Good morning.
I respectfully greet you all. Thank you very much to President Parragh for inviting us to this meeting again this year. Everything that needed to be said has been said. As you have seen, the Government’s position continues to be that the beneficial strategy is that economic policy is formulated by the ministers for economic affairs, and that there should be some kind of base for all economic policies. By this I mean that there must be an intellectual base and that the Government must have some sort of partners with a kindred spirit and significant social influence, otherwise one cannot pursue economic policy. You have now seen that our economic ministers are in good shape, as they have shown us some excellent and encouraging figures, and they have created a good mood for today. At the same time, the President has also spoken about our cooperation with the Chamber. That is also looking good.
In European politics there are traditionally two types of basis for economic policy: chamber-based or trade union-based. Throughout Western Europe the trade union basis has thinned out and weakened, leading to the difficulties of Europe’s left-wing parties. But this is not what we are here to talk about today. Those political forces which are pro-market, pro-business and supportive of policies building on performance have generally conducted politics with some kind of background provided by employers. Fortunately, in recent years we have stood on this basis. This has continued, and it is cooperation with the Chamber that gives us this base for the longer term. Production, development, the market, work – these are the issues on which we have always worked well with the Chamber. So I see that we have in place the two preconditions for successful economic policy: economic ministries that can handle the situation – the Ministry of Finance and the Ministry for Economy; and a Chamber of Commerce that provides a basis for economic policy and that works well with us. Therefore I am optimistic about economic policy over the next two years.
But then why have a prime minister? This is the question, if economic policy is decided by the Chamber of Commerce and ministers of economy. There is much insight in this question. Prime ministers are generally maintained so that simple commonsense considerations do not disappear behind economic policy. Because all these tables, GDP and other kinds of hocus-pocus are all very important; but if you have a family, if you have ever seen a family, you know that in order for a community to be stable it needs some common sense which has never been violated by any scientific or economic policy standpoint. So the Government and the Prime Minister are maintained so that they always remind economic ministers of this. There are four such precepts over which I must watch over, and which I will report to you now, so that you need not worry about them disappearing from the background of economic policy.
The first of these simple, peasant wisdoms is that it is always better to be owed by others than to owe to others. Unfortunately, this situation does not yet exist. So far, the public debt figures do not show that Hungary is in a position to benefit from the truth of this wisdom, but that we have a very high ratio of inherited debt. I do not know if you remember the relevant table, but there in the left-hand corner of the table you could see that in 2002, when we lost that election, government debt was between 52 and 53 per cent. And from there it went up to over 80. We brought it down again, but COVID forced it back up, and now we are struggling with it again. But the point is that we have to get there, and we must not lose sight of the fact that in the end we should be the ones lending to others and not have others lending to us.
The second wisdom to be applied in government economic policy is that you must always earn more than you spend. I deliberately did not say that we must spend less than we earn, but that we must earn more than we spend. This is a different approach. So we must earn! We are not communists: communists thought that you could live well if people did not earn. That is not possible! So we have to earn more than we spend. In this respect the budget deficit has not yet stood the test of time. At the moment we are spending more than we earn.
The third point that we always make in economic policy is that it is better to work than to be idle. You can see the employment figures: if we do not work, we will starve: first we will go broke, then we will starve to death. So that is where all the effort must be concentrated, and the figures show that we are not doing badly in convincing people that it makes sense to work.
And the fourth precept is that it is always better for us to make money from others than for others to make money from us. I will talk about this in relation to profit repatriation. Well, the first point has been clarified.
Ladies and Gentlemen,
I have brought you the good news that the conditions for a stable economic policy are in place with regard to the stability of economic policy in terms of simple, commonsense precepts, with regard to cooperation between the Minister of Economic Affairs and the Ministry of Finance, and with regard to cooperation with the Chamber of Commerce.
