would be entitled to receive under that scheme in the existing EU.

A simplified scheme for direct payments is available for three years with the possibility to be renewed twice by one year on Hungary's request.

Hungary has not yet taken any decision, whether or not it will use the simplified scheme.

2) Transitional period for high capacity red meat establishments according to individual development plans lasting until 31 December 2006 at the latest.
3) Laying hens cages. Transitional period until 31 December 2009 for minor construction elements covering the existing cages, with a minimum height of 36 cm over 65% of the cage area and elsewhere at least 33 cm, located in 21 establishments brought into service before 1 July 1999.
4) Drinking milk. Authorisation for 5 years from accession to market within Hungary as drinking milk a product with a fat content of 2.8% (m/m)
5) Classification in wine-growing region C.I.b. During a transitional period of 10 years, a minimum natural alcoholic strength of 7,7% vol. would be allowed for table wines in all Hungarian wine areas. After this transitional period, the table wines should meet the C.I.b minimum natural alcoholic strength of 8% vol..
6) Transitional period until 31 December 2008 during which Hungary could use the name "Rizlingszilvani" as a synonym of the variety "Müller Thurgau" in respect of wines exclusively marketed in Hungary.
7) Rural development. Transitional measures, for the programming period 2004-2006, firstly to create a temporary rural development instrument, funded by the EAGGF Guarantee section, and secondly to provide for certain temporary derogations from the existing rural development acquis.
8) Existing State aids. Among the aids applied in the new Member States prior to accession only those communicated to the Commission by the end of the fourth month from the date of accession would be deemed to be 'existing' aids within the meaning of Article 88 (1) of the EC Treaty until the end of third year from the date of accession.

Transport

Hungary has been granted transitional arrangements on maximum authorised weights and dimensions (until 31 December 2008), on road freight cabotage (for a maximum of 5 years after accession), on full access to the Trans-European Rail Freight Network (until 31 December 2006) and on noisy aircraft (until 31 December 2004).
Hungary has agreed to a transitional arrangement put forward by the EU concerning the gradual reciprocal access to the cabotage market in the road haulage sector.

Taxation

Hungary was granted transitional periods until 31 December 2007 to continue applying a reduced VAT rate not lower than 12% on the supply of certain heating products, on district heating services and restaurant services. It may maintain a reduced VAT rate on the supply of natural gas and electricity until one year after the date of accession. Hungary may grant an exemption from VAT to taxable persons whose annual turnover is less than the equivalent in national currency of € 35.000. It may apply a reduced rate of excise duty of not less than 50% of the standard national rate of excise duty on ethyl alcohol, to ethyl alcohol, to ethyl alcohol produced by fruit growers' distilleries producing, on an annual basis, more than 10 hl of ethyl alcohol from fruit supplied to them by fruit growers' households. The application of the reduced rate shall be limited to 50 l of fruit spirits per producing fruit growers' household per year, destined exclusively for their personal consumption. The Commission will review this arrangement in 2015 and report to the Council on possible modifications.

Environment

Hungary has been granted transitional arrangements with regard to the acquis on packaging and packaging waste (until 31 December 2005), on urban wastewater treatment (until 31 December 2015), on large combustion plants (until 31 December 2005) and on the incineration of hazardous waste (until 31 December 2005).

Customs Union

Hungary has been granted a transitional period until the end of the third year following the date of accession or 31 December 2007, whichever is the earlier, for compliance with the Common External Tariff as regards the opening of a yearly tariff quota for aluminium, not alloyed.

Free movement of Persons

Hungary has agreed to a transitional arrangement in respect of the free movement of workers put forward by the EU. Restrictions on the movement of workers from Hungary to the EU will apply for a minimum two-year period as of the date of accession and may remain in force for a maximum of seven years.

7. The European Convention

Since it was founded the European Union has continually adapted itself to new members and world change. From March 2002 to June 2003, a Convention was held where parliamentary representatives and government nominees of the Candidate Countries and the Member States worked together on elements that were needed to make the Union more democratic, transparent, clear and simple. This will then be negotiated at an intergovernmental conference that will draw up a treaty for all the member states ("old" and "new") to be ratified in 2004. Trade unions, employer organisations, civil society organisations and individual citizens around the Union and the Candidate Countries were taking part in a debate within their countries on what they would like to see changed in the Union.

7.1. Hungary and the Convention

The three Hungarian Members of the Convention (for the government: Secretary of State for European Affairs, Péter Balázs, MSZP; for the governing parties in the Parliament: Pál Vastagh, MSZP; for the opposition: Dr. József Szajer, FIDESZ) played an active role in the discussion of the Forum.
Péter Balázs proposed e.g. a so-called "four-wheel approach" as regards the composition of the EU Presidency in the future, i.e. four countries should have the Presidency together for a longer period than six months. He also suggested that the next Intergovernmental Conference should by no means start before the last referendum in the newly acceding states has taken place, foreseen for September 2003. Due to his proposal the Intergovernmental Conference should furthermore not be finished before the ratification process comes to an end in all current Member States, and the new states actually become full fledged members themselves.
József Szajer officially proposed to include a special clause on the creation of a Committee on minority issues in the new Treaty. In another motion, he also proposed that the EU should join the Framework Convention on the Protection of National and ethnic Minorities.

