-13.

The Hungarian Economy

I. Introduction to the topic

Macroeconomic indicators

Like most of the member countries of the EU, Hungary is also preparing for accession to the
eurozone. Before it can enter the European Economic and Monetary Union (EMU) and adopt the
euro, macro data have to be analysed in accordance with the Maastricht criteria. The most
criticised area is the twin deficit, the parallel deficit of the current account and the government
budget.

Measures to be taken to meet the convergence criteria

Lasting budgetary equilibrium can only be achieved through structural reform of the expenditure
side, making the introduction of austerity measures necessary.

In parallel, there is a need for an increase in budgetary revenues mainly through the widening of
the tax and contribution base and limitations in the scope of tax avoidance. Nonetheless, the
changes affect all major components of the tax system.

In order to achieve a durable reduction in the budget deficit and to maintain a level to underpin
sustainable growth, the government has initiated substantive structural changes in health care,
and in the pension and education systems. These reforms are aimed at attaining the deficit
targets through the modification of operational parameters.

In addition, there is also a need for an economic and social policy turnround by promoting a
more efficient performance of public tasks through appropriate state control, and
strengthening responsibility for payment of public dues.

Black and grey employment

Many people hide their real income from the authorities, and pay less tax and social security
contribution than they are supposed to pay. This results in a deficit in the social security system
and lower tax revenues. Illegal employment is rather common in Hungary, especially in the fields
of construction, industry and agriculture.

Ageing population
The problem of fewer and fewer active people providing for more and more pensioners is
hitting the whole of Europe. Hungarys labour force participation rate is one of the lowest in the
region. In order to ease the social security burdens, there is a general tendency to raise the
retirement age. At the same time the desertion of young graduates to Western Europe for
better employment opportunities is on the increase.




The position of Hungary in the EU

The unfavourable macroeconomic data seriously affect Hungarian competitiveness. The
neighbouring countries such as Slovakia, Poland and the Czech Republic are better at attracting
foreign direct investments (FDI) by offering better conditions than Hungary.

Vocabulary exercises based on the introductory text

A. Match each word in the left-hand column with a word or phrase similar in meaning
from the list opposite


1. convergence

a. started
2. achieved

b. implementation
3. austerity c. situation in which there is little money for
spending on comfort and enjoyment
4. initiated d. reinforcing

5. turnround e. attained

6. promoting f. abandonment

7. performance g. assisting, encouraging

8. strengthening h. complete reversal of direction

9. desertion i. coming together towards the same point

10. unfavourable j. disadvantageous



B. For each item listed below, find in the text a word or phrase given in bold that is
similar in meaning

1. in conformity with (three words)
2. actions taken to bring about a certain result
3. state of balance ..
4. restrictions .
5. influence .
6. long-lasting .
7. considerable, significant .
8. directed
9. general movement or development in a certain direction .
10. ability to compete .



II. Hungarian text
Exercise 1

Cover the English words and expressions given on the right and try to guess the English equivalents of
the underlined parts of the Hungarian text.

Exercise 2
After checking your guesses against the equivalents listed on the right, give an oral summary of the text in
English.


Brsszel
i
tovbbi reformokat srget
ii

Npszabadsg 2007. december 11.

Haznk elrelpse
iii
egyelre korltozott" a versenykpessgben
iv
; az Eurpai Bizottsg
v

a kzigazgatsban
vi
, az egszsggyben
vii
, a nyugdj-, s az oktatsi rendszerben
viii
is tovbbi
lpseket srget.
Tbb kritikus megllaptst
ix
is tartalmaz az Eurpai Bizottsg kedden nyilvnossgra
hozott lisszaboni" jelentsnek
x
haznkrl szl fejezete, amely makro-, s
mikrogazdasgi, tovbb foglalkoztatspolitikai szempontokkal
xi
is foglalkozik.

