Structural change without trust: Reform cycles in Hungary and Slovakia

Győrffy, D. (2009) Structural change without trust: Reform cycles in Hungary and Slovakia. Acta Oeconomica, 59 (2). pp. 147-177. ISSN 0001-6373

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Abstract

The recent admission of Slovakia into the Economic and Monetary Union (EMU) stands in sharp contrast with the considerable difficulties faced by Hungary with the fulfilment of the Maastricht criteria. This is a puzzling development for two reasons: first, during the early phase of the transition process Hungary was ahead of Slovakia, and second, the high level of political polarisation and general public disillusionment are shared characteristics of the two countries and not conducive to reforms in either case. In order to address these contradictions a theoretical framework is developed examining the conditions of structural reforms in a low-trust environment, where promises about long-term benefits for short-term costs are not believed. After the identification of three potential factors — perception of crisis, emergence of credible reformers, elite consensus — that can help to overcome the gap in credibility, the theoretical framework is applied to the transition history of the two countries. It is shown that while in the past decade all three factors had been present in Slovakia, the former success of Hungary strongly contributed to the absence of such special circumstances. The continued divergence of the two countries, however, cannot be taken for granted as in both cases reform cycles rather than sustainable progress can be observed. In order to ensure sustainability the difficult tasks of consensus- and trust-building cannot be avoided.

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