Lying at the heart of central Europe, Hungary is landlocked and has borders with seven states. Historically, Hungary has been a cosmopolitan cultural center, and during its years of market socialism was more prosperous than the other Eastern Bloc countries. Economic and political reforms have brought it closer to the EU, which it expects to join in the first "wave" of eastward enlargement; Hungary has also become a member of the NATO alliance. In foreign policy it is particularly sensitive about the treatment of Hungarian minorities in neighboring states.

Hungary is ethnically homogeneous, although there are small minorities of Germans, Slovaks, Roma, Serbs, Croats, Romanians, and Hungarian Jews. There is little ethnic tension at home, but considerable concern about the treatment of Hungarian minorities in Romanian Transylvania, Serbian Vojvodina, and Slovakia. New legislation in June 2001 gave them special status in Hungary, including the right to work there for three months a year. The 100,000-strong Jewish community in Hungary is the largest in the region, although a fraction of the pre-Holocaust numbers, and is the target of occasional antisemitic outbursts. Prejudice against Roma is widespread and there have been major discrimination rows.

A new bourgeoisie is emerging, but for the unskilled and unemployed life is tougher than under communism. Hungary's suicide rate was the highest in the world throughout almost the whole of the 20th century.

Strengths

Openness to foreign direct investment, especially since 1998. Favorable tax regime, streamlined bureaucracy. Strong export-led growth since late 1990s. High industrial production, especially at new, state-of-the-art factories. Currency fully convertible from mid-2001. Inflation dropping.

Weaknesses

Low energy efficiency. East–west split as development bypasses rural eastern areas. Widening income differentials. Money laundering is a challenge to finance industry regulators; Hungary has featured on OECD blacklists.

Profile

The collapse of COMECON (communist economic bloc) caused a reorientation of trade toward western Europe. Exports increased rapidly and competitiveness has improved. However, the economy did not recover to its pre-1989 level until 1999. Privatization has reduced the state-owned share of the economy, from 85% to 15%, and has helped cut external debt.

Hungary has been a multiparty democracy since 1990.

Profile

Hungary's governments since the fall of communism have been relatively stable coalitions. The electoral pendulum has swung at four-yearly intervals between right and left.

József Antall, leader of the Christian democratic nationalist MDF and prime minister from 1990, was the dominant figure in Hungarian democratic politics until his death in 1993. However, party disintegrations and disappointing economic results increased apathy and disillusionment among voters, who returned the former communists to power in 1994. The victorious MSzP under Gyula Horn nevertheless preferred to work in coalition in order to ease the passage of economic and social reforms through parliament. The right-of-center Fidesz–MPP coalition led by Viktor Orbán, which took office after the 1998 election, drove the country toward completing its transition to a market economy ready for EU membership. However, Orbán was narrowly defeated by a coalition of the MSzP and the SzDSz in the 2002 elections. Peter Medgyessy was appointed prime minister.

Main Political Issue

Social welfare versus free-market economics

Reforms to assist transition to a market economy have led to strong economic recovery in the Budapest area and the western part of the country. Widening income differentials between young, skilled workers and those in education, health, and other state sectors have provoked protests and strikes, as the new prosperity eludes others.

Hungary joined NATO's Partnership for Peace program and gained WEU associate status in 1994. In a 1997 referendum 85% of voters endorsed joining NATO, and in March 1999 Hungary became a full NATO member, with Poland and the Czech Republic. Joining the EU is a slower process. With an association agreement since early 1994, in 1998 Hungary was one of six applicant countries to open formal membership negotiations.

Hungary has a cooperation and friendship treaty with Russia, but relations have been strained by Hungary's open courting of the West. Difficult relations with Slovakia and Romania were eased by friendship treaties concluded in the mid-1990s, but were troubled again by the controversial status law in regard to Hungarians resident abroad.

Troop numbers were more than halved, and conventional arms and the military hierarchy were updated in advance of NATO membership in 1999. The emphasis has switched toward more flexibility and rapid response. Almost immediately on joining NATO, Hungary permitted it to use its airspace to bomb Yugoslavia. Military service has been shortened to six months with effect from 2002.

Hungary has bauxite, brown coal, lignite, and natural gas reserves. It depends for about 40% of its electricity on nuclear energy from the Paks complex, north of Baja. Fertile farmlands provide grains, sugar beet, and potatoes. Wine production is also important.

A high sulfur content in Hungary's fossil fuels exacerbates the serious air pollution in industrial zones. The energy industry must meet new standards by 2003. A "green card" system has been introduced to favor the use of cars with catalytic convertors and reduce serious pollution from older vehicles.

Industrial pollution of the Sajo, Tisza, and Danube river systems, sometimes originating in neighboring countries, is a major problem.

Freight travels mainly via the rail link from Budapest to the Austrian border. Most foreign investment is located along this corridor. A direct link to Slovenia opened in mid-2001. The Budapest–Vienna expressway was the first of four big EU-backed road projects to be completed.

