Three Seas Talks – Viktor Eszterhai, PhD, Institute for Foreign Affairs and Trade (IFAT)
Stefan: I am Stefan Tompson and we are here for a series of discussions with experts from all Three Seas countries. Today we are speaking with dr Viktor Eszterhai from Hungary. This is a very interesting conversation, because obviously Hungary has a little bit of controversial reputation at the moment. It’s gone from being sort of key Polish ally and friend to definite sort of cooling of [relations]. The relationships have been more difficult recently. Which makes this conversation actually very interesting. Maybe we will start with you, Viktor… Could you tell us more about yourself, your work? Just to give us an idea of who you are, what you’re working on. That would be great.
Viktor: My name is Viktor Eszterhai. I mostly focus on China, but in the larger frame of things, my major interest is in connecting platforms, how connectivity can be used to achieve some political aims. This is my major interest and in this regard, of course, I have an interest in regional connectivity platforms like the Three Seas Initiative.
Stefan: Sure. The broad aims of these discussions are to understand where we stand economically, where the relations are going [in the region]. Maybe if you could tell us a little bit about, from your perspective, from Hungary perspective, the current state of economic cooperation within the region, especially within the Three Seas Region.
Viktor: Well, if we want to define the Three Seas we should separate the Three Seas Initiative and the economic relations [within the region], because both are not necessarily the same. In Hungary we generally see that the major issue of the region is that we have dual characteristics of our economics. Partially, we are incorporated into the global capitalists structures via German value chains. This is a major leg of Hungarian economy, but the situation looks quite similar in the other countries of the region.
The other leg of our economy are the small and medium sized local companies, mostly family-owned, which are less competitive, have less technology and capital.
So we have this duality. And when we talk about the Three Seas Initiative, we have to keep in mind this special characteristics of the region. From one point of view, it would be best to somehow [connect our SMEs throughout the region]. There is [economic] potential in this. But we have to be realistic [and remember] that majority of our economic growth is actually resulting from the multinational leg of the region and the global value chains located in the region. So that is the current state of things.
Stefan: Sure. It is an interesting answer. It is actually quite different to previous ones. That is an interesting way of defining the matter at hand. In that sense… We have seen over the last few months that there is a massive realignment of the geopolitical order. Obviously the invasion of Ukraine by Russia has been a major shift in the European politics. And with it there is a number of challenges, but also opportunities. It would be interesting to see this from the Hungarian perspective. Hungarians are obviously known for something that is usually called a sort of multi vector foreign policy. It would be very interesting to see, from a Hungarian perspective, what are the current opportunities given the geopolitical context and this realignment happening. What do you think the opportunities are? And then if we could contextualize them also afterwards, because on one hand there are opportunities for Hungary, on the other hand there are opportunities for the region and they are not necessarily the same, right?
Viktor: Yeah. Actually, I would like to give the background to this multi vector policy because probably it is not clear to all. After the financial crisis of 2008 it was recognized by the Hungarian government that although we managed to become part of the West, that was not necessarily just a simple success story for Hungary. We were still underdeveloped compared to the rest of Europe and we still had to break out from the semi-peripheral status.
In this regard, the Hungarian government recognized that a multi-polarization process is happening in the international arena, and that countries that recognized this faster that Hungary would survive the financial crisis in better conditions. So the idea was to recalibrate the geostrategic direction of Hungary and to focus on those emerging poles of the global economy.
I have to underline that this is mostly economic, pragmatic approach. But of course this was complemented with better political relations with China, with Russia and some others. The major aim is to make better political relations in order to provide more opportunities for the Hungarian economy. There was a wish to attract more investment from China, from Russia and from all these emerging countries like Turkey and so on. And of course to increase trading opportunities of Hungary. So that was in a nutshell, the multi vector foreign policy of Hungary.
Of course this policy has now seen some bad days due to the Russian-Ukrainian war, because it puts Hungary in a strategic dilemma. The dilemma is very clear. The Hungarian government would like to go back to the pre-war era, to continue globalization, to do business with other emerging powers, because they think it is beneficiary to Hungarian economy. It is a very pragmatic approach.