How can we picture the framework in which the previous speakers have described the content of economic policy? The way I tend to express it for myself is that things were on a pretty clear, straight, successful, upward trajectory up until 2020. Then COVID arrived, and the war arrived. And then there is nothing else you can do: if the car needs to go uphill, you have to shift down to a lower gear – there is no way around it. So from 2020 to 2024 we have been living through low-speed years. And now we see the chance – and the Minister for Economy has also talked about this – that in 2024 we can change gear, shift up and build momentum. We are able to do this because the crisis between 2020 and 2024 did not crush or break the Hungarian economy. Let us remember that previous economic crises or financial crises were severe because they were accompanied by such a deterioration in the real economy that people felt they were constantly playing for all or nothing. Now, if we look at our economic slowdown between 2020 and 2024, we see that the real economy actually survived this period without major problems – which, compared to our previous experience of crises, is more than surprising. And I think that there are two reasons we have been able to do this. One is that between 2010 and 2020 we let people earn and we let businesses earn. So, compared to previous crisis periods, a large proportion of Hungarian businesses were in a much better financial situation, a really financially strong situation. The second thing is that, instead of the approach of mimicking and imitating the West and translating economic policy into this primitive formula, we started to think in terms of a complete global economic system of relations; and while the West faltered, the eastern leg of our economic relationship continued to flourish. While the West is failing to invest – look at the figures for the last four years – investment from the East is increasing. In the history of the Hungarian economy there has never been another time when in successive years the biggest investors were not the Germans, but the South Koreans and the Chinese. I note that Hungarian investors have also moved up to fourth place in their own country.
It is quite shameful to think that, thirty years after the fall of communism, Hungarian entrepreneurs are still only fourth on the list of the biggest investors in our own country. This clearly shows that we still have a lot of work to do; because in a normal economy – in an economy where capital was in a strong position – it would be normal for us to after all be the number one investors in our own country. But we started from so low and from so far behind that this current position can be appreciated, because it is an intermediate stage in a process of improvement.
Ladies and Gentlemen,
What I can also add to this meeting today is a description of the environment that will affect your economic activity and the Hungarian economy in the period ahead. A year ago I described the environment we are in now in the same words: I think I said then that the economic and political map of the world was being transformed. And if you try to put the events that you now see in the daily news into a logical order, you will see that this process has accelerated and is progressing very rapidly – that the world political map is being redrawn and the world economic map is being redrawn. There are two aspects to this: there is a geopolitical aspect and there is an economic aspect. I will just briefly talk about each of these in a few words, in a few sentences.
The geopolitical change is important for us because it poses a serious dilemma – perhaps on a historic scale. What we are seeing is that the western half of the world and the non-western half of the world are judging everything that happens in the world in ways that are diametrically opposed. One example is the Russo-Ukrainian war. The West has jumped into this war, and they talk about it as “our war”, but we Hungarians are the exception; meanwhile those in the rest of the world, at the very least, do not want to get involved in this war – or if they do say something more definite, they take a pro-Russian stance. Have you seen that now we have reached the point at which there is serious European public debate about whether troops should be deployed in the Russo-Ukrainian war? And we have the same situation in the conflict over Taiwan. The “One China”–Taiwan question is judged in one way by the Western world and in a completely different way by the rest of the world. This is also true – with minor qualifications – of the situation in the Middle East.
And what this means for you, Ladies and Gentlemen, is that geopolitics and geopolitical rivalry override market logic. So, after many decades, the primary consideration in shaping the world economy is not economic rationality, but political considerations. We have even reached the point at which technological development is essentially determined by political considerations. So this is the context in which you have to manage, building relations with both the western half of the world and the eastern half. The question of how this dispute ends is one that matters for Hungary. One option, which has very strong advocates in Western Europe, is described as “decoupling” or “derisking”. This involves the West decoupling itself as much as possible from the rest of the world economy and trying to protect what it has, because the competition it faces from the East threatens the loss not only of what it has acquired outside itself, but now also what it has in those territories it dominates – even its own internal markets, its European or American markets. And there is another school of thought, which says that it is undoubtedly true that the West is losing ground, and we have seen the figures here, but the reason is that we are not competitive. Because if we were competitive, we would not be using political means to stop the advance of the East, but would be trying to achieve the same goal in economic competition. But we are not capable of doing this at the moment. And it seems to me that Europe does not really believe that it is capable of initiating internal changes – internal changes promoting economic efficiency, productivity and effectiveness that would basically raise the economic competitiveness of you and Western businesses to the level of those in the East.
