Hungary Defence and Security Report 2008

The Hungarian government is still paying the price for the leaked tape affair of 2006, when a recording of Prime Minister Ferenc Gyurcsany admitting to party workers that he had lied to the public about the state of the economy and public finances was circulated. Violent street protests broke out in September/October 2006. Although it looked as if the government might fall, Gyurcsany has grimly and, it has to be said, quite efficiently held on to power throughout 2007, with the ruling Socialists lagging far behind the opposition Fidesz party in the opinion polls. There were new demonstrations in October 2007 to mark the first anniversary of the 2006 protests - a sign that the opposition is not going to let the Prime Minister forget that tape very easily. To his credit perhaps, Gyurcsany has set about righting his own government's economic wrongs, pushing through a painful but largely unavoidable set of reforms designed to reduce Hungary's record fiscal deficit. The worst point was 2006 when the fiscal deficit reached 9.2% of GDP, no less than three times larger than the EU's Maastricht criteria recommended upper limit of 3%. The deficit was expected to fall to 6.4% of GDP in 2007 and the target for 2008 was set at 4.1%. Although the necessary ongoing belt-tightening will continue to produce stresses and strains, there is still a chance that it will pay off in terms of growth by 2009/10, positioning the Socialists for some kind of political recovery before the 2010 elections. For the moment however, the balance of probabilities is that the centre-right Fidesz opposition is most likely to form the country's next government.

The impact of the domestic political crisis should not be underestimated, but the fact is that it has not had too much of a negative effect on the country's defence and security fundamentals. It is true that the fiscal squeeze has affected spending in this area, but Hungary enjoys a low level of security risk. The country has an implicit interest in the transition and developments in the Balkans, Ukraine and Russia. There are currently no major regional issues, although the security and human rights of Hungarian minorities in neighbouring countries remains a priority. Hungary pursues a policy of integration with regional and multilateral security organisations, achieving membership with the North Atlantic Treaty Organisation (NATO) and the EU, and nurturing alliances with global powers. The risk of international terrorist attacks has been greatly reduced since the withdrawal of Hungarian troops from Iraq.

Hungary has one of the smallest defence industries of the Central and East European countries. In order to survive in the long run, defence companies will have to specialise further in niche capabilities and strengthen their role as suppliers for big international prime contractors. Hungary's moves to modernise its defence forces and achieve full integration with NATO should create procurement opportunities in the coming years. Military expenditure has been drastically cut over the last decade, largely as a result of the strain on government finances from EU membership and the need to reduce the overall budget deficit, but is expected to now increase in the long term as the armed forces modernise and acquire new technologies.

Recently, Hungary has been receiving heavy criticism from NATO for falling behind its commitments.

Hungary is pushing through painful domestic reforms with only limited popular opposition. Budapest is improving its relations with Europe, and Russia - to the worry of some European analysts - and is extending its focus further away towards China and, of course, to the US. Threats to Hungary have reduced with its entry into NATO and the EU, furthering its military and political stability. Its armed forces are modernising to ensure NATO compatibility, and its small defence industry has undergone significant transitions and emerged with an industry that looks very different but still has much to say for itself.