Political Risk Analysis - 2018 A Key Year For Hungary's EU Relations - MAR 2018

BMI View: 2018 will be a key year for Hungary's relations with the EU as it clashes with Brussels over migrants and restrictions on foreign NGOs, with the potential for a significant deterioration. A failure to mend relations could see Hungary lose out on EU structural funding and be side-lined in discussions over the EU reform agenda, with negative implications for long-term economic growth.

Hungary's relations with the EU will become clearer in 2018 as the Hungarian government faces making key decisions on the country's willingness to integrate and comply with EU laws. In 2017 Hungary found itself increasingly at odds with EU policy and this culminated in the European Commission (EC) referring Hungary to the European Court of Justice (ECJ). With the prospect of fines from the ECJ if a resolution to the infringements is not found, risks remain elevated, and Hungary's willingness to flaunt EU rules, even in the face of fines, would give a strong indication of the path the government is on. Moreover, with discussions scheduled on the next structural funding cycle (2021-2027) and French President Emmanuel Macron pushing for further integration between core EU members, 2018 will be a key year in which Hungary's future position within the EU becomes more apparent. An outcome that leaves Hungary with less funding or more distant from core EU members would increase political and economic risks in both the short and long term.

Hungary's Uncertain Relations Within The EU

Sanction Risks Not Priced In
Spread Between Hungarian And German 10-Year Government Bond Yields, %
Source: Bloomberg, BMI

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