And I see that the same idea is strong in America. For us Hungary’s prospects will be fundamental impacted by how this debate is decided: whether there will be connectivity, whether the western and eastern halves of the world will be economically linked and economic rationality will once again prevail; or whether there will be a separation, and the course of technology, economic relations and trade will be dictated by politics. If the Cold War returns, if there is a separation, then the East-West border will be drawn somewhere here again – only this time not along Hungary’s western border, but along Hungary’s eastern border. But this will not change the essence of the matter: we will be the gloomy, dusty periphery of a Western world that is in fact of no interest to anyone. If, on the other hand, there is cooperation and trade, then we are between two worlds, and a country in which both worlds find their own opportunities. This is why in Hungary today those investments are very important which follow the model of a Western European company coming in, and a Chinese or South Korean company arriving alongside it, enabling these companies to cooperate in Hungary. They produce a product, an end product, in different factories. We have taken up the challenge, Hungarian economic policy has taken up the challenge, and we are betting on our success in maintaining this state of affairs between the two worlds. Because although it is clear that we are part of the West, with EU and NATO membership, we are not separating ourselves from the eastern part of the world. Perhaps this logic also explains to you the foreign policy moves that Hungary has made in recent years. We are also a member of the Organization of Turkic States, so we do not want to give up cooperation with the Turkic world, with Central Asia, with China – but neither do we want to give up economic cooperation with the Russians. We will only give up cooperation with them when European sanctions preclude it. Where they do not rule it out, our express aim is to strengthen economic growth – because there will be life after the end of the war. There will be trade, there will be an economy, and for us that will represent an important relationship and market opportunity.
Ladies and Gentlemen,
The question, of course, is how long will the war last? And what will be the consequences? The first thing that follows from the war is serious, and perhaps it is a lesson already learnt in Hungary: Europe cannot avoid rearming. This European rearmament does not sound good, but it will be inevitable. We do not know how long the Americans will stay here in Europe. If we cannot provide security for ourselves on our own, we will be in big trouble, and this is why there is accelerated military build-up all over the world. Our instincts were correct, because three or four years before the outbreak of the war we had started to build up and develop the Hungarian defence industry on a historically unprecedented scale. This is why we are two or three years ahead of everyone else. Politics is partly a world not only of inevitability but also of intuition, so sometimes one seizes on something and does something that turns out to give one’s own country an advantage of two or three years. I think this is true of the green transition, and it is also true of the development of the defence industry.
As far as the war is concerned, I would perhaps say to you that it is quite clear that the West will not win this war against the Russians. Since everyone in this room is over the age of eighteen, we do not need to talk about a Russo-Ukrainian war. This is a proxy war, and everyone knows it. Ukraine’s main strength in this war is not Ukraine itself, but those who are behind it. So this is a Russo-Western war, fought by Russia through Ukraine. And, I think, the reverse is also true: the Russians will not win this war against the West. Now, if it is true that the Russians cannot win it against the West and the West cannot win it against the Russians, then there is only one solution: sooner or later there will be peace negotiations. Now the question is, sooner or later? And here the decisive factor is one of who thinks that time is on their side. Those who see time as being more on their side will want to continue the fight, and those who see time as not being on their side should end the conflict. And here, in Western Europe, we have a great debate ahead of us. We are the only country that thinks that time is on the side of the Russians. But to be more precise, we do not know that; what we know is that we are the only country that says that time is on the side of the Russians. We therefore say that it is in our interest to bring this conflict to an end as soon as possible with a peace agreement – with a ceasefire and peace negotiations. Unfortunately, the majority of countries in Western Europe think that time is on the side of the West, and that by continuing the war negotiating positions can be achieved that are more favourable than the ones we have now. This is an interesting line of thinking if you are sitting on the Atlantic coast. If you are sitting here in the Carpathian Basin, however, it does not seem to be such a sensible idea; because the main pillar of Hungarian security strategy is that there must always be some kind of entity between Hungary and Russia. Right now this is called Ukraine. But from our Hungarian point of view – and here I am not looking at it through a Russian or a Ukrainian lens, but through a Hungarian lens – the question in this war is whether or not the Russian border is coming closer to us. And if it continues in the way it is continuing, then unfortunately time is not on our side – because, thanks to Russian military successes, that border will continue to move closer in our direction. This is completely against our interests. At the same time, we are also convinced that the only way to avoid this is for the West to get its act together and try to reach a negotiated peace. This will not be as easy now as it would have been a year ago, because a year ago the military situation was much more ambiguous than it is now. Now it is absolutely clear that the war is tilting towards the Russians and threatening us Europeans. I will not go any further with this, because after all this is not why we came here, but it is threatening us with the danger that emerged after the Second World War: with the Russians ending up only being willing to negotiate with the Americans. And then the entire security architecture of Europe will once again depend on a Russo-American agreement. This will be because the Europeans have failed to develop their own European strategy, failed to engage – or not engage – in the war according to their own game plan, failed to localise the conflict instead of extending it, and missed the right moment when even the Russians would have had an interest in a quick peace agreement.