At the same time, if I understand well the situation, the Hungarian government is not blind – it understands the growing competition between China and the United States or the issue with Russia. But there is still some hope that it is possible to go back to the pre-war era, this hyper globalization period. They still believe that it is possible.
However, there is a constant danger of a shift in the global circumstances or the international circumstances of Hungary and stepping into de-globalization period or a regionalization of the globalization. This is what most of the guys who are behind this multi vector foreign policy fear very much, because they see less economic opportunities. So as you highlighted, there is a strategic dilemma here for Hungary. So how can Hungary grab new opportunities [if the realignment happens]?
Well… this kind of realignment is not portrayed mostly as a good opportunity, but mostly as a danger. [Hungarian government] fears the new world because it will bring more cold-war style of thinking, thinking in [terms of political] blocks. The only benefit it could bring is that some of the value chains will be shortened and within Europe Hungary is providing one of the most competitive environments to invest, for example for German value chains. But the potential opportunities are very limited in comparison with what we have now, as a country well integrated into the global economic structures.
Stefan: A lot of the region is certainly seeing the conflict and the invasion as a [key issue]… Obviously, the eastern countries of the EU, have massively gained in the importance. The Baltics, Poland, Czechia, Slovakia, Romania, Bulgaria… these are all NATO border countries, EU border countries. They have seen a massive growth of importance in political weight. They suddenly became major strategic points. I think to many leaders, to many politicians within the region, this has become an opportunity also to accelerate certain processes that before were happening rather slowly, but were happening none the less. These massive infrastructure projects become that much more important because of the geopolitical context, which in many ways is an opportunity rather than a challenge for the region.
There is suddenly [an understanding of] the point of view and the warnings about Russia that were coming out especially from countries like Poland and the Baltic three. Suddenly von der Leyen says “we should have listened to the Baltic countries, we should have listened to Poland”. And the prime minister of Finland comes up with similar statements. So it is interesting, because Hungary was once the key [regional player], one of the Visegrad Four states, and an important ally of Poland (which is leading the effort of the Three Seas [against the Russia]). And suddenly we find ourselves almost at odds with each other, right?
Viktor: Ah well… If I understand right the situation here in Hungary, we are not very happy that this is happening. Despite the fact that there is much more attention on the region, we actually don’t see this is as a good opportunity for the region, because [the war and its consequences] also result in worse access to the basic resources, which is a very important part of our competitiveness.
What I mean here is that gas sanctions means a very tragic economic and political situation for the whole country, so I don’t really see anything to celebrate here.
We can give up [current supply routes] and restructure somehow our economy but first we will have to pay more for gas and oil and this will have a tragic impact on our trade balance. That is our current problem. This is also fueling inflation and generating tremendous economic problems. [A bigger global attention on the region would not compensate for that.]
Second, if I understand well, in the government they care more about the reality not the possibility. I mean, we live in a globalized world in which economic competitiveness is very important. Everything that we do currently in order to find alternatives to Russian gas, Russian oil and other product, takes a lot of money, a lot of investment. This will bite into our competitiveness in the long term. In Hungary we think that we need to be ready to compete, in economic sense, with China, for example. But if we produce energy, if we produce electricity at a much bigger expense this will hurt our competitiveness. This will destroy our industrial production, not just Hungarian, but European.
I don’t really see how any kind of economic opportunities can balance this tragic outcome. I don’t think that, for example, [this could be mitigated by] a better access to EU funds for connectivity projects between Slovakia, Poland and Hungary. This would not balance the harm of what we have to face in the next couple of months. I think this narrative should be included in the discussion, but nobody is really talking about hard facts.
Stefan: Sure, interesting. So in that sort of setting, from that position of what, I assume, is defined in Hungarian political discourse as Hungary’s national interest and the pursuit of the Hungarian national interest. What role does the Three Seas suddenly have given that context and given how you define the Hungarian national interest?
