What would happen to Hungary if we left the EU?

The Banque de France carried out a study recently, theorising what it would be like for each EU member country if they had to make it work without the EU – reports hvg.hu. The thought experiment looked at each of the 28 countries and attempted to estimate the losses the countries would have to deal with based on commerce. The result is not very favourable for Hungary – out of all the 28 countries, Hungary would have it the worst.

Of course, it is always good to treat such studies with a certain amount of scepticism. After all, being a member of the EU is a rather complicated thing, as illustrated by all the Brexit drama. So, even if being a member affects our economy in many ways, the study points out the significant difference between the GDP of Hungary as an EU member at the end of 2016, as opposed to the 14.2% drop had Hungary was part of a simple free-trade region.

According to the studies’ estimates, Hungary’s GDP would drop by 15.2%, the biggest difference out of all the members.

For instance, current estimates say that Brexit will only cause a 2.4% drop when it comes to the GDP of Great Britain. The more surprising data is rather that even smaller countries similar to Hungary that have an open economy, like Slovakia or the Czech Republic, would also experience losses of up to 11-12%.

Reversing the EU integration process would affect Hungary tremendously. For instance, as a small and open economy, Hungary has been tightly integrated into the EU production value chains, making a considerable amount of profit out of the free flow of goods, services and the workforce, for instance.

In numbers, this means that Hungary’s current GDP is 17.7% higher than it would be if the EU member countries had only been in a commercial relationship based on WTO guidelines all these years.

So, the common market has benefitted Hungary a great deal over the years, only strengthened by being part of the Schengen Area since 2008 – adds portfolio.hu. Countries that are part of the Eurozone have enjoyed even more benefits. However, that does not affect Hungary at the moment.

Also, it is important to keep in mind that the study’s numbers are based solely on the benefits that come from the commerce of semi-finished goods. Naturally, other aspects of the common market influenced this, however, had the study been able to model these aspects accurately as well, such as EU financial aids, the numbers would show even greater welfare impacts on Hungary as well as on other EU members.

The past few years have not been too rosy for the future of the EU. Starting with the refugee crisis that caused the occasional reestablishing of borders, going against the free flow of people that the Schengen Area allows, and followed by the British decision to leave the EU, discussions started up about what the future of the EU could be like and how much danger the current EU integration is in. That is the background for the current study that set out to examine the economic effects of the collapse of the EU.

The study answers several ‘what if’ questions based on data collected since 1993 about the effects of the present setup of the EU versus how things would be like if the members were instead part of a looser, free-trade area.

It is pointed out that Hungary’s imports increased by 52% due to being part of the EU. This growth is the 4th most significant of all the members. The conclusion is that the EU advocates a stronger economic relationship between the members, favouring them instead of countries outside the EU.

Nevertheless, researchers acknowledge that this model is rather static and cannot accurately reflect the changes that took place over time or other such effects. However, they attempted to calculate the welfare losses of Brexit and how it would affect each country. As it turns out, a free-trade construction between the UK and the EU would be the least beneficial for Ireland that has an open economy and very strong ties to the British market. Other countries, Hungary included, would experience very little losses, with their GDP dropping only tenths of a per cent.

Theoretical studies that explore key concerns and possible future outcomes, such as this one, are fascinating but we cannot forget that they are still just speculation at the moment.

For more news, check out this article about the continued trend of Hungarian high schoolers leaving the country for universities abroad.

Source: hvg.hu, portfolio.hu