So I have to tell you that this does not look good. So the immediate security environment for your economic activity is not looking good. Perhaps from this you will understand that it is not recklessness, but the only sane approach for Hungary to bank on the return of President Donald Trump. Because in the current situation we are in, those involved in this war will not find a way out of this conflict. Only a new player can find a way out – one who does not have to give an explanation for the war, because he comes from outside. He had no part in its outbreak – in fact it broke out because he was not the President. So the only chance the world has today for a relatively quick peace is a political change in the United States, linked to the President himself. For Hungary, therefore, whom we like or do not like is not a question of personal sympathy, or what we think of the Democrats and the Republicans; the question is which president, from a Hungarian perspective, will bring about foreign policy that will strengthen Hungarian security. And of course when we talk about this we have to be careful, because America is also a nation, and it has the sovereign right to decide for itself what kind of president it chooses. We cannot interfere in that. But perhaps the point worth making always and everywhere is that in the current US administration we do not see the ability to bring about a quick peace on this front, which is also a key issue for the Hungarian economy. Therefore we think that a “new” former president has more chance of success. I have mentioned these factors to make it clear that everything is interconnected and follows a logic: the logic of Hungarian national interests. What we think about American policy, about America, about the EU and about the Russians is all a rational consequence of the same logic, the logic of a Hungarian approach.
Ladies and Gentlemen,
Having said this, it is perhaps worth saying a few words about the region, perhaps starting from Europe – because there are elections in Europe, and in Europe strange things have been happening recently. Here I am talking in an economic context. I am sure that there are many people in this room who could name EU directives that have affected the economy, that have been in force for years, and the meaning of which are a mystery to us – except that we see that they are making life increasingly bad for us. We are in favour of the green transition, but if someone can tell me how it has been calculated that in 2035 no more petrol cars can be on the roads, they can probably apply to be considered for a Hungarian state award. How did this come about? What calculations were used to say 2035? And the problem is that the technological changeover has started, we have started to make it, and the irrationality of previous decisions is now slowing down certain processes. Look at these figures that our Minister for Economy has shown us. Now that we are approaching the deadline, when we really have to follow through on previous decisions, suddenly the transition is slowing down, the trajectory is changing and complete uncertainty will ensue. And you know better than I that uncertainty and unpredictability are the economy’s greatest enemies. So what I am trying to tell you is that the upcoming European elections will be extremely important. I would not even say that they will be important from the point of view of one party or another, but I would say that they will be important from the point of view of rationality. Because I can also describe the European political space for you by saying that on one side there are the federalists, the globalists, and on the other side there are us, the sovereigntists. And this is a true and reasonable description. But this is perhaps less interesting or important from your point of view: what matters from your point of view is common sense. And the fact is that in Europe today politics is ideologically driven. This is why we cannot say why 2035 is 2035. And I can tell you a number of other decisions that have deadlines attached to them, and you cannot say how they have been calculated and whether they have been followed through, and what the consequences will be for a particular national economy. The sphere of agricultural economy is full of such decisions.
