The media tells us that the opposition party Tisza is leading in the polls. Could it be because of its convincing economic policy programme? I conclude the answer is no—the economic policies are not helpful.
While the stated goal to support SMEs is a good one, Tisza plans to fund such SME support with EU grants and benefits. Indeed, the party’s plan hinges on releasing billions of euros in presently suspended EU funds designated for Hungary. Péter Magyar explained in an interview with the German TV channel Deutsche Welle, published in April 2025, that one of the first things a Tisza prime minister would do is to “fly to Brussels and to negotiate with the European Commission … to defreeze the EU funds” and “bring home the EU funds” because, as Magyar said, “EU funds … are crucial … for the Hungarian economy”.
The myth of Hungarian growth requiring foreign money
The idea that Hungary ‘needs foreign money’ to grow the economy is wrong. When foreign investment occurs, foreign money does not enter the Hungarian economy. That may have been the case in the days of the gold standard, and it may also become relevant if, in the future, Hungary abandons the forint and adopts the euro.
But in our modern bank-based economies, which follow the rules of international banking, euros always stay behind in euro-domiciled banks. Similarly, dollars stay in U.S.-domiciled banks, and Hungarian forints stay in Hungarian banks. Of course, a foreign investor can decide to sell their foreign currency and acquire Hungarian currency. But since the Hungarian leadership has been so wise as to maintain its national currency, the Hungarian central bank, via its control over Hungarian banks, is fully in charge of the amount of Hungarian currency that is being put into circulation. Thus, no foreign investment is needed for Hungary to obtain more Hungarian forint.
Meanwhile, it is true that foreign investment in, say, euros, cannot increase economic growth in Hungary until it results in a larger creation of Hungarian forint by Hungarian banks—which can equally well be arranged without any external actors being involved at all. My research on Spain, one of the largest recipients of foreign direct investment in Europe, has shown that Spanish economic growth was not influenced by this foreign money (and neither was joining the euro helpful for growth).
Therefore, to increase business investment in Hungary and increase job creation and economic growth, euros from Brussels are not needed.
Tisza also stated its aim of wanting to increase the competitiveness of Hungarian companies. But their misunderstanding of the role of foreign money shows that they also don’t understand what it takes to boost productivity.
Productivity is measured as the quantity of output produced by those engaged in work, best measured in the form of man hours per annum. Where do most people work? Economists mostly think about the few very large listed companies they hope to get consulting contracts from. But that is a tiny minority, accounting for only around 0.01% of all companies. More than 99% of companies in almost all countries, including Hungary, are small and medium-sized enterprises. What makes those SMEs more productive? Productivity comes from technology. The determining factor of productivity is the degree to which firms are able to upgrade their business processes to the latest technologies. That costs money. And small firms are financially rationed—they would like to invest more but do not have the funds. The capital markets are closed to them, as they are too small. They are dependent on bank loans.
But small firms only obtain funding from small banks. It does not make sense for large banks to deal with small firms. So whenever a country has many small banks, SMEs thrive and obtain sufficient bank loans to keep their technology at the cutting edge. This keeps productivity high, creates jobs, and delivers high economic growth. But when one reduces the number of banks (which means reducing the number of small banks), funding for small firms becomes more difficult. The small firms fall behind in technology upgrades. Job creation and economic growth slow down.
That is what happened in the UK: The big banks were keen to swallow up small banks and organise the banking system as a highly concentrated oligopoly of the Big Five banks run by the central bank. For the past century, five big banks have dominated banking in the UK, accounting for almost 90% of bank deposits. Big banks do not wish to lend to small firms. Thus, UK small firms have been unable to obtain sufficient funding to upgrade their technology, and hence productivity growth has declined in the UK. Since Germany has had more than ten times as many banks as the UK—mostly small banks—its productivity has consistently been higher.
By forcing mergers and concentrating the banking systems, the central banks are squeezing small firms, hence reducing productivity and economic growth. The reasons vary but, often, central banks have pledged to support a misguided mission to implement ‘degrowth’ or ‘zero growth’ policies. As a result, growth has dropped in much of the EU and in the UK. But the truth is that economic growth is not the enemy of environmental sustainability. As I argue elsewhere, the best policy to protect the environment is to ensure high economic growth and prosperity, as China has also demonstrated. In order to increase productivity, in Hungary, many new small local banks should be created in the future—a policy not mentioned by Tisza and unlikely to be implemented by this party.
