Hungary in the grip of a bear hug

 After six years of Orbán’s government, the country is much more dependent on Russia than it was in 2010, while Russia has gained influence over Hungarian politics, and potentially a way to interfere in EU decision-making.

Russia’s intervention in Ukraine represents an important turning point in Hungarian–Russian relations, because, unlike in most other European Union countries, it strengthened rather than weakened the relationship. Despite Russia’s partial isolation in Europe, Hungary’s Prime Minister Viktor Orbán and Russia’s President Vladimir Putin have met three times in the last three years: twice in Moscow and once in Budapest. Orbán also visited Kazan, where he spoke with his counterpart, Dmitry Medvedev. He was less generous in support for neighbouring Ukraine. Shortly after Crimea was annexed by Russia, Orbán famously demanded autonomy for Zakarpattia Oblast, and then stopped reverse gas flows to Ukraine just two days after Gazprom’s CEO visited Budapest.

It is hard to find another EU leader who has harsher words for the EU than for Russia. Orbán, who has never hidden his critical attitude towards the EU, labelled the sanctions on Russia “a shot in our own leg”. Already dependent on Russian energy supplies, Hungary was a firm supporter of the South Stream gas pipeline, even prepared to go against the European Commission to push the project forward. Now, it is backing Nord Stream II, the latest gas pipeline project. The press conference after Putin and Orbán’s meeting in mid-March 2016 showed that Hungary shares one voice with Russia on almost every crucial international development, from the migrant crisis and Russian intervention in Syria to the EU sanctions.

The limits of Orbán’s Realpolitik

Orbán’s supporters argue that his approach is justified, since Hungary has neither a border with Russia nor any problems with Russian ethnic minorities. Russia has long been viewed as a key energy supplier and a prospective trade partner. So, unlike his counterparts in Ukraine or the Baltic states, Orbán can focus on cultivating business and political relationships without worrying about Russian “little green men”. He does not even have to fear a sudden cut-off of natural gas supplies, since, although around 57 percent of gas consumed in Hungary comes from Russia, the country also has the largest underground storage infrastructure in Central Europe.

Therefore, some see the Hungarian prime minister’s policy as classic Realpolitik. Instead of cooperating with the EU in its time of crisis, the Hungarian prime minister has chosen to develop contacts with the non-democratic regional power in the east, which imposes no political commitments on his country and shows no interest in its constitutional transformation – instead, it promises cheap money. Moreover, despite his anti-EU language, Orbán has never provoked any serious confrontation with his Western partners to protect Russian interests. He was critical of EU sanctions, but he did not veto them, and he also ensured that Hungary remains a loyal NATO member. Seducing the Russians to gain economic benefits without giving much in return would indeed seem like a realist philosophy, if it were not for three factors.

Seducing the Russians to gain economic benefits without giving much in return would indeed seem like a realist philosophy, if it were not for three factors.

First, the post-Crimea period proved that Hungary’s opening to Russia extends beyond pragmatism, and looks like true admiration. Orbán, usually reluctant to compliment other politicians, has been outspoken in commending Putin as a strong national leader who stands up to Western liberalism and advocates traditional social values. But, more importantly, by putting Putin’s Russia on his list of illiberal role models in his famous 2014 speech in Băile Tușnad, he has also indicated the path his country will follow.

Of course, Hungary is not Putin’s Russia: no journalists have been killed there, no entrepreneurs have been sent to prison, and no geographic borders have been violated during Orbán’s tenure. Nevertheless, Putin and Orbán seem to think similarly about ruling their countries. Both have created bureaucratic administrations centralised around the leader, where loyalists are rewarded with public jobs, and public money is distributed in a non-transparent manner among local oligarchs. In both cases, the political elites have become alienated from society, creating a sort of hermetic circle of influence in politics and the economy.[1]

Secondly, Orbán’s opening to Russia has been neither effective nor reciprocal. The value of Hungary’s exports to Russia had already decreased by 2011, and the negative trend has accelerated since then, partly due to the EU sanctions and partly due to the collapse of the Russian rouble. Hungary’s OTP Bank, energy giant MOL, and pharmaceutical company Gedeon Richter have tried to conquer the Russian market, but as yet have had no success. One new major Russian investment in Hungary, the Paks II nuclear power plant expansion, has not moved forward in the last two years: it has been challenged by Brussels, and the European Commission has launched an in-depth investigation over suspected non-compliance with EU rules. Likely to the prime minister’s disappointment, Moscow seems not to regard Hungary as any kind of special partner.

Paks II as a strategic trap

Thirdly, Orbán’s strategy has been more than rhetoric and no action: the Hungarian-Russian relationship has also deepened the country’s and its governing elite’s dependence on Russia. His big opening has trapped Orbán – and the Paks II project serves as a good example.

