EU Migrant Crisis: Focus On Hungary by Kaisa Stucke of Confluence Investment Management

There is no doubt that the EU migrant crisis is a catastrophe in term of human costs. It is fully evident that the EU was not prepared to deal with the magnitude of migrant movement into the region. This crisis also presents a political dilemma for Europe and may lead to re-establishment of border controls, intensify internal schisms over the extent of sovereign/EU authority and possibly sow the seeds of dissolution of the EU.

Migrant flows from the Middle East and Africa have affected European countries unevenly. The border countries have received heavy inflows of migrants, some of whom wish to stay in those countries, but most continue on to Germany and Sweden, who have indicated openness to accepting immigrants. However, many countries are not open to taking immigrants, either due to the lack of ability or willingness. Each of these countries is dealing with the flow of asylum seekers differently, with their approach determined by their relative economic wealth, the number of immigrants and their societal structure.

Hungary, due to its location on the main migrant routes to Germany and Sweden, has received an overwhelming number of immigrants. The large number of immigrants, both in absolute terms and relative to Hungary’s population, have overwhelmed the country’s refugee facilities. Hungary has indicated that it cannot accept all refugees and without a clear plan from Brussels, has tried various tactics to control the immigration flow, from erecting a 108-mile barbed wire fence to simply facilitating the refugee transportation to the Austrian border.

This week, we will look at how Hungary is handling the immigrant crisis and what its actions may signal for other European countries. We will start by looking at Hungary’s history and its position at the crossroads of empires which have shaped Hungary into a country that often directs a changing tide for Europe. As always, we will conclude with geopolitical and market ramifications.

Brief History

Hungary is a land-locked country in southern Eastern Europe. The nation has historically been at the crossroads of various European and Asian powers. As a country without strategic significance or rich natural resources, Hungary has historically had to make deals with the current power or hegemon in the region. Throughout its history, the nation has been attacked by a multitude of powers from the East and the West. As a result, Hungary has mostly attempted to placate its more powerful neighbors, not aligning strongly with any nation and being quick to adjust policies according to changing geopolitics.

Presently complicating the matter for Hungary is that it has seven neighboring countries; six of them are relatively new and are still trying to figure out their own foreign policies.

EU Migrant Crisis: Focus On Hungary
Source: Pixabay

The Kingdom of Hungary was established in the year 1,000 AD. During the 11th century, the kingdom was attacked by the Mongolian empire twice, with the first attack resulting in half of the Hungarian population being killed or sold as slaves. The Turkish invasion during the 16th century divided the country into three parts—the Hungarian Kingdom, the Turkish Empire and the Habsburg Empire. The country remained divided for 150 years, after which it was controlled by the Habsburg Empire in its entirety. In 1848, Hungary attempted to regain its independence, but the Habsburg Empire suppressed the movement. However, in 1867, the Austro-Hungarian Empire was established via a peace treaty, which granted more autonomy to the Hungarian segment of the empire (seen in the map below).

Hungary was highly involved in both world wars. As is well known, WWI began with the Austro-Hungarian Empire declaring war on Serbia after the assassination of Archduke Franz Ferdinand of Austria. The Treaty of Trianon, signed in 1920, formally ended WWI and the Austro-Hungarian Empire. The peace treaty established Hungary as an independent country, but reduced its size, cutting it down to one-third of its original land mass and reducing its population by half. As a result, many Hungarians still believe that the land taken from the country in 1920 should be returned.

Hungary was allied with Germany and Austria in WWII, declaring war on the Soviet Union. As the war wore on and it became clear that Germany was losing and the Soviets were likely to take the Hungarian region, the country’s leaders secretly met with the Soviets, attempting to create friendly relations ahead of the anticipated Soviet takeover. Through an interesting turn of events, Hitler found out Hungary’s plans and, since the country was essential in the defense of Austria, moved to occupy Hungary, installing local Hungarian Nazis in the new government.

This history of foreign invasion has instilled in Hungarian people a distrust of foreign powers. Its history of fighting with the Muslim Ottoman Empire is also affecting its perspective on the current refugee situation, which involve many Muslim immigrants.

After the Soviet Union fell in 1989, Hungary re-oriented itself toward the West. The country joined NATO in 1999 and the EU in 2004. Hungary is not part of the Eurozone, meaning it maintains its own currency, the forint, and conducts its own monetary policy. Hungary thrived economically and enjoyed a balanced political system in the post-Cold War period, with both the center left and center-right parties enjoying equal representation in the parliament. However, in recent years, popular support has shifted toward nationalistic movements, with the Eurosceptic trend gaining popularity among the younger constituency. Leading up to the migrant crisis, Hungary has been a vocal opponent of the EU-imposed austerity measures, the sanctions the EU has imposed on Russia and, most significantly, the advancement of EU-centered governance of what Hungary views as its own sovereign matters.

Additionally, it seems that Hungary has accepted that the best foreign policy is to align with the stronger regional players given its position as an aforementioned landlocked country with no significant natural resources that lies between greater geopolitical forces. Thus throughout its history, the country has hitched its wagon, sometimes willingly, and at other times unwillingly, behind the greater political forces that are perceived ascendant.

Since Hungary is often the first country to change its foreign policies with the changing of the tides, it makes the country’s policies a useful litmus test in revealing the greater trend for Europe overall, especially Eastern Europe.

Current Migrant Crisis

The EU has seen a steady increase in the number of asylum applicants in recent years. The number of asylum seekers remained relatively steady from 2001-2010, but the rate of inflows has risen considerably in recent years due to unrest in the Middle East. In 2013, the number of applicants rose to 431k and in 2014, topped 626k. Flows of migrants thus far this year are estimated to be 700k. This is the highest level since 1992. As a comparison, the total population of the EU is 503 mm and Europe has a total population of 743 mm.

Hungary

The composition of asylum seekers has also changed in recent years, with more applicants coming from Syria, Eritrea, Kosovo, Afghanistan and Ukraine. Refugees from the Middle East are likely outright political refugees, whereas refugees from other Balkan countries are

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