I mean, is there suddenly a situation where our aims no longer align? Because of the stance of the majority of the Three Seas countries regarding Russia, regarding sanctioning of gas and oil, and the whole realignment of their energy policies, [is different that Hungary’s] right?
So what happens next?
Viktor: Well, generally Hungary welcomes all kinds of connectivity platforms, because the main strategy of Hungary, despite the small size of the country, is to become hub for many types of connectivity like logistics. The government wants to make Hungary a kind of energy hub, build the interconnectors and become center of the regional energy network. So generally, I would say that Hungary welcomes all types of connectivity platforms.
Regarding the Three Seas Initiative there are two major aims. One is to strengthen the North corridor. This might not mitigate all the harm we will face in the next years, but of course this would still be helpful. In fact, this is a long standing desire of Hungary to strengthen the North-South relations especially with hard infrastructure.
Second, we will be very happy to get access to new sources of energy, alternative to Russia, like the Baltic and Adriatic LNG terminals, connecting pipelines. It is in the Hungary’s interest to have the alternative.
So it’s not like things are black or white for us. Of course Hungary is supporting all these efforts, but there are also some serious problems we have to face here. First of all, the amount of money available within the Three Seas region is not enough to cover our needs. That is a very big problem. Politicians love to talk about and announce big things like “We can recalibrate the energy system or energy network of the whole region”. The fact is that in the case of Hungary, the alternative [energy sources] are still very limited. There is an LNG terminal in Croatia, but we cannot be sure that in case of gas shortages in Europe, Croatia will give Hungary enough gas, or any at all.
We see that there is money in this, but it still doesn’t really meet the interests. That is just an estimation, everybody knows that. For the current projects we need EUR 170 bln, and so far the total commitments are still around EUR 1 bln [*Viktor refers to the Three Seas Initiative Investment Fund which is not supposed to fund those project].
So there is a huge gap between what was announced, talked about and reality.
Moreover, we still can’t really see why the private sector would be so interested in this Initiative. There are voices that we need private investors involved, but so far their involvement is limited. So if we believe that free democracies are providing safer returns for investors, why aren’t they interested [in the Three Seas project]?
Also, it is quite strange that the United States are sometimes supporting the Initiative, but sometimes they are bit hesitant… So we don’t see that there [a firm belief] in this Initiative. Of course, Hungary would like to have its projects implemented. Hungary has 17 projects on the Initiative’s priority list, the most among the member states, except for Croatia. So we would be happy to see these projects implemented, but I think that we have to be very realistic here. It is also a problem that most of the projects that could be implemented or started to be implemented are using EU funds. So not the own funds of the Initiative. This is also a part of the picture. I don’t say that we should not set out goals [for the Initiative] and [make progress], but I am suggesting that we should be realistic [about what we can achieve].
Stefan: So given all the things that you said and given obviously this very pragmatic approach of the Hungarian foreign policy… What could be done to increase Hungary’s interest in the Three Seas cooperation and in the Three Seas format as a whole? What would Hungary need or what would they want to see from other Three Seas countries?
Viktor: I think one of the major wish was articulated years ago. We think that it would help with the implementation of the projects if the 3SI was institutionalized more. That is one of the requests from the Hungarian government.
Stefan: Could you expand on that? What do you mean?
Viktor: I mean of course the Hungarian wish to establish secretariat, and it’s desired location would be Budapest. That would help very much with Hungarian attitude, enthusiasm and support for this initiative.
I think the Hungarian side would also very much welcome if more companies were involved in the planning process. High involvement of the energy companies, for example, would [mean less talking about visions, and more concrete planning]. In the next few years we will have a lot of job to do together. So not the wishful thinking is needed, but the incorporation of those who are really doing the business and have relevant information about the implementation process.
We also would be happy to cooperate more within the EU, to ensure that more EU funds are dedicated to our projects. There is a lot to be done in this regard as well. Despite Initiative being established years ago, it is still not a relevant platform within the EU. This needs to happen somehow. This means, that maybe less attention should be paid to politics and more to the needs of the economy. The more pragmatic approach would be welcome. At least, from the Hungarian side there is such expectation.
