Hungary Between Former Soviet Union and the European Union

With the demise of Communist governments throughout the area of Soviet hegemony, new regimes have undertaken the privatization of many sectors of the region's economies and political systems. The new changes faces numerous obstacles, some universal and some unique to the practice of law. While the problems plaguing other sectors of these privatizing economies have been chronicled Hungary goal for this century is to join the European Union and leave stereotype of old fashion country which has communist regime. The late 1980s saw many centrally planned economies throw off the yoke of communism and embrace democratic market mechanisms. This systemic change provides scholars with an exciting research opportunity in Central and Eastern Europe. Hungary's move to democracy avoided massive demonstrations, violence, or bloodshed, and long-time observers of Hungarian politics were not surprised. Europe saw Hungary position itself to embrace a market economy when it left the Soviet sphere of influence. It informally left this sphere in 1989, and the parliament voted to withdraw from the Warsaw Treaty Organization in June 1990 (2). Because of its rapid transformation, Hungary furnishes one of the better venues for join the European Union.

Many countries in the world are undergoing a traumatic change from a planned to a market economy, from single-party rule to democracy. These changes are driving deep and lasting transformations in the managerial policies and practices in these countries. Few years have passed since the changes in government philosophy and Hungary continues to battle its tough economic problems. Generally, there has been one dominant problem - financing the country's large debt. Fortunately, this issue has receded due to strong current account performance, sustained trade, and increased reserves. The crisis of external finance has been replaced with the problem of an exploding state budget deficit which has grown out of control and is estimated at US$2.5 billion or 6.7 percent of estimated GNP at end of 1992 (The economist Intelligence Unit, 1993). (1)

The problem was Hungary, like the entire Communist system, was run with decisions concentrated among a very few people at the top, with everybody else expected to do what they were told. There was very little incentive for people to offer new ideas. New ideas were never encouraged, nor were they expected, nor were they rewarded. If anything, new ideas were punished. Therefore, a mass of very talented, very good people had their initiative eaten out. However, for the last two decades, and especially during the last three years, the Hungarian government has tried to attract foreign direct investment (FDI) to fuel several drives: (1) for greater integration into the world economy; (2) for increased technological development; and (3) for decreasing its US$20 billion foreign debt (Blue Ribbon Commission, Project Hungary, 1990). To attract foreign investment, the government has offered incentives that put a foreign owner or joint venture with a foreign partner at a competitive advantage over a 100 percent Hungarian firm, privately or state owned. Hungary's competitive advantage stems from a foreign-investment tax holiday, the ability to take profits in hard currency, relaxed import-export regulations, and liberal labor laws, although some foreign investors such as General electric have encountered serious problems linked to exchange rates and labor redundancy. Although the changing political and economic structure, along with Hungary's small domestic market, can be a disincentive to a multinational enterprise, its location (central in the European land mass) is an incentive for penetration strategies and good reason for Europe to consider Hungary as very possible candidate to Europe Union. Strong foreign trade performance has become a hallmark of the Hungarian economy. During the first eleven months of 1992, exports grew by 9.8 percent in dollar terms with exports to the OeCD growing by 13.7 percent and to the eC by 20 percent. (1) 1993 should show continued growth in Western and Eastern Europe. Nevertheless there are still many Hungary opponents don't consider Hungary as the member of European Union. In this paper I would like to answer the question; could Hungary join the European Union or not? Hungary is an associate member of the European Community (eC) and may become a full member during this decade. During the build up to next year's enlargement of the European Union, Brussels officials have been keen to argue that the accession of ten new members, eight of them ex-communist countries in central and eastern Europe, will not weaken the eU. What people rarely ask is: will the eU will weaken the accession states? ...

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