Europe
German industry faces uncertainty as Magyar’s landslide victory resets Hungary’s economic path
Following the landslide victory of Péter Magyar’s Tisza party in the Hungarian elections, a complex landscape is emerging for Germany: while Berlin may find political relief in the result, significant economic challenges are beginning to surface.
According to an analysis by German Foreign Policy, the ascent of Magyar’s leadership has already produced the first signs of friction between his proposed EU policies and the established interests of German corporations.
Magyar has pledged to firmly anchor the country within the European Union and NATO, while declaring an intent to adopt the euro. His proposed cabinet lineup is notable for its inclusion of executives from major corporations with extensive transatlantic experience. These signals mark a decisive break from the cooperation with Russia maintained by outgoing Prime Minister Viktor Orbán.
Simultaneously, however, Magyar has criticized the extensive subsidies previously granted to large corporations and has set a goal to diversify the Hungarian economy. For German firms that have benefited from the political and financial patronage of the Orbán government for years, these developments suggest a period of significant transition. Approximately 6,000 German companies currently operate in Hungary, a presence that has effectively turned the country into the hub of Germany’s “industrial backyard.”
Magyar also remains opposed to the EU Migration Pact. Meanwhile, pressure from Brussels continues to mount: Hungary must meet 25 reform conditions set by the European Commission by August to trigger the release of funds that were frozen during Orbán’s tenure.
Hungary as Germany’s industrial backyard
German firms remain the largest group of foreign investors in Hungary, with nearly 6,000 companies creating more than 300,000 jobs and investing approximately €18 billion. These enterprises account for 7% of Hungarian employment, contribute more than 11% of the country’s gross value added, and represent nearly one-sixth of all investments in the corporate sector.
Outgoing Prime Minister Viktor Orbán relied on low taxes, deregulated labor laws, and the country’s central European location to construct what was described as an “efficient paradise” for German investors. This strategy solidified Hungary’s role as a central component of Germany’s industrial infrastructure.
German automotive giants as primary beneficiaries
One specific group of companies benefited disproportionately from Orbán’s policies: the German automotive giants.
Mercedes-Benz, for instance, is currently doubling its production capacity at its Kecskemét plant from 200,000 to 400,000 vehicles per year. In Debrecen, BMW has invested more than €2 billion in a new facility, marking its first production site in Eastern Europe. Only months ago, the Volkswagen-owned Cupra brand began production of the Terramar SUV at the Audi Hungaria plant in Győr. Audi, having expanded the facility, now employs 11,000 people there.
The economic incentives are stark. According to Eurostat data, the average labor cost in Germany was €43.30 per hour in 2024, compared to just €14.19 per hour in Hungary. Mercedes reports that production costs in Hungary are 70% lower than those in Germany.
Unlike their counterparts in German politics, German automakers did not oppose Orbán, as his administration provided what they viewed as ideal investment conditions. German suppliers also maintain a robust presence; Bosch operates its largest European development center outside of Germany at its innovation campus in Budapest. Employing 17,000 people, Bosch was projected to generate more than €5 billion in revenue there by 2024. Similarly, the Henkel Group has produced industrial adhesives in Környe for 15 years, supplying approximately 70 countries from that location.
Restrictions on strategic sectors
However, the Hungarian “investor paradise” has its limits. While Orbán aggressively promoted the export sector, he subjected strategic industries—including telecommunications, banking, logistics, construction, and retail—to restrictive industrial policies following the 2008/09 global financial crisis.
Foreign companies in these sectors have long complained of special taxes, regulatory hurdles, price controls, state intervention, and delayed approvals. In recent years, Hungary recorded the highest inflation rate in the EU, with food prices rising by as much as 45% at peak levels.
The Orbán government’s interventions affected not only the Austrian chain Spar and Britain’s Tesco but also German discounters Lidl (the Hungarian market leader), Aldi, and Penny. Price caps currently apply to more than 40 essential food products and will be extended to 30 pharmaceutical products starting in May 2025, a move impacting German retail chains dm and Rossmann.
Interventions in other sectors are even more pronounced. Companies are required to pay additional taxes on construction materials such as sand, gravel, and cement, which has adversely affected German manufacturers.
Scrutiny of “crony” contracts
The ongoing power struggle between the European Commission and Orbán has resulted in the freezing of tens of billions of euros in subsidies since 2022, leading to further economic strain.
