The new Hungarian leadership wants to adopt the euro by the end of the decade and at the same time improve relations with the EU. However, due to the weak economy and the short deadlines, this is unlikely to be easy.
Péter Magyar intends to act quickly to restore Hungary's relations with Brussels. Part of this plan is the intention that Budapest will be ready to join the eurozone by the end of the decade. Some, including the governor of the Central Bank, believe that this deadline is too ambitious, considering that Viktor Orbán leaves behind a weak economy and serious budget problems. But if the euro is implemented properly, Hungary could reap significant benefits.
Back to the EU center
Meeting the requirements for euro adoption will be a serious challenge for the new government. Magyar's "Tisza" party has limited room for maneuver in terms of spending and reforms, especially against the backdrop of the ongoing crisis in the Middle East, says Sili Tian of the Economist Intelligence Unit research group. "We do not expect euro adoption in the next decade," the expert told DW.
Nevertheless, "Tisza" is motivated. Returning Hungary to the EU mainstream - from the "illiberal" periphery to which Orbán has placed it - was a key element of the party's election campaign. Joining the eurozone would reinforce that message.
But time is running out, and Magyar is pressing Brussels to unfreeze 17 billion euros in funding, blocked by Orban’s retreat from democratic standards and rule of law problems. Ten billion of that amount must be withdrawn before the end of August.
Savings will be imperative
Around 75 percent of Hungarians support adopting the single European currency, according to a 2025 survey. But almost as many believe the country is not ready for the step. "2030 is not an impossible date for accession," says Julia Kiraj, a former deputy governor of the Central Bank and professor at the Hungarian Academy of Sciences. "The main challenge is meeting the Maastricht criteria", she believes.
These criteria include EU requirements for inflation, debt, budget deficit, interest rates and currency stability that a country must meet before adopting the euro. Hungary currently does not meet these indicators.
The biggest challenge will be the serious cuts in government spending needed to control the deficit. According to Szili Tian, it will be "impossible" to achieve this by 2030. "Magyar has already committed to continuing many of Orbán's wasteful fiscal measures, while accelerating defense spending to meet NATO goals," he adds.
Pros and cons of the eurozone
But even just trying to join the eurozone could bring Hungary a number of potential benefits. Once the government officially announces its candidacy, it should lead to greater stability for the forint, as well as lower inflation and interest rates.
Borrowing costs should also decrease - both for the state and for the economy as a whole, as the supervision of the European Central Bank will contribute to the stabilization of the financial sector. In the long run, membership in the eurozone will eliminate currency risk and transaction costs - something crucial for an economy like Hungary, which is heavily dependent on exports.
The biggest downside will be the loss of autonomous monetary policy and the ability to manage crises. In return, however, the country will have access to the eurozone's liquidity programs and rescue mechanisms.
Eurozone partners will be wary
Hungary's weak economic and financial situation, as well as 16 years of institutional decline, are likely to make eurozone countries distrustful of its accession. They have not forgotten the Greek debt crisis, and this could complicate Hungary's path to the necessary agreement from other members.
There is also a risk that Hungary will change course after the next elections in 2030 - to abandon the introduction of the euro or return to an illiberal course, becoming a destabilizing factor in the eurozone. "Hungary is likely to be viewed with skepticism", analysts at the London-based economic institute Capital Economics point out. The country "will have to convince its partners that joining the eurozone is a common goal across the political spectrum".
A natural path for Hungary?
However, EU officials see the move as a positive for the bloc. European Commission President Ursula von der Leyen praised Hungary for its "return to the European path" - a path that, according to European Central Bank President Christine Lagarde, naturally leads to the euro.
When Hungary joined the EU in May 2004 along with nine other countries, it pledged to adopt the single currency. But it is one of three countries in the group, along with the Czech Republic and Poland, that have yet to do so.
Given that the economies of the Visegrad Group are heavily dependent on exports to the eurozone, it is surprising that only Slovakia has so far adopted the single European currency. "For major trading partners like Germany, the elimination of currency risk and reduced transaction costs will boost trade and investment flows, especially in the dominant automotive and electronics sectors," Tian emphasizes.
However, Hungary's decision to switch to the euro is unlikely to affect the Czech Republic or Poland. Widespread resistance to the single European currency, fueled by fears of inflation and loss of autonomy, has hindered serious debate on the topic in Prague and Warsaw. In fact, the euro was not on the agenda in Budapest until mid-April. "Most likely, sooner or later, all EU member states will join the eurozone in the pursuit of greater competitiveness with the United States," Király concludes.