Maybe not, but Hungary’s true face has been hard to discern. As elsewhere in Central Europe, some impressive economic growth rates now seem to mask a messy picture of political immaturity and financial incompetence that threatens disaster. “Central Europe is a mess,” says Anders Aslund of the Institute for International Economics in Washington. “These countries just stopped undertaking good economic policies when they joined the EU.”
Hungary stands out, if only because it was once seen as a lodestar of respectable stability. No longer. The Budapest rioters were protesting the leaked admission by Prime Minister Ferenc Gyurcsany that he’d lied repeatedly about the state of the country’s finances to win a second term for his Socialist government in elections earlier this year. The true picture: a likely budget deficit for this year of 10 percent, the largest in Europe.
The full consequences of Hungary’s spendthrift habits are still to be seen. Economists talk darkly of parallels to the Asian crisis of 1997. A boom in foreign-currency loans has left Hungary dangerously exposed to any rise in interest rates or a dip in the global economy. Poland struggles with 16 percent unemployment; the Czechs expect to see their own budget deficit double next year. Indeed, the Czech Finance Ministry published full-page ads in the national press setting out the country’s grim financial position. (And, of course, blaming the previous government.)
If each country is different, one common weakness is a readiness to postpone the most sensitive of reforms. Ballooning budget deficits testify to a tendency to buy off the voters rather than risk their anger by slashing spending. “The big public-sector institutions–health care, education and local government–remain the same as under communism, a bottomless pit for government spending,” says Sandor Richter, a Hungarian specialist at the Vienna Institute for International Economic Studies.
Economic worries are feeding a resurgent populism, tinged with nationalism. To the dismay of Brussels, oddball extremist groups have found their way into government. In Slovakia, new leadership headed by the left is busy unraveling the free-market reforms–think flat taxes and looser labor laws–that made its predecessor the darling of foreign investors. Poland last week saw the collapse of its own right-wing government amid squabbles between conservatives and populist allies. In the Czech Republic, it took nearly three months to form a new government this summer, and the incoming coalition looks too weak to undertake serious reform.