Stefan: I think it is a very interesting situation we’re in. Obviously from my Polish perspective [there is this] foundational myth of the Polish-Hungarian friendship. [I say myth, because] I think it is one of these ideas that is essentially more of a myth than reality. I think in reality Poles and Hungarians don’t really know each other.
There is a very famous English saying that says that “good fences make good neighbors”. The fence that we have is in the fact that we have no direct border. We don’t have those typical interborder complaints that we have with the Czechs, for example, or the Lithuanians. Simply because at the end of the day we haven’t really encroached on each other territory aside from the Austro-Hungarian partition of Poland, where Hungary played its role.
Essentially there is this sort of foundational myth of Polish-Hungarian friendship. Even though in reality, I don’t think we know each other very well. We had this great friendship and this political alliance within the European Union over the last few years. The Law and Justice government in Poland and the Fides government in Hungary having similar aims and similar aspirations within the European Union. Especially political ones and in the cultural wars…
Now, suddenly, we find ourselves completely at odds with each other. There is this perspective, in Poland at least, that [there is a pattern to Hungarian behavior]. So for example, in the Austro-Hungarian empire, Hungary remained within it but at the end was pursuing its own aim. And then you have the alliance with Nazi Germany, where well Hungary is the ally, but still doing their own thing. And you see it again with the Soviet Union, and you see it with the European Union.
There is perhaps the same kind of Hungarian reticence [towards the Three Seas]. Other Three Seas countries see the format from this perspective “we are trying to redress historic injustices, create the North-South axis, create the infrastructure that allows us to develop and become and take essentially our rightful place in the heart of Europe, in Central Eastern Europe”. And Hungary is in this kind of the very key, strategic position. It’s the [Three Seas] heartland alongside Austria. It really is the geographical heart of Europe.
And yet, here we are with essentially a country in our midst that is pursuing a completely different policy. So my question to you is what comes next?
Obviously you said what you would need [to engage more]. I guess the question I am trying to formulate is: does Hungary actually [wants to get seriously involved in] the [Three Seas] format?
You know, there is this sense that Hungary is its own player and essentially is not really a team player. That might be a very childish way of [describing it], but obviously this interview is not aimed at just experts, but also attempts to popularize the subject and bring it to lay people. To explain it really to a non-expert audience.
Viktor: I cannot speak on behalf of all Hungarians or even the Hungarian government. I will try to voice my personal options.
Viktor: You mentioned several historical lessons. And if I understood correctly, in Hungary the main historical lesson is that we need to seek out our own interest. We have been part of several empires, we have been told several times which ideology would save the world: Nazism, communism, whatever. Everybody told us what is good for Hungary. And at the end of the day it we always figured out that well, it’s not that black and white.
From this point of view, we fully understand in Hungary that Poland has a different view on Russia or used to have a different view on Russia as we did not share the same view before the war. I think it’s quite fair to state this. But we don’t necessary have to agree on everything in our political or geopolitical visions. I think in Hungary we very much value and believe in the European Union, but I think we have the right to say what kind of European Union we would like to have. Everybody always “knows best” what should be done by Hungary, but I think we have the right to our own view.
In this regard, maybe the issue is that Polish and Hungarian visions of Europe’s future are not the same. But it is not bad, I think, it is normal. We can manage this.
And how this affect this connectivity platform that we are talking about, the Three Seas Initiative, it is not that important. In Hungary we are very much interested in building roads, energy sources diversification, so why should we not be able to work together? We simply do not believe in the big vision behind [the Three Seas Initiative], that it will somehow change whole Europe or rewrite the role of the region within Europe.
Several times in the past we followed these big visions, big ideas, big ideologies. But we have to be very rational. Focus on what really is happening, what’s on the table. I don’t want to be rude, but if the budget of the Three Seas Initiative is less than EUR 1 bln, and that is the current amount [in the Three Seas Initiative Investment Fund], what we are really talking about? It cannot stand comparison with a big corporate investment in Europe. We need to be realistic.
