Unintended outcomes effects of the European Union and the International Monetary Fund on Hungary's public sector and administrative reforms

Published date01 April 2020
Date01 April 2020
AuthorZoltán Török
Subject MatterSpecial Issue Articles
untitled Special Issue: Public Sector Reforms in a Changed EU Governance under Conditions of Fiscal Consolidation
Public Policy and Administration
2020, Vol. 35(2) 158–178
Unintended outcomes
! The Author(s) 2019
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effects of the European
DOI: 10.1177/0952076718789731
Union and the
International Monetary
Fund on Hungary’s public
sector and administrative
Zolta´n To¨ro
¨ k
Department of Public Policy and Management, Corvinus
University of Budapest, Hungary
This article investigates European Union and International Monetary Fund influence on
Hungary’s public sector reforms in the period 2004–2013, that is, a time period that saw
the initiation of the European Union’s Excessive Deficit Procedure (the whole period)
and an International Monetary Fund bailout programme (2008–2010). In this case,
public sector reforms became derailed from the externally proposed trajectory and
took the opposite direction: instead of fostering decentralization of the state adminis-
tration and deepening the Europeanization process, Hungary’s restructuring of the
public sector delivered centralization and a ‘power grab’ that eventually impinged on
some core values of the European Union ‘constitution’ (the acquis communautaire). This
study aims to explain this empirical puzzle by in-depth analysis of how external influence
was exerted and became interwoven with dynamically changing domestic factors in
circumstances of conditionality. The research is framed by existing policy transfer and
public sector reform theories. The article argues that the Hungarian case provides
evidence of the unintended consequences of European Union-driven public sector
Implementation, policymaking, public administration, public sector reform
Corresponding author:
Zolta´n To¨ro¨k, Arzen u. 10., Szentendre 2000, Hungary.
Email: torok.zoltan@raiffeisen.hu

This article analyses the inf‌luence of the European Union (EU) and the
International Monetary Fund (IMF) on f‌iscal consolidation and public sector
reforms in Hungary in the period 2004–2013. The Hungarian case – although it
gained some fame internationally – is relatively unknown in detail, but it provides
an interesting insight into how external inf‌luence is actually exerted in circum-
stances of conditionality. The case is especially remarkable because in the last
phase of the time period under investigation (i.e. post-2010), there was a reversal
in the direction of public sector reforms and a divergence from Hungary’s earlier
Europeanization drive. This empirical puzzle is investigated here. The research
process is mainly inductive in its thrust and provides a thick description of the
main features of the reforms. The doctrines behind the trajectory taken are then
examined and the ef‌fects analysed. The research topic lies at the interface of the
streams of literature dealing with policy transfer and public sector reform. The
study focuses on (1) the applicability of policy transfer theories whose aim is to
explain how public policy models or existing policy practices (or models) are
transferred from one place to another and (2) the relevance of public sector
reform theories, arguing that reforms are shaped by multiple factors, including
various socio-economic forces, the political and the administrative system and
even chance events (Pollitt and Bouckaert, 2011).
Hungary, a country with 10 million citizens, is a unitary state with a unicameral
parliament and a majoritarian political system. The government administration is
composed of three plus one layers: central level, county level, and municipality
level, with the additional regional level (between national and county level).1
Hungary’s public administration system had its roots in the centralized and hier-
archical traditions of the Austro-Hungarian Empire (Nunberg, 2000). After the
fully f‌ledged centralization of the post-World War II Soviet-type communist
regime, the political changes from 1989 onwards brought the decentralization of
public administration. Hungary became a member of the EU in 2004. The process
of adopting the acquis communautaire in the pre-accession period is labelled as a
general Europeanization drive (Bruszt, 2007; Hughes et al., 2004; Shimmelfenning
and Sedelmeier, 2004), whereby the doctrines underlying the public sector reforms
were derived from the Washington consensus in general and the new public man-
agement (NPM) approach in particular (Csa´ky, 2009; De Vries and Nemec, 2013).
Public sector decentralization led to a high degree of independence from central
state administration for municipalities and for various state agencies. This also
resulted in increasing functional inef‌f‌iciencies, the proliferation of state organiza-
tions on all levels, f‌inancial waste and an environment that hindered central deci-
sion-makers’ ability to facilitate change (Hajnal, 2014; Vass, 2001). Central
governments made recurrent attempts to reverse the previous trends throughout
the 2000s, but the centralization breakthrough (i.e. cutting state agencies’ author-
ity, hollowing out the functions of mezzo and local governments) did not happen
until after the 2010 elections when Fidesz2 gained an absolute (two-thirds) parlia-
mentary majority that allowed the government party to change most rules of the

