A top Hungarian official has warned that European policymakers must urgently enact measures to prevent the EU economy from becoming drastically smaller than that of the United States.
The State Secretary at the Hungarian Ministry of Finance, Tibor Tóth, whose country assumed the rotating Council presidency on 1 July, said at a Bloomberg-hosted event on Wednesday (17 July) that US GDP growth consistently outpaced Europe’s since the 2008 financial crisis.
He added that the rapid economic expansion of the US relative to the EU has meant that while the US economy was smaller than its European counterpart before 2008, it is now approximately as much as 50% larger in dollar terms.
“If this kind of [growth] gap is continuously increasing until 2030, then the gap between the US and the European Union will be as big as the gap between Japan and Ecuador today,” Tóth said, referring to an economy that with a total output of $4.21 trillion in 2023, was roughly 35 times larger than Ecuador’s.
Tóth’s comments come amid persistent worries about Europe’s declining competitiveness and its ability to retain its strategic economic independence in the face of China’s economic rise, Russia’s ongoing war in Ukraine, and the potential return of Donald Trump to the White House.
The International Monetary Fund predicts that the EU economy will grow by 1.1% this year, compared to a 2.7% increase in the US. The Fund also expects US growth to consistently outpace that of the EU until 2029, the latest year for which it offers projections.
“If we are not changing the situation quickly, the main problem is that Europe cannot establish its strategic autonomy in many fields,” said Tóth.
CMU in the spotlight
According to the Hungarian official, reversing Europe’s relative economic decline requires strengthening the bloc’s defence industry and increasing its energy independence and overall financial support for tech start-ups.
“Family-friendly” tax measures will also be warranted to address the demographic challenges posed by Europe’s ageing population, he said – echoing the Hungarian presidency’s recent pledge to unlock “untapped labour potential.”
He also highlighted the need to accelerate efforts to deepen the bloc’s Capital Markets Union (CMU) – a growing point of emphasis among EU leaders recently.
Pointing to an observation made by former Italian Prime Minister Enrico Letta in a recent report on the future of the single market, Tóth noted that the “fragmentation” of Europe’s capital markets means that €300 billion in European citizens’ savings leave the continent every year – with most of the money ending up in the US.
“We have to find a solution where this capital market instrument and the framework and the regulation [are] harmonised in a way that is helping to keep those €300 billion annual savings, which are going to the US, to stay here,” he said.
Regarding specific CMU measures, Tóth said that while loosening restrictions on the securitisation market will get “strong support from the member states,” shifting to centralised financial supervision will likely be more challenging.
“Single supervision in the EU [is] something that seems to be a bit more problematic because many member states, including Hungary, [are] not really ready to give up their capital markets and own supervision,” he said.
Waiting for Draghi
Tóth also expressed “great disappointment” that a much-anticipated report on competitiveness by former European Central Bank President Mario Draghi, initially expected to be published this month, will likely be delayed until September.
He added that the Letta report will provide a sufficient basis for discussion among EU ministers over the coming months. “For the time being, we can rely on the Letta report, and in my personal opinion, the two reports will not have too many differences,” he said.
However, Tóth – whose country has also made combating illegal migration a key priority of its presidency – veered away from Draghi’s suggestion, made in a speech delivered in Spain last month, that Europe should address its skill shortages by encouraging the entry of highly skilled workers from outside the EU.
Returning to Budapest’s official programme for its presidency, Tóth said there should be a greater focus on incentivising more EU citizens to enter the workforce.
He noted that Hungary, which has increased its employment by roughly 10% over the past decade, represents a potential “example” for other European countries to follow.
“In Hungary, we are trying to increase the activity rate of the population. And to be honest, we have been quite successful in that…This could also be an example for Europe, but needs strategic discussion on the European level,” he said.
‘Only communication can lead to a result’
Hungary’s Council presidency has been beset by controversy following Prime Minister Viktor Orbán’s surprise visit to Moscow to meet Russian President Vladimir Putin earlier this month.
The visit has led several member states and the European Commission to boycott future informal Council meetings during Hungary’s six-month presidency.
In her speech to the European Parliament‘s plenary session in Strasbourg on Thursday (18 July), Commission President Ursula von der Leyen added: “Two weeks ago, a European Union prime minister went to Moscow. This so-called peace mission was nothing but an appeasement mission.”
Tóth, however, expressed no regrets about Orbán’s visit.
“I think there is a consensus [among EU countries] on the fact that the ultimate goal is to reach peace. And the only difference between our approach is: how can we reach this ultimate goal,” he said.
“You may call it wrong, but we believe only communication can lead to a result,” he added.
[Edited by Anna Brunetti/Rajnish Singh]
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