7.2. Hungary's position at the Intergovernmental Conference

The official position of Hungary at the Intergovernmental Conference did not differ significantly from its position at the Convention. Together with some other member states and most of the accession countries Hungary argued that some of the points should be re-negotiated in the draft Constitution. The four main points of the Hungarian position:

• Every Member State should at any point in time have one Commissioner with full voting right
• The rotating presidency principle of the Council should be maintained in one form or another
• Enhanced co-operation should be allowed if more than half of the Member States are involved to ensure inclusiveness
• A paragraph on the rights of national and ethnic minorities should be included either in the preamble of the Constitution or in the Charter of Fundamental Rights.

Hungary does not oppose the inclusion of any reference to God in the Constitution nor the inclusion of Christian values.

8. Preparation for the European elections

President of the Republic Ferenc Mádl declared the 13th of June as the date of the first elections for the European Parliament. The Law on the Election of European Representatives, accepted on the 15th of December 2003 specified the method as proportional, list-based, where Hungary will be considered as one constituency. According to the law, parties collecting a minimum of 20,000 support signatures can set up lists (parties can also set joint lists); citizens can vote for a single list; the 24 EP seats allocated to Hungary are distributed among the parties, passing the 5% threshold, on the basis of voting ratios. Hungarian citizens staying abroad at the time of the EP elections can vote at the Hungarian diplomatic missions; voting there is supervised by four member election committees. Citizens of other EU countries with permanent address in Hungary can vote on the elections. As of March 2004, the following parties announced their intention to run at the elections: Hungarian Socialist Party, Fidesz-Hungarian Civic Alliance, Alliance of Free Democrats, Hungarian Democratic Forum, Hungarian Truth and Life Party, Workers Party, Green Party. According to the latest opinion polls, only the first three parties of the above-mentioned list have the chance to pass the 5% threshold.

Overview of key documents related to enlargement

Regular Report -  November 05, 2003	217kb	479kb	253kb	All countries
Regular Report -  October 9, 2002	680kb	711kb	739kb	All countries
Regular Report -  November 13, 2001	339kb	367kb	384kb	All countries
Regular Report - November 8, 2000	444kb	467kb	667kb	All countries
Progress Report - October 13, 1999	242kb	261kb	265kb	All countries
Progress Report - November 1998	144kb	151kb	170kb	All countries

Accession Partnership - November 13, 2001
English	37kb	All countries
French	40kb
German	40kb
Accession Partnership - October 13, 1999 (revised February 2000)
English	49kb	All countries
French	55kb
German	59kb

Opinion on Hungary's Application for Membership of the European Union - July 1997
Danish	516kb
German	768kb
Greek	NA
English	699kb
Spanish	407kb
Finnish	448kb
French	791kb
Italian	442kb
Dutch	460kb
Swedish	428kb

Press releases / News section

Interesting links

• EC Delegation in Budapest - Home page
• European Union Information Centre
• Euro Info Service. Sales Agent of OPOCE
• Prime Minister's Office
• eGovernment portal site
• "Eufórium" Website on the National Development Plan
• Central Finance and Contracting Unit (CFCU)
• Ministry of Foreign Affaires
• Ministry of Foreign Affaires. Hungary's EU integration website
• Ministry of Interior
• Ministry of Economics and Transport
• Ministry of Informatics and Communications
• Ministry of National Cultural Heritage
• Ministry of Education
• Ministry of Health
• Ministry of Environment
• Ministry of Social and Family Affaires
• Ministry of Agriculture and Regional Development
• SAPARD Office
• National Development Office
• National Agricultural Library and Documentation Centre
• General Inspectorate for Consumer Protection
• Hungarian Standards Institution
• Hungarian Statistical Office
• Hungarian Competition Authority
• ITD Hungary
• Hungarian Enterprise Development Foundation
• Budapest Chamber of Commerce and Industry
• Office for Ethnic and National Minorities
• Prime Minister's Office. Department for Civil Affairs
• Energy Centre
• Hungarian Energy Office
• Energiainfo
• National Institute of Public Education
• South-Plain Region
• North-Plain Region
• North Hungary Region
• Central Region
• West-Transdanubia Region
• South-Transdanubia Region
• Official translation of acquis communautarire
• Agricultural acquis in Hungarian
• EU portal site
• EC tender opportunities in Hungary (the Phare Programme)
• Hungary Euro Info-Centre Network
• Hungary's EU integration website
• Hungarian Academy of Sciences

Last Update April 7, 2004