Economic policy should aim at higher growth, and Fidesz under Prime Minister Orbán has been one of the few movements in Europe backing this goal. Hungarian economic growth has remained above the EU average. The Tisza goal of aligning policy more with the EU means policies to reduce economic growth. That will hurt ordinary Hungarians.
The European Commission has been pursuing goals that are driven by ideology, not evidence-based rational analysis. Climate change ‘policy,’ energy policy, as well as immigration policy come to mind.
Thus, for any European leader acting in the interests of his people, it has been necessary to battle the Brussels bureaucrats—which is what Prime Minister Viktor Orbán has done so well. In other words, this battle with the EU and its misguided policies is not an unnecessary distraction from other problems, as TISZA claims, but unavoidable for those representing their people, given the EU’s corruption, undemocratic organisation and external control via the international deep state.
There’s only one way to boost Hungarian productivity
The other Tisza policy goal—reducing reliance on cheap and reliable Russian energy supplies—has already been led ad absurdum by recent geopolitical events: As a result of the ongoing war on Iran by Israel and the USA, Iran has for the first time restricted cargo trade passing through the Strait of Hormuz. With the EU-led reduction in Russian energy supplies in recent years, this policy has drastically increased energy costs in other EU countries and indeed threatens energy rationing being imposed in the near future. Hungary did not follow such unsuccessful policies.
And in such an environment, it is clearly a bad idea for Hungary to give in to EU pressure and reduce Russian energy purchases, as Tisza seems keen to do. The opposite would be a better idea. Viktor Orbán and his party have clearly led the way by arguing years ago that Europe should continue to utilise cheap and reliable Russian energy, and EU leaders are likely to be forced to admit this soon.
Furthermore, Germany’s example demonstrates that wind, solar, and other renewable energies, due to their unreliability, cannot make up for cheap and reliable Russian energy supplies.
Forint vs. euro
Tisza also argues that Hungary should abandon its national currency and adopt the euro—a foreign currency. This would mean that monetary policy would no longer be made in Hungary but by the supranational organisation called the European Central Bank (ECB), the most independent central bank in the world that is not accountable to any parliament or other institution. As I had warned in my book Princes of the Yen, the design of the ECB did not copy that of the German Bundesbank but the disastrous design of its failed predecessor, the Reichsbank. Thus, I warned in 2003 that the central planners at the ECB were likely to abuse these excessive powers by creating bank credit-driven real estate bubbles, banking crises, and long recessions. The ECB indeed created such boom-bust cycles in Ireland, Portugal, Spain, and Greece, not long after these countries adopted the euro. The ECB has since created a similar real estate bubble in Germany, which was ended by the ECB in 2022, paralysing the German banking system since and resulting in the longest recession in almost a century.
Moreover, the ECB has already killed 6,000 small banks since it started operations. This has been a key reason for declining European productivity and economic growth—apparently desired by the central planners. The ensuing credit crunch for small firms has hurt the middle class. At the same time, the ECB is also responsible for exporting the inflation policies of the US central bank of 2020 to Europe—resulting in the double-digit inflation that hit consumers in 2021 and 2022. As a small open economy, it was difficult for Hungary to avoid being affected by this inflation. Yet, this proves once again that it is naïve to believe that Hungary will benefit by submitting uncritically to EU and ECB policies.
The Tisza policy of aiming to reduce the government deficit is a good one, just like its policy support for small firms. But by adopting their stated policies of “aligning more with the EU”, economic growth is likely to fall, sharply reducing tax revenues and widening the budget deficit.
As a German who has watched Hungarian government policies and the improvements in the standard of living and quality of life in Hungary for the past decade, I am concerned that due to a misguided belief that the Brussels commissars have all the answers, Hungary under Tisza would lose all the strengths and favourable policies that have made Hungary so attractive for Europeans like me. It would be a bad deal indeed if a few billion euros in Brussels subsidies (that will stay abroad, as I explained above) are traded for compliance with the failed, even disastrous EU policies, such as on immigration and the Ukraine war. I can thus only hope that Hungarians will appreciate the benefits and opportunities Prime Minister Orbán has created for Hungarians and their lives—much admired and envied by German observers who know what it means to instead live under a government that is obedient to foreign powers and neglects its own people.
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