A representative of the German steel company Thyssenkrupp Materials in Budapest noted that the cessation of these funds has damaged the industry. According to the official, orders have hit rock bottom and business is performing “truly poorly,” adding: “We hope that relations with the EU will improve again after the elections.”
An analysis by the Financial Times revealed that since Orbán took office in 2010, 14% of all state tenders were awarded to companies owned by just 13 individuals within his inner circle. These firms received an average of three times more contracts annually compared to the five years preceding Orbán’s premiership, spanning the banking, logistics, and construction sectors.
Péter Magyar, as Orbán’s successor, is now promising a new era and has declared a “struggle against 3,000 oligarchs.”
Business heavyweights dominate the new government
Immediately following his decisive victory in the April 12 elections, Magyar launched an offensive against Fidesz and its inner circle, calling for the resignation of President Tamás Sulyok. Magyar has threatened that if Sulyok does not resign voluntarily, he will seek the president’s removal via constitutional amendment.
Magyar is bringing in a new cabinet that includes several executives from major foreign corporations. His choice for Finance Minister, András Kárman—who served as Magyar’s economic advisor since the autumn—was previously responsible for the mortgage business at Austria’s Erste Bank. Prior to that, he served on the Board of Directors of the European Bank for Reconstruction and Development (EBRD) for three years. While Kárman initially worked in Orbán’s first government, he departed shortly thereafter due to disagreements over the prime minister’s confrontational stance toward the IMF.
István Kapitány, 64, slated to lead the Ministry of Energy, spent his entire career at the British oil major Shell.
The designated Foreign Minister, Anita Orbán, is a long-time veteran of the Ministry of Foreign Affairs, having served as Hungary’s roving ambassador for energy security between 2010 and 2015. In 2020, the Orbán government supported her candidacy for NATO Deputy Secretary General. After leaving the ministry in 2015, she worked for several years at US LNG companies Cheniere and Tellurian before joining Vodafone as a lobbying expert in 2021.
A high-level executive and energy expert, Anita Orbán was previously part of Fidesz’s transatlantic wing. She resigned her post as special envoy for energy security in 2017 after Prime Minister Orbán signed a major deal with Russia. She is the author of the 2008 book Power, Energy and the New Russian Imperialism. Before entering active politics, she was a board member of the European Council on Foreign Relations and Globsec, and worked as a journalist writing foreign policy analysis for Heti Válasz.
Europe
Fico accuses Merz of blackmail over threat to veto EU budget
Slovak Prime Minister Robert Fico has hit back after German Chancellor Friedrich Merz threatened to veto the EU budget unless funding for Ukraine is secured.
Merz said he would block the EU’s seven-year budget if no agreement is reached on financial assistance for Ukraine.
The chancellor’s intervention has angered Central European leaders who are net beneficiaries of EU funds but do not want to take part in the next round of funding to support Ukraine’s war effort.
“What the chancellor is doing is typical blackmail, and I will not bow to it,” Fico told reporters in Bratislava.
Fico spoke alongside his Czech counterpart, Andrej Babiš, whose government has refused to participate in a future loan to Ukraine.
“I do not know why he said this,” Babiš said, referring to Merz’s stance.
Merz wants EU leaders to discuss Ukraine’s financing needs at a summit in Dublin on Friday.
In a letter to European Council President António Costa, who will chair the meeting, obtained by The Guardian, Merz wrote:
“We must maintain our support for Ukraine in its struggle to defend itself. This is our shared vital interest. Yet bilateral aid provided to Ukraine is distributed unevenly, with the burden shouldered mostly by only a few member states.”
The EU agreed last year to provide a €90 billion loan to Ukraine, intended to cover two-thirds of its military and civilian spending for 2026 and 2027.
Since then, however, Russia’s relentless bombardment has placed a heavier financial burden on Kyiv, prompting President Volodymyr Zelenskyy to ask for €70 billion to plug the budget deficit.
The EU has endorsed Zelenskyy’s figures and pledged to find €45 billion. Ukraine’s other allies, such as Britain and Canada, are expected to cover the rest.
Last year, Merz launched an initiative to tap €210 billion in frozen Russian state assets held in the EU, but the plan fell through due to opposition led by Belgium, which holds most of the funds in Brussels.
The €90 billion loan was the backup plan. Having opted out of that loan, Hungary, Slovakia, and Czechia indicated that they would not take part in the next round either.
