Changes

Hungary's key national security focus since joining NATO in 1999 has been contributing to the stability of the region while integrating its armed forces into NATO's force structure. Hungary takes a keen interest in NATO expansion and in the transatlantic link. It shares a more acute sense of the threat than many other European countries and is watching events in the Balkans, Ukraine, and Russia with great interest. Hungarians believe that Hungary's own security and that of its ethnic minorities in neighboring countries will be best served by a peaceful, unified region, which will be achieved when EU and NATO membership is extended to the entire region.

Hungary's key national security focus since joining NATO in 1999 has been contributing to the stability of the region while integrating its armed forces into NATO's force structure. Hungary takes a keen interest in NATO expansion and in the transatlantic link. It shares a more acute sense of the threat than many other European countries and is watching events in the Balkans, Ukraine, and Russia with great interest. Hungarians believe that Hungary's own security and that of its ethnic minorities in neighboring countries will be best served by a peaceful, unified region, which will be achieved when EU and NATO membership is extended to the entire region.

Hungary has been slowly modernizing and downsizing its armed forces since it left the Warsaw Pact in 1990. Transitioning from a heavy, slow-moving Warsaw Pact force to a lighter, versatile NATO force, the Hungarian military has gone from 130,000 in 1989 to approximately 24,000 combat and combat support forces in 2008. Implementing a new training, logistics, and leadership system and a new Joint Forces Command structure, the Hungarian military has gained considerable practical experience working with NATO and other forces serving in international military missions (about 1,000 at any given time). Hungary was especially helpful during the implementation of the Dayton Peace Accords in the Balkans from 1995-2004, when its airbase at Taszar was used by coalition forces transiting the region. Hungary currently leads a Provisional Reconstruction Team (PRT) in Afghanistan, and has an Operational Mentoring and Liaison Team (OMLT), as well as Special Forces personnel, without caveat, in Afghanistan in 2009. A second OMLT is scheduled to deploy in 2010. The Hungarian military took over command of a joint battalion in the Balkans in 2008. Hungary’s Papa Airbase will be the home base of the Strategic Airlift Consortium’s C-17 operations, expanding its contribution to NATO and other European partners. Hungary’s military still faces numerous challenges to its modernization program, as reflected in the 2008 Hungarian defense budget, set at 1.17% of GDP, well below the NATO target of two percent.

Hungary has been slowly modernizing and downsizing its armed forces since it left the Warsaw Pact in 1990. Transitioning from a heavy, slow-moving Warsaw Pact force to a lighter, versatile NATO force, the Hungarian military has gone from 130,000 in 1989 to approximately 24,000 combat and combat support forces in 2008. Implementing a new training, logistics, and leadership system and a new Joint Forces Command structure, the Hungarian military has gained considerable practical experience working with NATO and other forces serving in international military missions (about 1,000 at any given time). Hungary was especially helpful during the implementation of the Dayton Peace Accords in the Balkans from 1995–2004, when its airbase at Taszar was used by coalition forces transiting the region. Hungary currently leads a Provisional Reconstruction Team (PRT) in Afghanistan, and has an Operational Mentoring and Liaison Team (OMLT), as well as Special Forces personnel, without caveat, in Afghanistan in 2009. A second OMLT is scheduled to deploy in 2010. The Hungarian military took over command of a joint battalion in the Balkans in 2008. Hungary's Papa Airbase will be the home base of the Strategic Airlift Consortium's C-17 operations, expanding its contribution to NATO and other European partners. Hungary's military still faces numerous challenges to its modernization program, as reflected in the 2008 Hungarian defense budget, set at 1.17% of GDP, well below the NATO target of two percent.

==Economy==

==Economy==

In 1995, Hungary's currency—the forint (HUF)--became convertible for all current account transactions, and subsequent to Organization for Economic Cooperation and Development (OECD) membership in 1996, for almost all capital account transactions as well. In 2001, the Orban government lifted remaining currency controls and broadened the band around the exchange rate, allowing the forint to appreciate by more than 12% in a year. Trade with European Union (EU) and OECD countries now comprises over 75% and 85% of Hungary's total trade, respectively. Germany is Hungary's most important trading partner, followed by Italy and France. The United States has become Hungary's sixth-largest export market, while Hungary is ranked as the 72nd-largest export market for the United States. Bilateral trade between the two countries has increased to more than $1 billion per year.  

In 1995, Hungary's currency—the forint (HUF)--became convertible for all current account transactions, and subsequent to Organization for Economic Cooperation and Development (OECD) membership in 1996, for almost all capital account transactions as well. In 2001, the Orban government lifted remaining currency controls and broadened the band around the exchange rate, allowing the forint to appreciate by more than 12% in a year. Trade with European Union (EU) and OECD countries now comprises over 75% and 85% of Hungary's total trade, respectively. Germany is Hungary's most important trading partner, followed by Italy and France. The United States has become Hungary's sixth-largest export market, while Hungary is ranked as the 72nd-largest export market for the United States. Bilateral trade between the two countries has increased to more than $1 billion per year.  