What I want to say to you is that the biggest problem in Europe today is that the people who occupy the most important positions – and this is true in Europe’s central institutions, but also positions in the dominant European states – are typically left-wing, ideologically-minded people. They make decisions like that. And the essence of ideological thinking is that it cannot balance ideals and practice. Because, of course, ideals are always needed, ideals and paradigms are always needed. The question is, will wishful, ideological thinking prevail over reality? Because then a lot of decisions will be taken – as in climate policy or the agricultural economy – that seem ideologically or theoretically correct, but that in practice will ruin us. What we need, therefore, is for Europe to move from ideology-driven left-wing governance to a right-wing political course that is more respectful of reality and that seeks to derive economic policy from reality. There is a chance of this. I am not saying that there is a very good chance, but there is a chance – which it is worth playing for. So there will definitely be this kind of right-wing, rational change in Europe; at this stage it is difficult to say whether there will be a breakthrough, or just a shift in power. For there to be a breakthrough a lot would still have to happen, so if we look at things realistically, we are looking at a change in the centre of gravity. All this I have been talking about has not been without consequences for our formula for regional cooperation.
For a long time we have been thinking within a V4 structure: Poland, the Czech Republic, Hungary and Slovakia. It is not worth giving up on this: this framework still exists, it still has legs, there is still some life in it, we will still come together, and we still take joint decisions. At ministerial level, which is not so much in the public eye, this cooperation is much livelier than when we prime ministers meet – when we tend to show signs of paralysis. But in reality this still works, and it is not worth backing out of it. And in the meantime we also have to recognise that another form of cooperation – a new opportunity for cooperation between sovereign states – is unfolding before our eyes. The Slovaks have appeared alongside Hungary. The Serbs, who are not members of the European Union but are an indispensable part of Europe, are in the same position. And Austria will also have an election in September. So in the period ahead we could easily have an Austrian-Hungarian-Slovak-Serbian cooperation. This will not replace the V4, but it will appear alongside the V4, and will also have an increasingly strong economic content. This is important for us, because there are important opportunities for us in the Balkans.
Ladies and Gentlemen,
After this there is perhaps only one more thing worth talking about here. I will tell you frankly that everyone has a fixation – and prime ministers are no exception. I too have an obsession, which I can never bypass. This is the balance of profits. In economic policy this is the crux of the matter, if I may put it that way. Our balance of profits is improving and improving, but it is still not enough. By balance of profits, I mean how much money is being taken out of the country and how much money we are bringing into the country. The reason I have come round to this is not because it is a personal hobbyhorse, but because the question of how we want to solve the problem of the balance of profits determines whether Hungary thinks of itself as an open economy or a closed economy. I am convinced that we can only create a life worthy of us Hungarians by being an open economy: by participating in the world economy and achieving huge export performance. Therefore we must solve the problem of the profit ratio, the balance of profits. Very simply, the numbers are as follows. In Hungary today, foreigners who are here generate a lot of profit, taking out an annual average of 4–6 billion euros over the last few years. We are not doing badly either, of course, because this money has been earned by Hungarian people working in factories, research institutes, engineering centres and so on. So this also benefited Hungary; but in the end, 4–6 billion euros left the country. People are not usually happy about this, and wonder how we should keep it here. But if we impose a ban on repatriating profits, in other words if we close down, then there will be no investment. This is why I said that the question of openness or closedness in the Hungarian economy can be derived from the balance of profits, and the only way we can remain open and live with an outflow of 4–6 billion in profits is if we ourselves can collect at least that much from the world. In that case there is nothing wrong with openness. In other words, it means that while you are exporting 4–6 billion euros in profits every year, Hungarian entrepreneurs – you who invest abroad – have to generate enough profits to bring home 4–6 billion euros in profits. On average you bring home between 1.3 and 1.5 billion. So today the balance is this: 4–6 billion going there; 1.3–1.5 billion coming here. I will add to this the transfers from the European Union which are a surplus – because we pay into the European Union, and money also comes in. The difference between these sums is about 1–1.5 billion. If I add this, then let’s say 3 billion is coming in here and 4–6 billion is going out there.
