HUNGARY: 'Don't hold it against countries that they want to catch up'
Karin Palmquist

Reaching the finish line of a pursuit it started fifteen years ago, Hungary, along with nine other countries, became a member of the European Union on May 1 of this year. met with András Simonyi, Hungary's ambassador to Washington, to hear about Hungary's integration into the European Union, about the direction of his country's new government and about plans for an American base in Hungary.

On May 1, Hungary was one of ten new members to join the European Union. What impact of EU membership have you seen so far and what will be Hungary's contribution to the community?

"The accession was successful. It was smooth and it was also timely. We were more than ready for membership. The Hungarian institutions had embraced the whole idea of European integration at an early stage and they were prepared. Obviously it will take time, as it took time for all the other countries to fully integrate. Institutional integration is one thing, and people are another. Your institutions, your bureaucracy and your people all have to be driven by the same ideas, the same goals.

"I think we have brought some fresh blood into the EU. Each accession is good for the EU. When Sweden, Finland and Austria joined in 1995 that was good too. We have been part of the broader European market for a long time. It was about time that we also embraced the decision-making machinery. The big change for us is that we are now part of the decision-making, and part of the debate leading to the decisions.

"National interests don't go away with membership. It's one of the illusions that have to be dispelled. There were politicians in Hungary that thought that with EU membership, national interests would go away. That is not so. I believe being part of the EU brings out the best in each nation. Because we are now EU members, it doesn't mean that we are less Hungarian.

"We will contribute to EU with new attitudes. We have been deprived of our freedom for fifty years. There is a craving to make up for lost time. People want to catch up, financially and professionally. In addition we believe the technological skills we bring to Europe should be harvested.

"The elite has embraced membership quickly. They are the immediate winners. Then there is a broad layer of the populations that has high expectations of the EU, but doesn't exactly know why it is beneficial. A small layer is against the EU. I think perhaps the general sentiment towards the EU is a little bit more positive in Hungary than in other countries."

European finance ministers have clashed over Franco-German proposals to harmonize EU corporate taxes to prevent lower-cost member states from grabbing too much of the investments. The corporate tax rate in Hungary is 16 percent. Where do you think the line for national sovereignty should be drawn?

"We don't think it's a good idea to harmonize taxes. You have to leave some tools for the individual governments to bring out the best in each country. While a country is in the development phase this can be used as an incentive to attract investors. But the corporate tax rate is not the only reason why Hungary is attractive. I am strongly against putting pressure on countries to increase their corporate taxes. It is important for us to design packages that make Hungary an interesting place to invest. Don't hold it against countries that they want to catch up, that they want to make up for lost time. If there is solidarity in Europe, if there is an understanding that the faster Hungary, Poland, the Czech Republic catch up, the better it is for Europe, then this artificial debate will go away.

"We suggest that governments are left with some instruments to make themselves competitive. I'm against suppressing competition, because I believe competition is good. Hungary is not the issue. If the rest of Europe thinks that Hungary, Poland and the Czech Republic are the problem, then they are making a huge mistake. Global competition won't go away, even if they force Hungary and the other countries to adopt higher corporate taxes. All of Europe has to become more competitive. To make ourselves competitive we have to be more flexible, and that includes are more flexible labor market and labor market mobility. Hungary is against limitations in the movement of labor. That is contrary to not only Hungarian interests, but also the interests of the European Union.

"I think it was wrong to limit the movement of labor. The [Western] fears didn't take into account the inflexibility of the Hungarian labor force. Hungarians simply don't migrate. They are barely willing to move from one city to another. Then there was the perception of the spoiled part of Europe that thinks that money is everything. I think they still have this perception of the poor East where people are desperate to go to the rich West. This is all changing. We applaud the Swedish and Irish decisions to keep their borders open."

In Germany, corporations have tried to wring the arms of labor unions by threatening to move jobs abroad if workers don't agree to work more for less pay. The German chancellor has called such outsourcing 'unpatriotic,' not very different from the outsourcing debate in the United States. In the past, Hungary has received outsourcing contracts from German and American companies in the electronics and automotive fields. Do you worry about a backlash against outsourcing to Hungary?

