Hungary’s Economic and Political State Prior to 2006
The Austro-Hungarian Empire (1867-1920)
In 1867, after battling invaders for nearly a millennium, Hungary became an autonomous state within the Austro-Hungarian Empire. This expansive empire had its northern border in present day Poland, its southern border in present day Serbia, and was bordered on the east and west by the Black and Mediterranean Seas, respectively. The empire was eventually defeated in World War I and through the Treaty of Trianon in 1920 the monarchy was disbanded, and after a period of turmoil, an independent kingdom was established under the authoritarian rule of Admiral Miklos Horthy. Due to the terms of the treaty and the redrawing of many European borders, Hungary’s size was reduced by two-thirds, leaving more than 5 million native Hungarians outside of the country’s borders. These effects remain a sensitive issue for many today and still complicate relations between Hungary and its neighbors. In the events that led to World War II, Hungary joined forces with Nazi Germany by joining the Anti-Comintern Pact and withdrawing from the League of Nations. These measures were taken in an effort to regain its lost territory from the World War I aftermath. At the start of World War II, Hungary remained neutral, however with pressure from Germany, Hungary entered the war in 1941 by invading both Yugoslavia and the Soviet Union. After several early battle losses, Hungary began secretly negotiating with the Allies. Hearing of these negotiations, Germany invaded Hungary and installed a puppet government. This new government began eliminating the Hungarian Jewish and Roma populations until Soviet forces in Budapest drove it out in 1945. In the wake of these events, the capital and much of the country was left in ruins.
The Soviet Era (1945-1989)
After World War II, Communists held power in Hungary with the support of the Soviet Union. A new land reform bill was passed that redistributed land from large estate owners to peasants. Additionally, during this time, industries became nationalized and collective agriculture was instituted. Hungary joined the Warsaw Pact aligning itself with the Soviet Union. The Hungarian population, however, was dissatisfied with this government, and in an effort to appease the people, the government instituted reforms such as withdrawing from the Warsaw Pact and becoming a neutral power. These concessions on the part of the government allowed the Hungarians to realize their power and they demanded further reform and removal of Soviet domination. As a result, Hungarians revolted against the Soviet domination of Hungary. Although the Soviet Army defeated the Hungarians, killing more than 2,500 citizens and forcing more than 200,000 to flee, a new government was instituted. This government, led by Janos Kadar, was still Soviet-friendly, but recognized the need for reform and began to become gradually more liberalized through the 1960’s.
The Path to the European Union (1989-2006)
In 1989, Hungary was the first country to breach the “Iron Curtain”. Soon thereafter, Hungary transitioned from Communism to a multiparty parliamentary democracy that welcomed foreign investment. Initially, the result was a dramatic decline in economic activity and living standards. However, within four years of the collapse of communism, nearly half of the country's economic enterprises had been transferred to the private sector, and by 1998 Hungary was attracting nearly half of all foreign direct investment in Central Europe. In 1994, as a backlash to its rapid liberalization, Hungarians voted the Hungarian Socialist Party (MSZP) into power. The MSZP was a center-left party and the unofficial successor of the Communists. This government supported and funded social programs while also continuing with economic reform by selling off government owned enterprises and implementing targeted austerity measures. Soon, the country’s...
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