So my request to the Minister for Economy was that of course all SME development is a good thing, and it should be done, and the Széchenyi Card is extremely important, and the Baross Gábor Credit Programme is also very important; but for our future the most important thing is to support those national champions who are able to generate profits abroad and bring them home, offsetting the profits that leave us. If this dimension is lost from our thinking, Hungarian economic policy will always resemble the poorhouse: we will work for others, and others will earn more from us than we earn from ourselves. This is unacceptable! This is why I say that the outward investment programme remains a very important element. MOL is part of this, I think, and OTP also, as it is everywhere in the background. We have two or three giants here, two or three giant entities or companies. By the way, I know this because even last year when we taxed them they were not happy about it, and the poor things said that the profits we taxed had all been produced abroad. And we still have such companies. We have real estate investors, and then there is the field of infocommunications, and soon the military industry will also come in. So Hungary does not need to be defeatist, because it is able to invest successfully abroad. We are building bridges and roads – I just met the President of the Republic of Congo the other day, and it turned out that we are building roads and bridges there. So I just want to say to you that if there is funding, which is in the hands of the Minister for Economy, and there is support for outward investment, which is also in his hands, and there are businesses which have products and services that are competitive in the outside world, then they will have to be launched in the period ahead. Otherwise what I have talked about will never be remedied, and there will always be a sense of being robbed and exploited. And it is impossible to live happily if every morning you think about how others have been making money off you again. One cannot live like that. This has to be solved somehow. And, while letting in modern technology, the only way it can be solved in a modern, integrated way is with a successful policy of outward investment.
My last comment. You have seen what the Finance Minister – with his calm voice – has slipped into the budget deficit figures. If you will allow me, Mihály [Varga], I think we should perhaps have a word about that. So the thing is that our budget deficit has gone to 6.5 per cent. And we have to come back from there. When we put together a timetable for this restoration, there are many aspects that need to be combined. Because we don’t want economic growth to come to a standstill, we don’t want to withdraw resources from the economy, we certainly don’t want to jeopardise the standard of living we have already achieved, we don’t want to back out of the child support system, and we don’t want to back out of the system of cuts in household energy bills. So if I combine all these factors, it is not so easy to find a budget deficit reduction path that we can follow. So the Minister has given a good illustration of what we agreed last time: that in 2024 our intention is to come down from 6.5 per cent to 4.5 per cent, to come down to 3.7 per cent the following year, and then to come down to 2.9 per cent. I have not mentioned another aspect that we have had to take into account, which is that now the European Union is returning to regulated economic operations after the post-COVID disorder. Before COVID the situation was that every country had to maintain a budget deficit below 3 per cent and public debt below 60 per cent. And if a country did not do this, it always had to present a programme on how it would achieve it. Now, if I have correctly understood the words of our Finance Minister when he reported from Ecofin, from the European Council of Finance Ministers, in September a decision is expected on how we will return to the earlier rules. And they are going to give us four years to return to them. This means that if we come down to 4.5, to 3.7 and then to 2.9, we will still have one year in hand. So if for some reason we do not manage to keep that pace across three years, we still have one more year: a final year to do it without risking EU retaliation and sanctions. So we are working with a one-year safety margin. I think this target is possible. Of course in addition to this every major European gateway has a side entrance; and these four years are calculated in such a way that if a country commits to major structural reforms – what is serious and what is structural is, of course, decided in Brussels – then they have seven years to meet the requirement, and not four. But we do not trust the Brusseleers enough to base our budgetary strategy on this, so for the time being let us stick with this solution of three years plus one reserve year.
Ladies and Gentlemen,
Finally, of course, we also have to answer the question of what happens if our bets do not pay off. What if developments in America are not what we want? What if developments in Brussels are not what we want? What if our reduction of the budget deficit proceeds more slowly? As a matter of principle we do not prepare a Plan B: we only have a Plan A, two Plan As or three Plan As. So we are always moving forward. There is no Plan B, but we have to be prepared for such a situation – not with plans, but with a system. And the best way in which I can give you an idea of our preparedness is to tell you about what I read somewhere in a book, perhaps about the Hungarian Revolution and War of Independence of 1848–49. The commanders in the Szekler regions were told that they had been completely surrounded. And one commander said the following: “That’s the best possible news.” When they asked him why, he replied, “Well, because now we can attack in every direction.”
This, Ladies and Gentlemen, is Plan B!