A 2005-07-es magyar nemzeti reformprogrammal kapcsolatban a bizottsg megllaptja:
ugyan gymlcszni
xii
kezdenek a kltsgvetsi hiny cskkentse
xiii
, az llamhztarts
fenntarthatsga
xiv
rdekben tett lpsek
xv
, de tovbbi elrehaladsra van szksg.
Ugyanakkor az elregeds
xvi
fnyben ez a fenntarthatsg tovbbra is magas kockzat,
illetve trkeny
xvii
.

A vllalt mikrogazdasgi clokkal kapcsolatban a bizottsg gy vli: nincsenek konkrt
lpsek az llami tmogatsok
xviii
cskkentsre, illetve arra, hogy elgsges-e ezek
leptse
xix
. Brsszel dvzli
xx
viszont a kutats-fejlesztsi
xxi
s innovcis stratgit, de
tovbbi elrelpst vr. Nem ltnak magyar hatridt
xxii
a vllalkozsok
xxiii
adminisztratv
terheinek
xxiv
cskkentsre.

Nincs lthat halads
xxv
az llandsult regionlis egyenltlensgek
xxvi
cskkentsre a
foglalkoztatspolitikban, sem koherens politika
xxvii
a munkaer alacsony mobilitsnak
xxviii
kezelsre. Brsszel itt is tovbbi reformokat srget, klnsen az oktatsban s a
kpzsben
xxix
.
A Bizottsg dvzli a korkedvezmnyes nyugdjazs visszaszortst
xxx
s a
rokkantnyugdjazs
xxxi
rendszernek reformjt. Elismeri
xxxii
, hogy a magyar kormny
nekifogott a feketemunka elleni harcnak
xxxiii
. Tbb koordincit s odafigyelst kvetel
xxxiv

viszont az lethosszig val tanuls
xxxv
, az alacsony kpzettsg emberek
xxxvi
beemelse a
munkaerpiacra
xxxvii
, valamint tbb munkalehetsg biztostsa
xxxviii
a nk szmra.
1607 n





III. English text

Hungary plans budget controls
By Stefan Wagstyl in London
Financial Times, 14 November 2007

1. Hungary, after years of soaring budget deficits, plans to revise its constitution to impose
legally-binding limits on government spending plans, says Ferenc Gyurcsny, the prime
minister. The draconian legislation, which would be the toughest of its kind in Europe, would be
enacted next spring in an attempt to break a tradition of pre-election spending sprees that have
earned Hungary the biggest budget deficits in the European Union, including 9.2 per cent of
gross domestic product last year.
2. Mr Gyurcsny told the Financial Times on Monday that legislation published at the weekend
was required to ensure that the country, now in the throes of a painful economic restructuring, did
not stray again from the rules of budgetary discipline. Asked why politicians could not be trusted
to run sound budgets without legal controls, the prime minister replied: "Sometimes we have to
protect ourselves from ourselves."
3. Mr Gyurcsny is presiding over Hungary's biggest budget cuts in a decade, with the deficit on
schedule to fall from last year's 9.2 per cent to 6.4 per cent in 2007, with a further cut planned for
next year to 4.1 per cent.
4. Under the proposed legislation, parliament would amend the constitution to require
governments to run sustainable budgets with a primary surplus - that is a surplus of revenues

over expenditures, excluding debt service costs. Budgets would also have to allow for regular
annual reductions in the public debt, which currently stands at 67-68 per cent of GDP.
5. Under the Maastricht Treaty, eurozone members must abide by legally-binding limits,
including on budget deficits (3 per cent of GDP) and total public debt (60 per cent of GDP). But
the EU made the regime flexible after breaches by several countries, including France and
Germany, its largest members. Outside the currency zone, Scandinavian states and the UK have
applied government-set limits on borrowing across the business cycle, but these are not legally
binding. Poland's constitution has a 60 per cent ceiling on public debt.
1700n