We can tell stories to ourselves, that we will be the next big axis of the European Union and we will drive the reconstruction of Ukraine, but we have to be very realistic in this. Maybe we can guide EU somehow and to a certain level we can be an active player in the reconstruction of Ukraine. It is time to see that there are limits to our visions. For Hungary this means always paying attention to its own interest. That’s it.
Stefan: A final question, Viktor. Obviously due to the turmoil in the last few months we have seen a massive shift happening, right? Everything is really changed. This is coupled with very severe inflation across the continent and across the West in general. There is also potentially a recession coming, there are these economic signals that we are heading towards an economic crisis very soon. We also have the energy crisis due to rising prices and we have winter that is about to start. So a lot is going to happen within next few months. In short term.
What would happen long term? I understand the Hungarian position, I think you explained it very clearly and very succinctly and… but obviously what was said is in the short term perspective, right? We were talking about the war, that has been going for over six months now….
What is the medium to long term geopolitical outlook for Hungary? What would the endplay be within five, ten, fifteen years and up to an generation? A timespan that is relevant to us, having this discussion.
Victor: I would question that we have an idea what the next months can bring. The direction of Europe might change in the next couple of months because of lack of resources. This lack of resources will undermine the solidarity within the EU despite all the big talks of the politicians. We will see a very similar scenario to the one that played out during Covid when the European countries were fighting with each other for masks and some other health equipment, and there was no solidarity. Later with the vaccines of course there was, but at the beginning, when everything turned bad we did not see the solidarity.
So maybe this [lack of resources] will create political changes. I think that we should wait with these midterm predictions. First, we need to see how will the war end. We don’t know, we simply don’t know. We have hopes, that could be maybes, but we don’t know what will the end of this war look like. It is not even clear what is the end goal for most of the European countries regarding this war. In Hungary it is very simple: we would like to have peace as fast as possible, because, as I mentioned at the beginning, we would like to return back to normal. If I understand well the intention of the government, we still hope that it is possible to somehow go back to the pre-war normal. It would be extremely hard, though, so I think that it is very unlikely. But there is still some hope for this.
So first, we have to wait what will be the end of the war.
Second, we need to know what will be the political landscape of the whole European Union in the next couple of months. Can we be sure that it will remain the same? I think we just need to wait, just look at what is happening in Italy right now…
And after these [two questions] are figured out maybe we would be in a better position to give mid-term prediction.
If I understand well, the [long-term] Hungarian intention is to have a stronger Europe. The Hungarian government would like to have a stronger Europe, which is not necessarily a more united Europe, as we argue that the sovereignty of the states should be somehow maintained.
If I understand well the way of thinking in the Hungarian government, we would also like to ensure that EU institutions stick to their own jobs, the ones to which EU members collectively agreed, and not acting independently and not trying to expand their roles. I think it is very important for the Hungarian government, to keep the EU institutions as they used to be. And based on this of course, Hungary would like to have more to say about the direction of Europe is heading, but we will have to see how realistic that is.
At the end of the day, we think that if these preconditions are met it is possible to strengthen Europe. We would welcome more independent Europe in the global arena. EU should seek its own interest and have to rethink its relationships. I think, of course, that currently we have strong partners, we have alliances. Still, we have to rethink the whole strategic outlook of the European Union, because I also believe that this Russian-Ukrainian will usher us into a new geopolitical phase. I hope that EU will not enter it without rethinking, recalibrating its strategy and ways to implement it. So, if I understand the Hungarian government well, we would like to welcome a more autonomous European Union, but we shall see [what happens].
Stefan: Victor, thank you so much for your perspective. And for the Hungarian perspective, obviously. Poland and Hungary are not aligned on this, but it is always very interesting to exchange views, to hear how other members states think about those issues.
Thank you so much for your time, really appreciate it. All the best and obviously we shall see in a few months, in a few years [what happens]. Time will tell. Thank you again.
Victor: Thank you very much. I appreciate it. Good bye.