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A recipe for overcoming Europe’s declining competitiveness

| June 13, 2017

In 2017, “the European Union’s previously unquestioned competitiveness is at risk,” said Prime Minister Viktor Orbán in a recent speech, and recapturing that competitive edge begins with the EU realizing that “if the Member States are not successful, the European Union itself cannot be successful as a whole”.

The prime minister was addressing a general meeting of the management of Daimler AG in Hungary. Daimler is a major investor in the country, employing more than 4000 people and producing Mercedes-Benz B-Class and CLA models at their manufacturing facilities in Kecskemét.

More than a ceremonial address, the prime minister’s speech put forward a recipe for the European Union to rebuild its global competitiveness, a recipe composed of the basic ingredients that have contributed to Hungary’s economic turnaround.

Hungary’s economy is currently growing at 4.1 percent, well above the EU average. But the country wasn’t always in the upper tier. “When the financial crisis broke [in 2008], Hungarians were hit very hard,” the prime minister reminded. “We collapsed financially before the Greeks did. No one remembers this today, but the first country to collapse financially was not Greece, but Hungary, which only managed to survive with bailouts from the troika.”

Greece nearly went bankrupt and its economy continues to struggle. What made the Hungarian recovery possible? The answer, according to PM Orbán is that “the Greeks did what the troika told them to do, while we did the opposite of what the troika told us to do.”

Criticized as “unorthodox” at the time, the Orbán Government rejected austerity and pursued a series of measures to bring the deficit and debt – including household debt – under control. Hungary sustained annual GDP growth between 1 and 3 percent between 2012 and 2016. “And now, in 2017, the plan is to raise growth to a range between three and five percent,” the prime minister said, “to keep it there for a few years, and to take yet another step forward from there.”

The prime minister presented the Hungarian proposal to attract investment based on four points. Attracting investment – after all – is closely tied to competitiveness.

The first part of Hungary’s offer is political stability. “If you look at the political changes in the various countries in Europe,” he said, “the proposition that Hungary is one of Europe’s most politically stable countries doesn’t seem too boastful.”

Secondly, investors will find a “strict and sensible fiscal policy” that keeps the budget deficit as low as 1.7 percent last year and one that strives for “a delicate balance between controlling the budget deficit and government spending aimed at promoting development and economic growth.”

Thirdly, companies are encouraged to take advantage of an education system that takes their needs into consideration. The government pushes for a dual training system that is tailored for meeting the demands of the job market.

Finally, Hungary offers its balanced fiscal system, policies the prime minister was defending against Brussels, “which tried to force on us the approach of ‘hanging everything on the same peg’. Luckily,” he said, “we did not heed their advice, otherwise we would look more like Greece today.”

Hungary’s success is Europe’s success and it wouldn’t have been possible if Hungary had not had the liberty to pursue its own economic path. If we understand the necessity of the success of Member States, according to the prime minister, we can identify four points vital for a more competitive EU, and the first one is precisely that policy independence.

“We should allow every Member State of the European Union to pursue its own economic policy,” PM Orbán said, adding that Member States shouldn’t allocate more economic regulatory powers to the EU level.

Secondly, the EU needs to correctly understand the nature of the new industrial revolution. For this revolution to work we need low taxes and cheap energy. “There will be no successful industrial revolution with high taxes and expensive energy”. This implies that we need to build good relations with regions that have cheap reserves instead of distancing ourselves from them.

Thirdly, innovation should receive even more funding. Prime Minister Viktor Orbán suggested that Europe could lose its competitive advantage when it comes to research and development, so it must be reinforced.

Finally, “the fourth thing we need to do is enter into new types of cooperation schemes with the world’s emerging regions,” the prime minister said, calling on Europe to open up to external opportunities.

“The present is bright,“ Prime Minister Orbán said,” but the future casts a shadow over it.” If Europe is to maintain its global position, it must be more forward-thinking to shape the future.