Swiss funds to soften harsh Hungarian reality

Wastewater still runs into the River Danube in Budapest swissinfo.ch

Hungary is grappling with stark social disparities as it tries to finds its place in the single European market after the collapse of Communism.

Swiss financial support to Hungary – as part of efforts to help the ten new European Union members adapt to western standards – could be used for infrastructure, environmental protection and regional projects.

Seventeen years after the end of the Cold War, Budapest looks like any other western city, at least at first glance.

Production and distribution plants of multinational firms have settled on the outskirts while expensive international shops and restaurants catch the visitor’s eye in the historical city centre.

Old Ladas have disappeared from the capital’s streets, replaced by the latest car models that now clog the city traffic.

And several thousand homeless people can now be found scavenging rubbish bins for scraps and sleeping on the doorsteps of the luxury shops.

Rich and poor

Over the past few years widening gaps have emerged in Hungary between rich and poor, the cities and the countryside, and between more developed regions in the west of the country and deprived areas in the east, where unemployment is as high as 20 per cent.

“The transition to democracy and a market economy was concluded several years ago. Naturally the changes resulted in winners and losers,” says Abel Garamhegy, state secretary for the economy and transport, casually.

“The winners are the majority, but the minority of losers have become much more visible in the past few weeks,” he adds.

But observers say the demonstrations in Budapest in September could be the first signs of major political and social tensions in Hungary.

Until recently the economy recorded impressive growth, supported by foreign investment and despite huge public debt. The state will inevitably have to tighten its belt if Hungary is to conform to the Euro zone criteria. The measures will include higher taxes and cuts in social benefits – although the government has long kept quiet about these.

Painful reforms

Garamhegy admits that Hungarians are facing a period of painful reform.

“The private sector has almost caught up with western standards. But public administration, the health sector, social security and infrastructure have not quite reached the level of the 21st century.”

Hungary is counting on assistance from the EU – and from non-EU countries like Switzerland – to take on the challenges.

Under an amended law on aid to eastern Europe, Switzerland is to grant SFr130 million ($104.4 million) to Hungary over the next decade as part of its contribution to the expanded EU.

“Switzerland’s assistance since the collapse of the Communist system has been extremely valuable. Swiss development aid projects have been the most efficient alongside those of the Netherlands and Japan,” said János Rapcsák, in charge of international relations at the Hungarian development agency.

He points out that the new funds, if approved by Swiss voters, would be used to upgrade infrastructure, and fund environmental and welfare projects, as agreed with the Swiss authorities.

Small companies

There are a number of sectors where the funds would be helpful, according to Urs Schmid, senior diplomat at the Swiss embassy in Budapest.

“Small and medium-sized firms, for instance, often work in rather old-fashioned ways, compared with bigger ones which benefit from foreign investment,” Schmid explained.

“The money could also help improve vocational training programmes, and modernise the public transport system which has to rely on outdated material.”

Swiss funds would also be welcome to upgrade the supply of drinking water and waste management in many towns and villages.

Even in Budapest more than half of all wastewater flows into the River Danube. And the lack of a proper sewage system and clean water leads to epidemics and deaths in some rural areas.

“After the collapse of Communism, many sectors couldn’t be made profitable and were shunned not only by investors but also by the state which didn’t have the means necessary to intervene,” said Schmid.

swissinfo, Armando Mombelli in Budapest

Key facts

Hungary joined the EU in May 2004, increasing the total number of consumers in the single European market from 400 million to 475 million.
Non-EU member Switzerland has concluded a series of bilateral accords with the EU since 2002.
The extended EU is likely to boost the Swiss economy by 0.2-0.5% annually.
The new EU-member countries in eastern and central Europe account for 3% of Swiss exports.
Last year the trade balance with these countries stood at SFr1.3 billion.

In brief

The EU will spend SFr33 billion next year to help boost economic growth and reduce social disparities in the ten new member countries which joined in 2004.

Switzerland pledged to contribute SFr1 billion for these efforts while negotiating a second set of bilateral treaties with the EU.

In March the Swiss parliament approved an extension of aid payments to eastern European countries – the legal bases for the contribution to the Cohesion Fund.

The rightwing Swiss People’s Party challenged the decision to a nationwide vote which is due to take place on November 26.

Switzerland has spent some SFr3.45 billion since the early 1990s to help transform the former Communist states in eastern and central Europe into market economies.