Bulgaria joined these three member states following the election of Prime Minister Rumen Radev last April.
The question of funding for Ukraine is now spilling over into the fraught negotiations on the 2028-34 EU budget.
Germany, the largest net contributor, wants substantial cuts to the proposed budget and opposes the EU providing generous funding to member states that refuse to contribute to Ukraine’s financial needs.
Merz states in his letter that a “collective commitment without exceptions” is a “fundamental prerequisite” for closing Ukraine’s financing gap and for “discussing other matters, particularly those with financial implications.”
He also notes that, in the context of the EU’s next seven-year budget, known as the Multiannual Financial Framework, all member states must contribute to a “robust” financial perspective for Ukraine from 2028 onwards.
A German government official said:
“For the Multiannual Financial Framework (MFF) to be successfully concluded, it is vital that all EU member states provide financial support to Ukraine.”
Berlin is also aiming to shift decision-making on funding for Ukraine from unanimity to qualified majority voting, in an effort to prevent a single government from blocking EU decisions.
The letter reflects mounting frustration among the EU’s northern member states, Ukraine’s most generous backers, over lower contributions from other EU countries in Central and Southern Europe.
The task of brokering an agreement on the budget falls to Costa, the former Portuguese prime minister.
Costa wants a deal by the end of the year, ahead of elections in France, Poland, and Italy in 2027 that could complicate the process.
A spokesperson for Costa confirmed receipt of the letter without elaborating on details. “President Costa will dedicate time to the Ukraine issue at the informal European Council meeting in Dublin this week,” the spokesperson said, adding that funding for Ukraine would be addressed at a dedicated summit on the EU budget scheduled for 26-27 November.
Europe
EU expects next Israeli government to adopt less aggressive posture
The EU expects the next Israeli government to mend its “difficult relationship” with Brussels and adopt a more constructive approach toward Gaza and illegal settlements.
Israeli President Isaac Herzog tasked Gadi Eisenkot, the leader of the anti-Netanyahu bloc, on Sunday with forming a government.
Eisenkot stated that the country faces a “catastrophic diplomatic crisis” as traditional allies begin to reassess their relations with Israel.
Speaking to Rapporteur, several European diplomats stationed in Tel Aviv said they expect ties to get back on track.
“Whatever government comes in, we can try to revitalize relations because Israel is clearly a very important partner,” one European diplomat said, adding that Brussels expects the next administration to be “less aggressive”.
The diplomat noted that relations with Europe are currently “not very good”.
Israel cut off communication with Kaja Kallas, the EU high representative for foreign affairs and security policy, after Rapporteur revealed in June that she had compared Israel to apartheid-era South Africa during a visit to Mexico.
The diplomat stated that this decision, taken ahead of elections, was political in nature. A second European diplomat based in Brussels explained that the announcement came only a few days before an official visit by Dubravka Šuica, the European commissioner for the Mediterranean.
“This could have been interpreted as a tactic to divide Europe, but Israel had asked Kallas to deny the report; she did not do so,” the second diplomat said.
Brussels has repeatedly voiced its frustration with Israel over the humanitarian crisis in Gaza and the expansion of West Bank settlements.
However, EU governments blocked almost all sanctions proposed by the European Commission.
A third diplomat said opposition parties would “almost certainly take the issue more seriously” when it comes to tackling violence by West Bank settlers:
“We see Palestinians being expelled from their homes and new illegal settlements being built in the West Bank. There is a reluctance on the part of the current government to address this issue, which causes problems in our relations.”
The new government is expected to ease pressure on Palestinians and halt construction of the E1 settlement project, a controversial plan to build settler housing in the West Bank east of Jerusalem.
“They will probably try to deal with the problem of extremist settlers in the West Bank,” the diplomat added.
On Gaza, the diplomat described the situation as “a complete nightmare”, with two million Palestinians crowded into an area that accounts for roughly 35% of the territory.
“There are not enough tents for the winter, and not enough vaccines are reaching the area despite an increase in diseases,” the diplomat said.
The European official argued that Donald Trump’s peace plan met all the conditions for Europe. Although the EU had much to offer, neither the US nor Israel appeared interested in EU involvement in the process.
“We are currently training Palestinian police in the West Bank, and if permitted, we could do the same in Gaza,” the diplomat said.
