Exchange Rate Policy, Fiscal Austerity and Integration Prospects: The Hungarian Case

Hungary prides itself on being one of the ‘hottest’ candidates for EU membership in the next round of EU enlargement. It bases this on the fact that, amongst all post-socialist economies, the Visegrad-four have proceeded comparatively further in systemic transformation and economic development than other post-socialist economies. Moreover, in 1992/93, Hungary, together with Poland and the then CSFR, had signed ‘Europa Agreements’, which can be interpreted as a preliminary step to accession agreements. In fact, Hungary is the country which started as the earliest with systemic reforms in some form of a ‘third way’. This can be highlighted not least by the introduction of a two-tier banking system already in 1987, which envisaged, but failed to achieve at this early stage, the hardening of Hungary’s ‘soft budget constraint’ (Kornai, 1986).