Get used to it or run away dilemma for investors

The Institut für Europäische Politik (IEP), a strategic partner of the German Foreign Ministry and the European Commission, has published a detailed study.

The study analyzes the impact of Hungarian political trends on economic policy.

The main questions are already raised in the title: Adapt, Endure or Commit?

According to the introduction of the study, Hungary faces significant political and economic challenges in 2024. With the declared aim of strengthening national political and economic sovereignty, the Hungarian government is increasingly moving away from the fundamental principles of the EU.

So far, this policy direction has had no economic impact, as the majority of foreign companies operating in Hungary – especially German companies – have benefited from favorable investment conditions. In the past two years, however, an increasing number of foreign companies have reported restrictions on their activities that do not support free competition and the security of their investments.

Hungary’s competitiveness depends on foreign investments, primarily from the currently largest German companies. However, the investment value of Far Eastern manufacturers needed for the transition to electric transport may soon exceed that of German companies.According to the Hungarian government’s strategy, it intends to significantly increase the proportion of Hungarian ownership in the banking, telecommunications, and retail sectors. It aims to achieve these goals through company mergers and acquisitions carried out with state funds in recent years.

According to the study, these goals are facilitated by ministerial decrees exempting company mergers from competition supervision procedures.Widespread economic pressure is exerted on foreign companies through unique regulations and special taxes. These political measures hinder equal competition. At the same time, due to the previously good economic position of German investors, they have not taken action against the unfavorable changes in competition conditions. According to the study, foreign, and especially European, investors may face an even more disadvantageous economic situation in the future, which could affect the quality and value of investments. This is happening while the Hungarian economy is experiencing a decline in investments and is strongly export-oriented.

The study’s recommendations propose accelerating and strengthening the EU’s competition supervision, legal remedy, and consumer protection systems to enhance the security of foreign investments. However, it does not take into account that special taxes and competition supervision procedures fall under national jurisdiction. By the time legal remedies are obtained at the EU level, foreign investors will become more cautious and may decide to invest in other countries.

We wrote about German-Hungarian economic relations here