The diplomat disclosed that Israel had agreed with Šuica that Europe would finance two projects aimed at improving sewage and water infrastructure in Gaza, continuing:
“However, none of these projects has started yet because there is a serious problem with dual-use goods. Getting materials into Gaza is very difficult because the Israelis say they could be misused if they fall into the wrong hands of Hamas.”
Israel insists that Hamas must be disarmed before subsequent phases of Trump’s plan can proceed.
With disarmament unlikely to happen in the near term, the EU argues that certain measures can be carried out in parallel.
“We can begin rebuilding sanitation systems in Gaza. We can start building desalination plants. We can begin providing energy and water to Gaza,” one diplomat said.
While Brussels hopes for progress on Gaza and the West Bank, it maintains that expectations regarding the establishment of a Palestinian state need to be “managed”.
The EU continues to advocate a two-state solution, yet most leading Jewish parties oppose the creation of a Palestinian state.
The diplomat noted that the next Israeli government will likely have “a very slim majority and not much room for manoeuvre”.
There is also a “major misunderstanding” between the EU and Israel that must be addressed. According to the diplomat, Europeans fail to recognize the “psychological impact” of 7 October on Israelis.
“This event changed the country and made the two-state solution even more distant than before,” the diplomat said.
In return, some Israeli politicians believe Europe has betrayed Israel despite what they view as a fight against “Islamist terrorism”.
“Their argument is that European politicians are somewhat afraid of the Muslim population in Europe,” the European diplomat said.
Europe strongly opposes Iran and the possibility of Tehran acquiring nuclear weapons, imposing sanctions in response.
However, the diplomat argued that the EU would not participate in a war because it lacks a common army:
“We are a diplomatic and economic power, which is why we resort to sanctions and diplomacy. The expectation that we would take part in a military operation is unrealistic.”
Europe
Germany threatens EU budget veto over long-term Ukraine aid
Germany has threatened to veto the European Union’s joint budget for the 2028-2034 period, which is currently under negotiation, unless every member state commits to providing financial support to Ukraine in 2027 and subsequent years, German Chancellor Friedrich Merz warned.
According to a report by the Financial Times (FT), Chancellor Merz set out Berlin’s condition for the budget talks in a letter addressed to European Council President António Costa.
In his letter, Merz wrote: “A collective commitment that every single one of us, without exception, will make a fair contribution to closing Ukraine’s budget deficit is an indispensable prerequisite for resolving this budget issue and, in particular, for addressing subsequent matters that carry financial implications.”
The German Chancellor stressed that a formula backed by all member states must be established to provide Ukraine with a reliable, multi-year financial perspective starting from 2028.
Merz also insisted that any agreed solution must cover the interest payments on debts incurred to finance the assistance provided to Kyiv.
Conversely, several countries within the bloc have cut financial aid to Ukraine, and the number of capitals adopting this stance is projected to rise next year.
In December 2025, Hungary, Slovakia, and the Czech Republic approved the EU’s 90 billion euro loan package for Kyiv only on the condition that they would not contribute to its costs themselves.
Alongside these three countries, Bulgaria has also stated that it does not plan to participate in subsequent financial assistance packages for Ukraine.
In France, far-right leader Marine Le Pen, who could potentially win the presidential election scheduled for spring 2027, recently told the FT that Paris has run out of funds.
Le Pen assessed: “The honest approach is to tell Mr Zelensky clearly, and even warn him: ‘Look, we cannot do more. We have already allocated the 90 billion euro EU loan, in which France’s share amounts to 18 billion euros. 18 billion euros is genuinely a huge amount of money.'”
The EU’s 90 billion euro loan, covering the 2026-2027 period, aims to meet two-thirds of Ukraine’s financing requirements.
Brussels expects the remaining 45 billion euros to be covered by other partners, including Canada, the UK, Norway, Japan, South Korea, and Australia.
Germany remains the largest net contributor to the EU budget.
In contrast, the four Eastern European countries seeking to avoid financing Ukraine rank among the largest net beneficiaries of the bloc’s budget.
Leveraging this balance, Chancellor Merz aims to use his influence in the EU budget negotiations to secure uninterrupted support for Kyiv in 2027 and the years beyond.
According to the FT, Berlin is also demanding that future aid packages be decided by qualified majority voting rather than unanimity, which is required under the current system.
A German government spokesperson told the newspaper:
“The issue of Ukraine’s financial needs must be resolved within the framework of the next EU budget. Financial support for Ukraine from all EU members is decisive for the successful conclusion of the budget talks.”
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