With more than $60 billion in FDI since 1989, Hungary has been a leading destination for FDI in central and eastern Europe, although this level is beginning to decline. The largest U.S. investors include GE, Alcoa, General Motors, Coca-Cola, Ford, IBM, and PepsiCo. As a result of extensive and continuing liberalization, the private sector produces about 80% of Hungary’s output.

With more than $60 billion in FDI since 1989, Hungary has been a leading destination for FDI in central and eastern Europe, although this level is beginning to decline. The largest U.S. investors include GE, Alcoa, General Motors, Coca-Cola, Ford, IBM, and PepsiCo. As a result of extensive and continuing liberalization, the private sector produces about 80% of Hungary's output.

Close relationship with the economies of the EU helped pave the way for Hungary's EU accession in 2004. As part of its EU membership agreement, Hungary agreed to meet the economic criteria necessary to adopt the euro. In 2005 and 2006, however, it became clear that not only was a high budget deficit hurting the economy (nearly surpassing 10% of GDP in 2006), but that Hungary was moving away from meeting euro entry requirements, and would be subject to EU excessive deficit procedures. Against this backdrop, in fall 2006, Prime Minister Gyurcsany launched a program of fiscal consolidation by raising taxes, decreasing subsidies, and streamlining the public sector. Businesses have complained, however, that increased taxes, particularly on labor, have decreased Hungary's economic competitiveness compared to other countries in the region. Greater fiscal discipline allowed the government to reduce its deficit to 3.4% of GDP by 2008, but decreasing government spending during this period also reduced domestic consumption and contributed to a decrease in Hungary's GDP growth.  

Close relationship with the economies of the EU helped pave the way for Hungary's EU accession in 2004. As part of its EU membership agreement, Hungary agreed to meet the economic criteria necessary to adopt the euro. In 2005 and 2006, however, it became clear that not only was a high budget deficit hurting the economy (nearly surpassing 10% of GDP in 2006), but that Hungary was moving away from meeting euro entry requirements, and would be subject to EU excessive deficit procedures. Against this backdrop, in fall 2006, Prime Minister Gyurcsany launched a program of fiscal consolidation by raising taxes, decreasing subsidies, and streamlining the public sector. Businesses have complained, however, that increased taxes, particularly on labor, have decreased Hungary's economic competitiveness compared to other countries in the region. Greater fiscal discipline allowed the government to reduce its deficit to 3.4% of GDP by 2008, but decreasing government spending during this period also reduced domestic consumption and contributed to a decrease in Hungary's GDP growth.  

In October 2008, the effects of the global financial crisis spilled over into Hungary. Despite its success in reducing its fiscal deficit, years of high budget deficits and Hungary’s high external debt levels fueled investor risk aversion, and negatively affected the foreign exchange, government securities, and equity markets in Hungary. The country was hit hard by global de-leveraging, and weak demand for government bonds. A sharp decline in the share of non-resident investors in the government securities market raised concerns that Hungary would be unable to meet its external financing requirements. In order to increase investor confidence and ensure liquidity in domestic financial markets, Hungary concluded a $25 billion financial stabilization package with the IMF, EU, and World Bank in November 2008.  

In October 2008, the effects of the global financial crisis spilled over into Hungary. Despite its success in reducing its fiscal deficit, years of high budget deficits and Hungary's high external debt levels fueled investor risk aversion, and negatively affected the foreign exchange, government securities, and equity markets in Hungary. The country was hit hard by global de-leveraging, and weak demand for government bonds. A sharp decline in the share of non-resident investors in the government securities market raised concerns that Hungary would be unable to meet its external financing requirements. In order to increase investor confidence and ensure liquidity in domestic financial markets, Hungary concluded a $25 billion financial stabilization package with the IMF, EU, and World Bank in November 2008.  

[[File:Cupola of the St. Stephen s Basilica in Budapest Hungary.jpg|thumb|Cupola of the St. Stephen's Basilica in Budapest.]]

[[File:Cupola of the St. Stephen s Basilica in Budapest Hungary.jpg|thumb|Cupola of the St. Stephen's Basilica in Budapest.]]

Under the agreement, Hungary committed to further fiscal consolidation, financial sector reforms, and enacting banking sector support measures. Terms also include periodic assessment of macroeconomic and fiscal targets. The second review under the agreement took place in May 2009. Taking into consideration the worsening global economic and financial crisis, the IMF and the EU revised their projections of Hungary’s GDP decline in 2009 to minus 6.7%, and agreed to increasing the 2.9% deficit target to 3.9% for 2009. Public debt is expected to increase to 83% of GDP in 2009 before fiscal tightening returns it to more sustainable levels. The government bond market has yet to fully recover, although the Hungarian Debt Management Agency (AKK) successfully re-launched regular bond auctions in spring 2009.  