Important terms

legally-binding limits legislation passed by the government to make it illegal for
it to overspend budget amounts prior to the election

spending sprees bouts of extravagant expenditure

gross domestic product (GDP) total value of goods and services produced in a
countrys economy, not including income from abroad

primary surplus a surplus of revenues over expenditures

debt service costs expenditure involved in paying interest on debt and repaying
the debt itself

public debt money owed by the national government and local authorities

Maastricht Treaty - officially known as the Treaty of the European Union, it
brought the EU into existence
Extended vocabulary

soaring: increasingly high
draconian: extremely harsh or drastic
in the throes of: deeply involved in something
presiding over: in charge of, responsible for
abide by: accept and respect
breaches: repeated breaking (of a rule or agreement )
ceiling (on debt): upper limit of permitted debt

Comprehension questions


1. How is the Hungarian government planning to deal with its budget deficit?

2. When is this new legislation to be enacted, and why?



3. How does Hungarys budget deficit compare in size with those of other EU countries?



4. What does Mr Gyurcsny hope this legislation will achieve and why does he believe it is
necessary?


5. By how much does Mr Gyurcsny plan to cut the budget in relation to the 2006 deficit?



6. In order to pass this legislation, what step must Parliament take first?



7. What budget constraints would this new legislation place on governments?



8. How big is Hungarys total public debt in terms of GDP?



9. What are the Maastricht criteria for eurozone members?



10. Why was the EU forced to make the Maastricht criteria more flexible?



11. What other countries have set government-spending limits and how do these limits differ
from the proposed Hungarian limits?


IV. Discussion questions

A. Discussion questions related to the text

1. Do you think that a plan to impose legally-binding limits on government spending will work?
Justify your answer.

2. What factors have contributed to the fact that currently Hungary has the biggest budget deficit
in the European Union?

B. Additional discussion questions

1. How would you describe the present situation in Hungary in terms of the macroeconomic
indicators and also its progress towards the adoption of the euro?

2. What problems do black and grey employment present?

3. What economic reforms do you think are most urgently needed in Hungary to enable it to put
its finances in order? What budget areas need to be cut?

V. Role-playing exercises

25. Flexitime

Student:
You are the office manager for a company. The CEO has asked you to prepare a report on the
feasibility of introducing flexitime. He wants to know what would be the benefits to the company
and staff, the financial costs and the disadvantages, if any.


Examiner:
The board of your company has recently considered introducing the flexitime system, but needs
more information about the advantages and disadvantages, and the costs. Youve asked your
office manager to prepare a report and are now meeting to hear his/her conclusions.


26. Raising capital

Student:
You are the financial advisor at a family-owned company that needs to raise some extra capital
in order to invest in a new plant. The representative from this family firm meets with you to
discuss the potential sources from which money might be raised and the possible drawbacks.


Examiner:
You represent your familys firm, which needs capital to invest in a new plant to meet expansion
needs. You arrange with your companys financial advisor to discuss what plans he might have
for raising the extra finance.











i
Brussels
ii
urges
iii
advancement
iv
restricted in competitiveness
v
European Commission
vi
public administration
vii
health care
viii
pension and education system
ix
critical statement
x
Lisbon report
xi
deals with aspects of employment policy
xii
bear good results
xiii
cutting the budget deficit
xiv
sustainability of public finance
xv
steps taken
xvi
ageing
xvii
fragile
xviii
state subsidies
xix
reduction
xx
welcomes
xxi
research and development (R&D)
xxii
deadline
xxiii
enterprises
xxiv
burdens
xxv
visible progress
xxvi
regional inequalities
xxvii
coherent policy
xxviii
low mobility
xxix
training
xxx
forcing back early retirement
xxxi
disability pensioning
xxxii
admits
xxxiii
has got down to fighting
xxxiv
requires coordination and attention
xxxv
life-long learning
xxxvi
people with low qualifications
xxxvii
labour market
xxxviii
providing job opportunities