Medical treatment has traditionally been free to all, although there is a contribution to prescription costs. State sickness benefits remain relatively generous. Spending on the health service has fallen in recent years in real terms; at $600 per capita, it is only one-third the OECD average, and there is concern that Hungary's health care sector is among the least developed of OECD countries. The ratio of doctors to patients is high, but there is a shortage of nurses. Family physician services are being privatized rapidly under a law passed in 2000.

Education is free and compulsory from the age of six to 16. Bilingual schools have been established in southern Hungary to promote the languages of the national minorities. In 1999–2000 a major transformation of the education system took place, as a result of which, with effect from 2000, there are 30 universities and colleges run by the state, 26 run by the church, and six colleges run by various foundations.

An alarming trend in the late 1990s was the increase in murders of elderly people for financial gain. Organized crime, money laundering, and smuggling of illegal immigrants are rising.

Hungary enjoys a higher standard of living than other former communist countries except Slovenia, and demand for luxury goods is rising. Access to mobile phones and the Internet is relatively high. Real wages, which fell by 15% in the mid-1990s, had regained most of this ground by 2000. Hungarians still have to work longer hours to pay for basic consumer goods than workers in western Europe. Salaries in the public services have not kept pace with the rising cost of living, and as a result there is a growing disparity between those working in the state and private sectors. The Roma minority suffers particularly over access to housing, which is in short supply.

Lake Balaton, the traditional summer vacation destination, was a magnet for East European visitors during the communist period. Since then, Hungary has invested heavily in its tourist facilities, and the number of travel agents and hotels has risen dramatically. Germans and Austrians are most numerous among the new clientele the country now attracts. Budapest's baths, some of which date from the Ottoman period, are a distinctive feature, and the capital also promotes itself as an international business convention center.

The region today occupied by Hungary was first settled by the Finno-Ugrian Magyar peoples from the 8th century. In the 16th and 17th centuries, it came under Austrian domination, lasting until 1867, when Austria-Hungary was formed.

• 1918 Hungarian Republic created as successor state to Austria-Hungary.
• 1919 Béla Kún leads a short-lived communist government. Romania intervenes militarily and hands power to Adm. Horthy.
• 1938–1941 Hungary gains territory from Czechoslovakia, Yugoslavia, and Romania in return for supporting Nazi Germany.
• 1941 Hungary drawn into World War II on Axis side when Hitler attacks Soviet Union.
• 1944 Nazi Germany preempts Soviet advance on Hungary by invading. Deportation of Hungarian Jews and Roma to extermination camps begins. Soviet Red Army enters in October. Horthy forced to resign.
• 1945 Liberated by Red Army. Soviet-formed provisional government installed. Imre Nagy introduces land reform.
• 1947 Communists emerge as largest party in second postwar election.
• 1948 Forcible merger of Social Democrats with communists to establish Hungarian Socialist Workers' Party (HSWP) in 1956.
• 1949 New constitution; formally becomes People's Republic.
• 1950–1951 First Secretary Mátyás Rákosi uses authoritarian powers to collectivize agriculture and industrialize the economy.
• 1953 Imre Nagy, Rákosi's rival, becomes premier and reduces political terror.
• 1955 Nagy deposed by Rákosi.
• 1956 Rákosi out. Student demonstrations, demanding withdrawal of Soviet troops and Nagy's return, become popular uprising. Nagy appointed premier and János Kádár First Secretary. Nagy announces Hungary will leave Warsaw Pact. Three days later, Soviet forces suppress protests. About 25,000 killed. Kádár becomes premier.
• 1958 Nagy executed.
• 1968 Kádár introduces New Economic Mechanism to bring market elements to socialism.
• 1986 Police suppress commemoration of 1956 uprising. Democratic opposition demands Kádár resign.
• 1987 Party reformers establish MDF as a political movement.
• 1988 Kádár ousted. Protests force suspension of plans for Nagymaros Dam on the Danube.
• 1989 Parliament votes to allow independent parties. Posthumous rehabilitation of Nagy, who is given state funeral. Round table talks between HSWP and opposition.
• 1990 József Antall's MDF wins multiparty elections decisively. Speed of economic reform hotly debated. Árpád Göncz president.
• 1991 Warsaw Pact dissolved. Last Soviet troops leave.
• 1994 Hungary joins NATO's Partnership for Peace program. Former communist MSzP wins general election. Austerity program prompts protests.
• 1998 EU entry negotiations open. Elections: Viktor Orbán (Fidesz–MPP) forms right-of-center coalition.
• 1999 Joins NATO. Airspace used in NATO bombing of Yugoslavia.
• 2000 Ferenc Mádl succeeds Göncz as president.
• 2002 Elections won by socialist and free democrat alliance. Peter Medgyessy prime minister.