PBN NEWSLETTER 09/11 - EU needs to prepare a new budget

10 October 2011

PBN Newsletter
September 2011
EU NEEDS TO PREPARE A NEW BUDGET

"The EU member states' activities will be critical in the years of 2011 and 2012, whether we succeed in avoiding the "lost decade" risk. The most important task is to break the unsustainable fiscal deficit, a financial market collapse and the low economic growth."

This is written in the annual report of 2011 of the European Commission and it should be taken into consideration. Although it is true that the EU 27 possessed the world's highest living standard of the area in 2010,  the area's economic performance over the last ten years has left plenty to be desired. In Europe only Germany was able to provide a competitive performance. The expenditure of Spanish, Greek, Irish, Portuguese, Italian and Dutch economy was unduly and  without any adequate economic base. For the  European overview it should be remembered that the wages in Central Europe do not differ seriously from the payment of Hong Kong and Malaysia, Chinese and Bulgarian wages are the same. Serious differences can be seen within the region, such as the Czech wage by 50 %, while the Slovenes exceed 150 % of the Hungarians.

However, it is also an important additional data that an Italian worker is paid fifteen times what a Chinese worker receives. An Austrian worker's wage is equal to the wage of forty Indian workers. It is not difficult to see that these differences cannot be settled with any kind of productivity in a global economy. (Especially not when China makes up lost ground rapidly. The country both increases the internal market, on the other hand, supplants the previously admitted western joint ventures. It is quite simple, no longer need them!)

Additionally, the employment level of the European Union is significantly fell short of the main competitor countries. The low employment rate of young people in the old continent and the low activity rate of the population over the age of 55 generate a major problem.

The EU countries' budget deficit is high while the BRIC countries, namely Brazil, Russia, India and China provide dynamic economic growth and huge amount of foreign exchange reserves. The emergence of a dynamic middle class is conspicuous especially in China and India. In the current situation the European Union needs to prepare a new budget, which is not an easy task. The budget will have to be amended, which brings out more uncertainty. The following principles in turn can be sure:

• Accelerated growth
• Safer Europe
• Europe in the world expect
• A more transparent and fairer budget

What is expected in Hungary?

Well, this should be known that the Hungarian economy's performance basically depends on the German economy. However, Germany's estimated GDP growth in the next year is  0.8 to 1.2%. The exchange rate of the Swiss franc and the euro, the household consumption, the fiscal policy also affects the domestic opportunities and movements in Hungary.
Taking all these into consideration we can declare that the Hungarian economic growth will decrease significantly in 2012. The country's progress to catching up may suffer a further delay in comparison to Europe, which is dropped behind the rest of the world ...
In order to cut the high gross fiscal deficit the government among others attempts an operation in the industry specific tax, the pension policy benefits review, consumption-related taxes, introduction of the increased VAT rate. Furthermore, the self-sustaining health care as well as education issues are on the agenda.

In 2012 the Hungarian fiscal policy intend to generate an increase mainly on income redistribution. The indirect state participation might be reduced significantly. In the future a  so-called near-shore ability can be decisive to attract capital growth. The Far-Eastern wages are now close to the Hungarians and Bulgarians. Since the transportation costs are rising, the local tax rates are reducing, the Eastern European production sites become attractive again. In addition, our region may be a sort of Sales House on foreign markets to serve for the growing BRIC countries, which seriously increases Hungary's ability to attract capital.

Overall, the golden mean becomes the vision of the  future. There will be no end to Europe, and will not be everything made in India or China. But we have to accept that the emphasis is changing, and that we must follow it.
For these reasons we have to show up to work more efficiently with the way of learning. Pannon Business Network with its accumulated knowledge is at service for all the economic operators wishing to open this direction.

Further information:
Pannon Business Network
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