Hungarian-European foreign relations have undergone significant changes over the past decade, while the effectiveness of the foreign capital-based economic model, the integration of domestic companies into international value chains, and the challenges of energy and climate policy have become increasingly important policy issues. These topics provided the framework for the Hungarian Academy of Sciences' conference "Catching up and the dynamics of EU integration in Hungary: Economic Policy and Regional Challenges."

In her lecture on foreign policy processes, Boglárka Koller, a researcher at NKE and ELTE KRTK, compared the different levels of European integration and cooperation to an onion. In her opinion, the political polarization and resurgence of populism over the past decade have also had a detrimental effect on European integration.

Although the acceding Member States have not always strived consistently to achieve their integration goals, the strengthening of smaller, goal-oriented alliances within the EU – such as the “two-speed” Europe or among Hungary and its direct partners – and the closer ties of cooperation outside the EU's borders are clearly moving in the direction of disintegration.

According to the researcher, Hungary plays a leading role in this process,

and further escalation of conflicts between the EU and Hungary could not only seriously affect cooperation between the two parties, but also raise fundamental questions about the functioning of the EU institutional system.

Tamás Sebestyén, a researcher at the University of Pécs, spoke about the performance of Hungarian industry over the past decade and the role of domestic companies in international value chains. According to the economist's findings, there has been no significant increase in the added value of domestic industry, while the expansion of the domestic supplier network built around multinational companies has not brought about a breakthrough either.

Over the past decade, the Hungarian economy has become increasingly integrated into global value chains, which presents both growth opportunities and greater exposure: vulnerability has not decreased significantly, but rather transformed.

Although dependence on Germany has decreased in recent years, it is still above 2010 levels, and Hungary remains one of the most exposed countries in the region. In addition, on the import side, the previous exposure to Germany has been partially transformed into exposure to China, meaning that dependence has not disappeared, but has simply taken on a new form. According to the economist, based on their positions in value chains, Central and Eastern Europe play a more favorable but also more critical role in the manufacturing sectors, while their embeddedness in services is much weaker. This is a worrying finding in light of the fact that one of the most stable trends in the global economy over the past decade has been the decline in the share of industry and the rise of services.

In his presentation, Zoltán Gál, researcher at the University of Pécs and ELTE KRTK, described the Hungarian economic system as an "FDI-dependent market economy," in which ownership control and higher value-added functions typically remain in foreign hands, while the country's role as an "assembly plant" becomes entrenched.

According to the researcher, this role is problematic in several respects:

• on the one hand, it perpetuates the technological complexity deficit (i.e., the assembly model is preserved), and
• on the other hand, it makes diversification and knowledge accumulation more difficult.

The combination of these effects results in the so-called "regional smile curve," in which high value-added knowledge functions are concentrated in the West, while the supplier-assembler role becomes entrenched in the Central and Eastern European region and innovation capacity is limited.

According to Zoltán Gál, economic growth is determined more by a country's position in the global value chain than by the volume of foreign direct investment (FDI) alone. The re-export of goods imported from abroad after minimal processing has a low multiplier effect, and contrary to expectations, stronger integration into value chains reduces the "independent" growth effect of FDI. The economist called this situation the "assembly plant trap." According to Zoltán Gál, the way out of the current situation is not to abandon the FDI model altogether, but to

make a qualitative change: reducing dependencies and strengthening embeddedness through supplier relationships, knowledge transfer, and innovation cooperation.

Another effective strategy could be to strengthen "national champions," i.e., large domestic companies (Poland, for example, is clearly following this path), but when it comes to strengthening SMEs, the key is not size, but added value and export and innovation capacity.

According to the conclusion of Zoltán Gál's presentation, a state-controlled, FDI-dependent strategy will not solve the issues of economic convergence;

endogenous factors (education, infrastructure, human capital, knowledge cooperation, research) must be strengthened in order to achieve Industry 4.0 and increase technological complexity .

The conference was concluded with a presentation by András György Deák, a researcher at ELTE KRTK. The expert said that, in terms of the results achieved in reducing carbon dioxide emissions, post-socialist countries were often able to achieve emission reductions "without effort" at the time of the transition, thanks to the decline of uncompetitive heavy industry capacities and the high base. According to the researcher, the difficult part of the process is yet to come: poor building stock (insulation deficit) remains a burden, and while replacing coal was faster and cheaper, replacing natural gas will be much more costly and complicated.

According to András György Deák, solar energy has been the main renewable energy source in Hungary, but its development has been ad hoc rather than part of a well-thought-out, balanced strategy. The researcher noted that although other countries (e.g., the Czech Republic and Poland) have also "overdone" the installation of solar panel capacity, the insulation programs that have been implemented and the installation of a larger number of wind turbines have resulted in a more balanced portfolio than in Hungary.

Regarding the relationship between industrial policy and climate policy, the ELTE KRTK researcher emphasizes that it is difficult to develop sustainable technologies without an industrial background, but at the same time believes that voluntaristic Hungarian industrial policy measures are risky. Looking at the European level, the expert believes that the biggest challenge is that companies on the continent are competing with companies that are subject to different carbon costs and regulations, which means that

energy-intensive industries (e.g., the chemical industry) may relocate.

Cover photo: MTA, photographer: Tamás Szigeti