How are the ex-communist countries of Central Europe faring during the present global economic downturn? To judge by the glittering city of Budapest, the answer is that so far the forces of recession have made little impact. The restaurants are full, the shops crowded, the streets jammed with vehicles, the lights at night sensational.
It would be hard to guess that this is the capital of a country that has been on the verge of bankruptcy and only just rescued by a huge loan package ($15.7 billion) from the International Monetary Fund.
This may be because, as elsewhere in Europe, the real pain for consumers and the economy is yet to come. The potential for pain is considerable. Hungary has been heavily reliant on foreign borrowing that now demands repayment, and foreign investment that is now staying away.
On top of this, the latest European Union proposals for fighting climate change and reducing carbon are likely to fall especially harshly on the former Soviet satellites with their rusty heavy industries and large carbon emissions.
But there may also be an even bigger problem on the minds of some Hungarians, and of their Central European neighbors, as they prepare for the economic storms ahead: Russia. An uneasy feeling is growing that Russia is trying to regain its influence in East and Central Europe, this time not so much through military oppression, or through Georgia-style invasion, as through subtle economic control.
The levers for exerting this control are very obvious. Hungary depends very heavily on gas for heating homes and cooking. Eighty five percent of that gas is imported though a pipeline owned and controlled by the Russian giant Gazprom, a thinly disguised arm of the Russian state. Even within Hungary itself the gas grid is owned by Ruhrgas, which has a close partnership with Gazprom. And Hungary’s airline, Malev, is now completely owned by the Russian state.
The gas supply situation gives Russian interests almost total domination over Hungarian daily energy supplies — and this comes at a time when Russia’s leaders, from Vladimir Putin down, have stated that they intend to use their pivotal position as gas supplier to the rest of Europe as a diplomatic weapon. Could it be even worse that that, Hungarians ask each other, as their minds go back to the dark days of Russian military occupation and the brutal Russian suppression of the Hungarian uprising in 1956?
At least this time the Hungarians can take comfort from their membership of the European Union and their active participation in NATO. In theory these two Western links should protect them. But in practice things may not be so certain. As Poland has found, being a neighbor of Russia is always uncomfortable, however many Western clubs one may belong to.
It is not surprising that the No. 1 preoccupation in the central capitals of Europe, such as Budapest, tends to be how to escape this looming return of the Russian bear grip. In the Hungarian case this explains why high hopes are placed on the building of an alternative gas pipeline to bring large gas volumes into Europe from Central Asia, but without crossing Russian territory.
The Nabucco pipeline would run for 3,540 km from Turkey through Romania and Bulgaria, and up into Hungary and Austria, and it would collect gas from Azerbaijan, Turkmenistan, Kazakhstan, and maybe from Iran and Iraq, and perhaps even Egypt, thus breaking the Russian monopoly.
But there are many snags. Predictably, the Russians are using every device to undermine the plan. They vigorously oppose the transmission of Turkmenistan gas under the Caspian Sea westward to join up with Azeri supplies.
Meanwhile the Americans are horrified at the prospect of Iran joining in. Iraq is not yet ready to supply and a number of European customers are nervous of offending Russia, their main supplier, by backing an alternative pipeline route.
Pessimists therefore believe the line will never be able to collect enough gas to make it economic to operate and may never be built, thus leaving Hungary and its neighbors defenseless against Gazprom and its political masters.
There is one chink of light in the situation. Russian assertiveness in recent years under Putin and his acolyte President Dmitry Medvedev has depended on massive oil and gas wealth. As long as oil and gas prices were soaring, Russian state revenues soared as well, and could be used to buy influence and reinforce political pressures on the country’s neighbors.
But now the oil price has collapsed, at least for a while, and the prices of almost all other Russian commodity exports as well. Money power no longer speaks so loudly. Instead, the global economic turmoil has hit Russia harder than anyone else. The stock market is wrecked, the ruble currency is sinking and out of control, foreign investors are fleeing Russia and Russian industrial performance is abysmal.
So quite suddenly the Russia bear has lost a few claws. Recession may be unpleasant, but in Hungary it may just possibly blunt the return of Russian influence and ambitions. It seems that every cloud, however dark, does have a silver lining somewhere.
David Howell is a former British Cabinet minister and former chairman of the Commons Foreign Affairs Committee. He is now a member of the House of Lords.
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