The Paks nuclear plant accounts for around 54 percent of Hungary’s gross electricity production. The decision to extend the plant was made in the mid-2000s by socialist governments, but no tenders were launched. In January 2014, Orbán signed a contract with Russia’s Rosatom. No official tender was made, no proper feasibility studies were conducted, nor was there even any discussion in the Hungarian parliament. From the beginning, Paks II was beset by controversy. The government failed to provide any credible calculations or impact studies of the project, which many analyses say will create a major financial obligation for Hungary and prolong the country’s dependency on technology from Russia by around 50 years. There are growing indications that the Paks II project is a one-sided “leonine bargain”.

During the leaders’ last meeting in Moscow, Putin confirmed that the nuclear power plant would be built, despite the European Commission’s objections. Orbán thus faces a dilemma: either he must build it, exposing himself to protests from the EU and possibly the United States as well as to potentially serious legal consequences, or he must challenge both Putin and some in his own circles. Under the loan agreement, Rosatom will outsource 40 percent of the loan (€10 billion) – that is, distribute it among Hungarian subcontractors, who will be Orbán loyalists. So far, Orbán has sought to buy time: the two-year delay is down to the Hungarian side. But recently, Putin has insisted that he will vigorously enforce the execution of the project.

A de facto monopoly on trading gas in Hungary was given to the MET offshore energy company, which has headquarters in Switzerland and has two oligarchs, one close to Putin, one to Orbán, as main stakeholders.

Moreover, due to its non-transparency and questionable economic benefits, the Paks II deal has a very high risk of corruption. The government has provoked speculation by imposing secrecy regarding information (the Paks II data was classified for 30 years), and by exempting from legal oversight all public procurement pertaining to the project. Russia could use the threat of revealing information potentially unbeneficial for Hungary’s government not only to limit Orbán’s room for manoeuvre in the EU, but also to influence domestic politics in Hungary. Moscow has already allegedly been bankrolling the extremist party Jobbik, the second strongest political force after Orbán’s Fidesz, and is spreading pro-Russian propaganda on the Hungarian internet and in the media. Combined with the Paks II leverage, Putin could have unprecedented tools to control political life in Hungary.

No lessons learnt from the past

The Hungarian prime minister thus finds himself in the grip of a Russian bear hug. However, although he has made spectacular gestures towards Russia without receiving much in return, he continues the policy. After his last meeting with Orbán, Putin said that in December Gazprom extended its gas contract with Hungary until 2019, but no other details were revealed. This is, again, a very unclear deal: a de facto monopoly on trading gas in Hungary was given to the MET offshore energy company, which has headquarters in Switzerland and has two oligarchs, one close to Putin, one to Orbán, as main stakeholders. Another controversial business project was the tender to modernise the third line of the Budapest metro, which was won by the Russian company Metrovagonmash, in spite of the fact that a much better offer was made by an Estonian company.

Many countries in the EU, including Germany, Italy, and Slovakia, have conducted a reasonably friendly or pragmatic strategy towards Russia, but none of them maintains the relationship as ostentatiously as Hungary. This relationship extends far beyond vocal support: after six years of Orbán’s government, the country is much more dependent on Russia than it was in 2010, while Russia has gained influence over Hungarian politics, and potentially a way to interfere in EU decision-making.

Of course, Orbán is not the first Hungarian leader to try to dance with the Russian bear. One of his socialist predecessors and long-time rivals, Ferenc Gyurcsány, in the mid-2000s turned his eyes to Russia too. Last year, I asked Gyurcsány, today the head of the marginal opposition party Democratic Coalition, about this policy. “I considered Putin a democrat, as he kept repeating that he wants to democratise Russia, but he must be very careful. And I trusted him,” Gyurcsány said. “From today’s perspective, I see that we didn’t really know what is going on in Russia. And that this turn may be dangerous for us. I guess, we were simply naïve.” In ten years’ time, will Orbán say the same?

Dariusz Kalan was, until recently, the head of the Central Europe Programme at the Polish Institute of International Affairs, Warsaw, and is currently a freelance correspondent and analyst. He has reported from Bratislava, Budapest, Bucharest, Sofia, Western Ukraine, and Washington, writing for publications such as Foreign Affairs, The National Interest, and Prospect Magazine, as well as newspapers in all the Visegrad countries. You can follow him on Twitter @Dariusz_Kalan.

[1] For some time, Hungarian media have been publishing a series of articles about jaw-dropping fortunes that were made during the last six years by both Orbán’s family and his collaborators. At the same time, over 30 percent of Hungarians are at risk of poverty and social exclusion (according to Eurostat), and some 60 percent of young Hungarians are considering moving abroad due to the financial situation in their country, which is an EU high, according to Intrum Justitia.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.

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