"It's an artificial debate. If countries are ambitious, periodically they get rid of jobs that are at the lower end of the food chain. I find it amazing that this stirs such a debate. The question is, why can't these countries generate high-end jobs? This debate has been on in the United States and now it's on in Germany and France. This is the nature of market economy and there are limitations as to how much you should interfere. If you interfere, in the long run you become less competitive. You can temporarily protect jobs, but by protecting those jobs you become less competitive. You need to look at it as an economist, rather than a politician.

"If you want countries to catch up economically and not just look for assistance and aid, then this debate is artificial, because it's about holding back the natural economic growth in the less developed parts of the European Union. No one is disturbed when jobs move from California to Missouri. But when they move from Missouri to Hungary there is an outcry. Outsourcing is about competition. Hungary has benefited a lot from foreign direct investment because it was good to invest in Hungary. Hungary is now a country that has recreated its economy and modernized its industrial base. This development has to continue."

Inflation Hungary decreased in July and August to around 7 percent, but analysts say unless the country's spiraling budget deficit is curtailed this trend won't last. The new Hungarian government has pledged to work hard to cut the budget deficit. Can you tell us about the measures necessary to get the deficit down to the target of 4.6 percent of the gross domestic product?

"We have to cut government spending. There is no other way out. We have a tighter fiscal policy and the government is going to stick to it. We have to protect the forint and keep it stable. Thirdly, we have to cut down the enormously huge Hungarian bureaucracy. According to some calculations, ten percent of the whole population works for the government. This includes people who work in hospitals, because hospitals are state-run. All together this translates to one million people out of a workforce of 3.5 million.

"We will have to cut down on bureaucracy and painful as it is we will have to continue with privatizations. When Hungary catches up with Western Europe, the problems will catch up with Western Europe as well. I strongly believe that if we don't aggressively modernize the labor force, if we don't make the labor force more flexible, then we will not be able to keep spending the same amounts on welfare as we have been spending. You can't have it both ways. You can't protect the labor force the way you used to, and at the same time keep up the government spending. I'm a proponent of the welfare state, but I also understand the simple logic that you can only spend if you are able to produce. This will have to be the goal of our government.

"Discipline and flexibility go hand in hand. A good bureaucracy  -- I consider the Swedish, Finnish and Dutch bureaucracies to be good bureaucracies - takes initiative, it is flexible and supportive of political interests. A bad bureaucracy is slow, full of red tape. If you have a bad bureaucracy and on top of that you put EU regulations, it goes from bad to worse."

At the end of August, former Sports Minister Ferenc Gyurcsany was chosen as Hungary's new prime minister. Will the new government signify any policy shifts?

"Our new government means an important change for Hungary. This signals more than just a symbolic change. Our new prime minister is 43 years old. He was born after the watershed of 1956 [when students and workers took to the streets of Budapest demanding freedom and the Soviet Union responded to the protests by rolling tanks in to the Hungarian capital, killing 30,000 people]. He is part of a new generation that has cut with the past. This is a forward-looking generation of politicians willing to embrace modernization. Our Minister of Economy is 34 years old. He's the owner of a very successful technology company. He's worked in the private sector and has a good understanding of how the market works. The government has an understanding of how to keep the deficit down. Also, we have an ambition of reaching the euro. We're aiming towards being a part of the euro zone by 2010-12. Deadlines are good, but I believe the process leading to the deadline is even more important."

Hungarian exports to China increased by 240% in the first five months of 2004, compared to the same period of last year. Imports from China grew 9% the period January-May of this year, compared to the same period last year. Hungary is the biggest commercial partner of China in the Central Eastern European region. What is behind this booming trade with China?

"This is an unexpected, but important, relationship. We want to take full advantage of the growing interest for Hungary in China. It's quite amazing, but Chinese companies are outsourcing to Hungary. Everyone is talking about outsourcing to China, but this shows the ambition of China. I think it is part our location, the fact that we are inside the EU. Hungary is a good logistical base: we're close not just to Europe but also to the Middle East and Africa. And Hungary itself has become a small, but important, market for Chinese products. There is now a community of 60,000 Chinese in Hungary, up from zero before 1989."