Public Policy and Administration 35(2)
political game, to rewrite the constitution, and to dismantle the strong system of
checks and balances (Greskovits, 2015; Hajnal, 2013; Hajnal and Kova´cs, 2015;
Kornai, 2015; Ko¨ro¨sse´nyi, 1999). This latter metamorphosis of the Hungarian
public administration constitutes the main interest of this study.
The article covers the period 2004–2013, an era that the country spent under the
EU’s Excessive Def‌icit Procedure (EDP). In 2008–2010, Hungary participated in an
IMF bailout programme. The EDP is an action initiated by the European
Commission (EC) against those member states whose public budget def‌icit runs
above the set threshold.3 According to EDP rules, the national government is
responsible for the content of the programme designed to eliminate the excessive
def‌icit, whereas the role of the Directorate General for Economic and Financial
Af‌fairs (DG EcFin) is to formulate country-specif‌ic recommendations on the neces-
sary policy measures (including public sector reforms) and to track their imple-
mentation. If a member state fails to comply with the approved f‌iscal consolidation
trajectory and does not reduce its public sector def‌icit accordingly, a f‌inancial
penalty may be imposed. The macroeconomic situation, the level and the intensity
of external inf‌luence on national level decision-making and elite decision-makers’
ownership of public sector reforms were rather heterogeneous during these 10
years. Accordingly, this article distinguishes and analyses three qualitatively dis-
tinct phases: (1) the f‌irst phase of f‌iscal consolidation and public sector reforms in
2004–2008; (2) the IMF bailout programme in 2008–2010 and (3) the post-2010
public sector reforms and f‌iscal programmes.
Both the EDP and the IMF bailout programme have inherent conditionality
features (more implicitly in the f‌irst case and absolutely explicitly in the second).
These circumstances provided a wide window of opportunity for the EU and the
IMF to inf‌luence domestic public policy reforms. Persistent direct and explicit
coercive policy transfer interplayed with the domestic context exemplif‌ied by the
dynamics of socio-economic factors and the specif‌icities of the political and
the administrative system. How then did coercive policy transfer mechanisms
work, and how did the actual public sector reforms unfold amidst the dynamically
changing environment characterized by deep economic and social crises and
major repositioning of domestic political actors in Hungary during the 2004–
2013 period?
This study aims to (1) uncover the connections between f‌iscal consolidation and
public sector reform to map their processes and their substantive content, (2) ana-
lyse the instrumental role of domestic factors of elite decision-making on the
reform process and reform content, (3) identify EU and IMF inf‌luence on public
sector reforms and (4) interpret the interaction of the two (i.e. external inf‌luence
and domestic decision-making) in light of the literature on policy transfer and on
public sector reform. The research question (RQ) posed in this article is: How
applicable are existing policy change theories for interpreting the empirical
puzzle embodied in the Hungarian case?
The article proceeds as follows. First, the terminology is def‌ined, the method-
ology is presented and the theoretical frame is outlined, with the underlying

objective of exploring the suggestions that policy change theory might have for our
case and how the emerging stream of public sector reform literature might be
helpful in understanding the empirical puzzle. In the subsequent sections, the art-
icle recounts and discusses the three qualitatively dif‌ferent periods of the 10 years
under investigation in chronological order. In these sections, the relationship
between f‌iscal consolidation and public sector reform is investigated, as well as
the role of domestic elite decision-making and EU and IMF inf‌luence in the whole
process. In the Discussion section, the reform trajectory suggested by the policy
change literature and the actual developments exhibited by our case are compared
in order to answer the RQ...

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