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The Hungarian state government assumed the over-all presidency of the E.U. on January 1, 2011 for six months. This instantly put the question of whether some of the state laws enacted the previous year violated E.U. constitutional law.  The extent of the breach is itself instructive for us in wondering how it is that a state government could find itself so obviously in violation and yet look the other way.  In other words, this case study suggests that European integration, and federal government in general at the empire-level, is not exempted from the tensions in federalism between the state governments and a general authority tasked with holding the union together. According to The Wall Street Journal,  "In some ways the dispute between Budapest and Brussels goes to the heart of a debate over the proper distribution of power between national governemtns and the central authorities of the European Union."  Hungary's governor, Viktor Orban, stated, "The EU basically has no right to interfere" in these sorts of policy decisions. In 2008, EU government officials had criticized Hungarian officials for relying on short-term fixes rather than long-term spending cuts to shirk the state's budget deficit.

In Hungary, "crisis" taxes that fell disproportionately on out-of-state businesses doing business in the state had been enacted.  The European Court of Justice had previously ruled against such taxes having a disproportionate effect, yet somehow the Hungarian legislature missed this point in enacting the law. It should come as no surprise that officials of other state governments in the E.U. claimed that Hungary was targeting select sectors and out-of-state companies in particular to balance the state's budget. Even so, a state official in Hungary claimed that the "question is: how much economic liberty you have in the EU? We think every state does hoave economic freedom--within a certain framework, we have different methods and models."  While the notion of a shared framework allowing of diversity fits with modern federalism, the diversity cannot contradict the basic principles in the framework.  In this case, a common market requires that states do not discriminate in intention or consequence against firms based in other states. In other words, a common market requires a level playing field.

Secondly, the state legislature enacted a new media law that became quite controversial in the E.U. The law passed by the state legislature in late 2009 allowed regulators to impose fines for "unbalanced" or 'offensive" reports and sets limits for the amount of time that can be devoted to certain types of news. The law also required bloggers to register with the state government. It should be <i>prime facie </i> evident that this law goes against the E.U.'s commitment to freedom of the press.  Guy Verhofstadt, leader of one of the parties in the E.U. Parliament, stressed that no state government should be allowed to put "restrictions to freedoms that lie at the heart of our union of values." From the standpoint of republican principles alone (i.e, being a representative democracy, or "free"), a government fining journalists for being unbalanced or for their allocation of news stories is odious. That a state government in the E.U. would even attempt such a thing ought to give pause to anyone who assumes that it most of the governmental sovereignty in the E.U. should remain with the states. In other words, there is a real need for the E.U. governmental institutions to provide a check with teeth on wayward states, or the union will dissipate.

Finally, European Central Bank officials claim the Hungarian government's changing of the selection process of the state's bank's rate-setting committee threatens the bank's independence. This change of law in Hungary illustrates the difficulties involved in having monetary policy set at the E.U. level (for states using the euro as their currency) while fiscal policy is set at the state level.  Bringing fiscal policy to the E.U. institutions would give the E.U. the added puissance it would need to effectuate a viable check on state governments that for one reason or another are confused about E.U. basic law and principles.  In other words, because the state governments being on the same page concerning the E.U. and its principles cannot be taken for granted, so more power should transfer to the E.U. level from the states--though while working on institutional firewalls to keep the E.U. government from encroaching on the states such that a consolidated central state results (similar to what has happened in the U.S.). 

Source: Gordon Fairclough, "European Probe Fuels Tensions with Hungary," The Wall Street Journal, January 4, 2011, p. A11.