The United States has built military bases in Kyrgyzstan, Afghanistan, Azerbaijan, Uzbekistan and Tajikistan and is planning to deploy military forces in Romania, Bulgaria, Thailand, Czech Republic, Georgia, Poland and Hungary. Can you tell us a little bit more about the plans as far as they involve Hungary? How many troops will be deployed in Hungary, and what are the time limits of the agreement?

"We are a firm member of NATO. Entering the European Union means more Europe but not less America. [In this interview] we have been on concentrating on EU issues, but the United States is still the number one investor in Hungary. One-third of our total foreign direct investment of $43 billion [including reinvestments] comes from the United States. We are in favor of an increased role of the European Union in terms of security and defense, but our first choice is still NATO, simply because we believe in the transatlantic relationship. It's so important that Europe and the United States cooperate on issues of security. We've had a good experience with American forces in Hungary. During the Bosnian war, Hungary provided a base in Bosnia. Most recently that base was used to train Iraqi forces. We've always had good cooperation. George Casey, the U.S. Army Vice Chief of Staff now in command of the Multinational Force in Iraq, used to command the base in Hungary.

"We are aware of the new concept the United States is pursuing, the lily pad concept [where instead of large numbers of troops based in places like Germany and South Korea, there would be a series of bases strung across the world like lilies across a pond, enabling the US armed forces to intervene more quickly in crisis spots]. The base in Hungary would not be the kind of base they have had in Germany. It would be a base that can shrink or expand according to needs. The base in Hungary is still under debate and no decision has been made. Hungary is open and ready. We provide a welcoming environment for the Americans. The local population is embracive, and that should be one argument in favor of stationing American troops in Hungary."

András Simonyi

Ambassador of Hungary to the United States

Born in 1952 in Budapest, Hungary.

Education & Professional Training
Graduated from the Karl Marx University of Economics (now Budapest University) in 1975. Holds a PhD in political science. Wrote his thesis on Denmark's security policy in the 20th Century.

Professional Career
2002 - Ambassador to the United States of America.

2001 - 2002   Ran his own consulting company, Danison Ltd.

1999 - 2001 Became the first Hungarian Permanent Representative on the NATO Council. Represented Hungary on the NAC during the Kosovo campaign.

1995 - 1999 Headed the Hungarian NATO Liaison Office in Brussels. Was a key player in preparing Hungarian membership in NATO and was a member of the delegation to negotiate Hungary's accession to the Alliance. Initiated the stationing of U.S. troops in Hungary as part of NATO's IFOR-SFOR campaign in Bosnia. Headed PR efforts prior to the referendum on NATO membership.

1992 - 1995 Deputy chief of mission at the Mission of Hungary to the European Communities and NATO in Brussels.

1991 - 1992 Deputy chief of mission in the Hague.

1989 Joined the Foreign Ministry to work with the so-called Central European Initiative aka Pentagonale as a personal assistant to the present foreign minister, László Kovács. He also headed the Nordic department of the Ministry.

1984 - 1989 Worked at the foreign relations department of the now defunct Socialist Workers' Party.

1980s Worked with different organizations in the field of youth exchange, in particular promoting East-West contacts, including programs with the American Council of Young Political Leaders.

Ambassador Simonyi was also Hungary's representative to the Western European Union Council for five years. He is vice-president of the Hungarian Atlantic Council, co- founder of The Center for Euro-Atlantic Integration and Democracy, and President of the Danish - Hungarian Friendship Society. He is also a frequent lecturer on security issues, trans-Atlantic relations, military reform and NATO enlargement. He has published numerous articles on the accession process to NATO, trans-Atlantic relations, European security, and the war on terror.

English, Danish, German, Dutch and French.

Married to Náda Peják and has two children, Dániel (22) and Sonja (20). His interests include blues music, plays the electric guitar.