Under the agreement, Hungary committed to further fiscal consolidation, financial sector reforms, and enacting banking sector support measures. Terms also include periodic assessment of macroeconomic and fiscal targets. The second review under the agreement took place in May 2009. Taking into consideration the worsening global economic and financial crisis, the IMF and the EU revised their projections of Hungary's GDP decline in 2009 to minus 6.7%, and agreed to increasing the 2.9% deficit target to 3.9% for 2009. Public debt is expected to increase to 83% of GDP in 2009 before fiscal tightening returns it to more sustainable levels. The government bond market has yet to fully recover, although the Hungarian Debt Management Agency (AKK) successfully re-launched regular bond auctions in spring 2009.  

To respond to the crisis, the Bajnai government has enacted a series of economic reforms and spending cuts intended to reduce the tax burden on labor, encourage employment, improve Hungary's economic competitiveness, and offset lost government revenue due to the deeper-than-expected recession. These measures include reforms to the pension and entitlement systems, as well as tax changes to shift the tax burden from labor to wealth and consumption. In addition to cuts in taxes for businesses and employees, tax changes include raising the value added tax (VAT), and a proposal for the introduction of a property tax.

To respond to the crisis, the Bajnai government has enacted a series of economic reforms and spending cuts intended to reduce the tax burden on labor, encourage employment, improve Hungary's economic competitiveness, and offset lost government revenue due to the deeper-than-expected recession. These measures include reforms to the pension and entitlement systems, as well as tax changes to shift the tax burden from labor to wealth and consumption. In addition to cuts in taxes for businesses and employees, tax changes include raising the value added tax (VAT), and a proposal for the introduction of a property tax.

In May 1994, the Socialists came back to win a plurality of votes and 54% of the seats after an election campaign focused largely on economic issues and the substantial decline in living standards since 1990. A heavy turnout of voters swept away the right-of-center coalition but soundly rejected extremists on both right and left. The MSZP continued economic reforms and privatization, adopting a painful but necessary policy of fiscal austerity (the "Bokros plan") in 1995. However, dissatisfaction with the pace of economic recovery, rising crime, and cases of government corruption convinced voters to propel center-right parties into power following national elections in May 1998. The Federation of Young Democrats (renamed Fidesz-Hungarian Civic Party (MPP) in 1995) captured a plurality of parliamentary seats and forged a coalition with the Smallholders and the Democratic Forum. The new government, headed by 35-year-old Prime Minister Viktor Orban, promised to stimulate faster growth, curb inflation, and lower taxes. Although the Orban administration also pledged continuity in foreign policy, and continued to pursue Euro-Atlantic integration as its first priority, it was a more vocal advocate of minority rights for ethnic Hungarians abroad than the previous government.

In May 1994, the Socialists came back to win a plurality of votes and 54% of the seats after an election campaign focused largely on economic issues and the substantial decline in living standards since 1990. A heavy turnout of voters swept away the right-of-center coalition but soundly rejected extremists on both right and left. The MSZP continued economic reforms and privatization, adopting a painful but necessary policy of fiscal austerity (the "Bokros plan") in 1995. However, dissatisfaction with the pace of economic recovery, rising crime, and cases of government corruption convinced voters to propel center-right parties into power following national elections in May 1998. The Federation of Young Democrats (renamed Fidesz-Hungarian Civic Party (MPP) in 1995) captured a plurality of parliamentary seats and forged a coalition with the Smallholders and the Democratic Forum. The new government, headed by 35-year-old Prime Minister Viktor Orban, promised to stimulate faster growth, curb inflation, and lower taxes. Although the Orban administration also pledged continuity in foreign policy, and continued to pursue Euro-Atlantic integration as its first priority, it was a more vocal advocate of minority rights for ethnic Hungarians abroad than the previous government.

In April 2002, the country voted to return the MSZP-Free Democrat coalition to power. The Medgyessy government placed special emphasis on solidifying Hungary's Euro-Atlantic course, which culminated in Hungary’s accession to the European Union on May 1, 2004. Prime Minister Medgyessy resigned in August 2004 after losing coalition support following an attempted cabinet reshuffle. Ferenc Gyurcsany succeeded Medgyessy as Prime Minister on September 29, 2004.

In April 2002, the country voted to return the MSZP-Free Democrat coalition to power. The Medgyessy government placed special emphasis on solidifying Hungary's Euro-Atlantic course, which culminated in Hungary's accession to the European Union on May 1, 2004. Prime Minister Medgyessy resigned in August 2004 after losing coalition support following an attempted cabinet reshuffle. Ferenc Gyurcsany succeeded Medgyessy as Prime Minister on September 29, 2004.

In the April 2006 election, Prime Minister Ferenc Gyurcsany and his Socialist-liberal coalition were re-elected, the first time since communism that a sitting government renewed its mandate. The MSZP is ruled as a minority government, as the SZDSZ pulled out of the coalition in April 2008. Prime Minister Gyurcsany resigned in March 2009, succeeded by Gordon Bajnai, former Minister of Economy and National Development.

In the April 2006 election, Prime Minister Ferenc Gyurcsany and his Socialist-liberal coalition were re-elected, the first time since communism that a sitting government renewed its mandate. The MSZP is ruled as a minority government, as the SZDSZ pulled out of the coalition in April 2008. Prime Minister Gyurcsany resigned in March 2009, succeeded by Gordon Bajnai, former Minister of Economy and National Development.