Hungary's center-right Fidesz party won a major victory on April 11 in the first round of the general elections, giving its leader Viktor Orban the premiership eight years after his defeat by the center-left Socialist party. Fidesz claimed 206 out of the 386 seats by winning 52.7 percent of the vote. The Socialists claimed 28 seats by garnering 19.3 percent of the vote, the far-right nationalist Jobbik claimed 26 seats by garnering 16.7 percent of the vote and the liberal Politics Can be Different (LMP) party won 5 seats by garnering 7.5 percent of the vote. The remaining 121 parliament seats will be decided April 25 in runoffs of districts in which no candidate gained a majority. This will give Fidesz a chance to reach a 255-seat two-thirds majority, which will give the party the ability to change the constitution and enact sweeping structural economic reforms. The election of Fidesz gives Hungary its first non-coalition government since the end of the Cold War. This also represents one of very few instances in post-WWII European history in which a freely elected democratic party has won a two-thirds majority in the parliament. This will have implications for the Hungarian economy as well as Hungary's regional geopolitical dynamic. However, the election also points to a trend of electoral success for far-right parties in Europe, with the anti-Semitic, anti-Roma Jobbik party sweeping into parliament with a sizable seat count.

Domestic Repercussions

Fidesz's electoral success is not surprising. The fall of the previously governing Socialists began with an incident in 2006 that involved then-Prime Minister Ferenc Gyurcsany being caught on tape saying that the government had been lying to the nation about Hungary's economy, and that it had done nothing notable during its four-year rule. The incident led to a week of riots, which eventually culminated in an intense clash on the 50th anniversary of the 1956 Hungarian Revolution, leading to more than 120 injured. Gyurcsany survived the incident, but the Socialist party's popularity did not. Ultimately, the financial crisis in March 2009 forced Gyurcsany to resign. The Hungarian economy fell victim to its over-reliance on foreign credit, and was one of the first — and worst — hit by the global financial crisis that intensified in August 2008. During the boom years, Hungary — like many Central Eastern European countries — experienced robust economic growth. Local subsidiaries of foreign-owned banks provided the Hungarian economy with cheap, foreign currency denominated loans (mostly in Swiss francs). The introduction of this credit sent Hungarian consumer demand skyward, and had a similar effect on public and private sector indebtedness. But when the financial crisis intensified in late 2008, the tide of liquidity and credit that had hitherto financed economic expansion began to ebb. Liquidity evaporated, credit vanished and capital sought safe haven in less risky assets. As capital fled from emerging markets to stability, countries that had relied on external capital saw their currencies depreciate precipitously. From August 2008 to March 2009, the Hungarian forint weakened by about 26 percent against the euro, and 34 percent against the Swiss franc, increasing the real value of the public and private sectors' foreign currency-denominated debts proportionally. (click here to enlarge image) Hungary was the first European country to seek a bailout from the International Monetary Fund (IMF), which agreed to co-finance a 20 billion euro loan by the European Union and the World Bank. While the Hungarian economy appears to have stabilized, Hungary's large stock of foreign currency-denominated debt — nearly 70 percent of the country's total bank loans — means that it is still vulnerable, especially to anything that could weaken the Hungarian forint. If Fidesz can score another victory in the second round and claim a two-thirds majority April 25, it will firmly control of the government. The lack of opposition would enable the Fidesz government to undertake and implement the structural reforms necessary to re-balance the Hungarian economy, which contracted a massive 6.3 percent in 2009. As part of its efforts, Fidesz plans to try to renegotiate the IMF-EU-imposed target of 3.8 percent budget deficit for 2010, to give itself policy room to cut taxes that would engender growth while cutting public sector jobs, a move that will meet with public opposition. But, with as much political capital as Fidesz enjoys, it may be able to implement the measures.

Regional Implications

The return of Fidesz puts a center-right nationalist party back in power in Budapest. This is a worrying sign for its neighbors — particularly Romania, Slovakia, Croatia, Ukraine and Serbia — that have significant Hungarian minorities. For Fidesz, nationalism is not just rhetoric, it is a policy tool used to expand Hungary's influence in the region. The last time Fidesz was in power, then-Prime Minister Viktor Orban pushed through a controversial law giving Hungarian minorities in neighboring countries health, education and labor benefits. In fact, Hungary's regional nationalist rhetoric was so powerful during Orban's last term in power that the European Union decided to scale back its emphasis on a regionally focused policy; Budapest was simply taking the policy too far to try to dominate its neighbors. This time around, Fidesz may try to go one step further and extend citizenship to these Hungarian minorities. This could precipitate a crisis with Romania, Slovakia and Serbia, where tensions with Budapest are already high over the treatment of ethnic Hungarians. Whether the European Union and Hungary's neighbors like it or not, the 47-year-old Orban is here to stay. He has an enormous mandate behind him, and Hungary is an EU member state, which means the EU cannot pressure Budapest in any way to reduce its nationalist policies. At the very least, Brussels and Hungary's neighbors should be glad they are dealing with Fidesz alone and not with Jobbik, the anti-Semitic, anti-Roma far-right party that has links to the neo-fascist Magyar Garda ("Hungarian Guard"), a militant nationalist movement that preaches (and practices) violence against minorities. The election of Jobbik points to a recent trend — confirmed by the 2009 European Parliament elections — of increased electoral success of far-right nationalist parties. While this is not a new phenomenon — Europe's electorates often turn far right during times of economic crisis — it is one that is especially strong in Central Eastern Europe. Nationalist parties — even as far right as Jobbik — consistently have had electoral success in Europe, even when the Continent's economy was not experiencing a recession. Membership in the European Union has not suppressed the nationalist impulse. In fact, it has often given it a target and a platform from which to espouse nationalist rhetoric. Specifically, the EU Parliament has a number of far-right parliamentarians that enjoy lambasting the EU institutions from within. Nonetheless, most elites in the European Union have eschewed strong nationalism because the benefits of EU membership have thus far exceeded the benefits of populist, nationalist rhetoric. However, if the 2008 economic crisis has revealed one thing, it is that nationalism is slowly becoming politically convenient, and a successful political strategy. First, the legitimacy of the European Union is shaken, especially by how the bloc has handled the Greek economic crisis. Second, countries all over Europe are taking cues from a suddenly "normal" Germany that has been looking to further its own interests at the expense of European unity, especially during the aforementioned Greek crisis. We are witnessing a process in which the elite — once happily co-opted by EU solidarity — turns toward nationalism. We can therefore expect to see not only a rise in far-right nationalism, but also a reorientation of center-right parties such as Fidesz toward a more traditional nationalist platform. One further thing to note about Central Eastern Europe specifically, is that nationalism — and to an extent far-right nationalism — as an ideology does not have the same taboos associated with it as it does in Western Europe. It was, after all, nationalism espoused by anti-communist intellectuals and activists such as Vaclav Havel and Lech Walesa that led to the region's liberation from communism. Many of the same politicians that resented Moscow's domination have today evolved into euroskeptics wary of Brussels' growing control. Furthermore, the region is not as sensitive about confronting and addressing the apparent injustices of the previous wars — which were particularly territorial in Hungary's case — compared to the West, since peace was largely imposed on the region by invading Soviet armies. We therefore expect Fidesz's election to raise tensions in the region and spur Hungary's neighbors to respond by upping their nationalist rhetoric in kind.