Eyes on Hungary: Leading Eastern Europe Away From Socialism, Yet Again

Hungary was an icebreaker for change in Eastern Europe in the 1980s, progressing well after the fall of the Iron Curtain and making a remarkable transition to democracy and a market economy. Hungary's performance was, for years, the envy of other democracies in transition: by 2002 it was attracting more foreign direct investment than all other countries in the region combined. It was among the first in the region to become a member of NATO and the European Union. A country of great intellectual resources and a well-trained labor force, with one of the most stunning cities in the world, Budapest, as its capital.

Eight years ago, a left-of-center government was elected.

It was going to be a continuing success. But complacency set in, lavish overspending on social welfare began, and necessary reforms of the welfare system and government were stalled. Wages rose, and Hungary soon lost its competitive edge. Two years later, in 2006, the social-liberal government of the socialist Ferenc Gyurcsany was reelected -- only to admit weeks later that he had been:

... lying to the public about the economy day in and day out.

Riots and a loss of credibility for his government followed. Corruption reached unprecedented levels; international relations got messy. Hungary drifted politically and economically for the next three years. The country saw the rise of extreme nationalists and long-suppressed anti-Roma (gypsy) and anti-Semitic sentiment.

Last year, the ideological and divisive Gyurcsany was replaced by the pragmatic caretaker Gordon Bajnai. He made clear that he would not run for office a year later, and he didn’t. He was tasked with the leadership of a deeply divided country on the brink of economic collapse, with unemployment rising to unprecedented levels and a looming debt crisis amidst the global economic downturn. Last year the Hungarian GDP fell by 5%.

Bajnai introduced serious cuts in spending, stabilized the economy with the blessing and support of the International Monetary Fund and the European Union, and is today a poster child for crisis management. Breaking with his predecessor, he has been clear about Hungary's relationship to the U.S. and was the first Eastern European country to take in a former prisoner from Guantanamo. He substantially increased Hungary's presence in Afghanistan.