Europe welcomes Orbán’s defeat – but questions remain over Hungary’s future

The ouster of Hungarian conservative nationalist leader Viktor Orbán has been hailed as a victory for liberal democracy and the European Union.

On Monday, the leaders of Poland, France and Germany, as well as European Commission President Ursula von der Leyen, were among the EU’s leading figures to congratulate Prime Minister-elect Péter Magyar on his decisive victory in Sunday’s election.

The ousted prime minister regularly used Hungary’s veto to block EU decisions, was a fierce critic of the EU, blocked aid to Ukraine in support of ally Vladimir Putin, and blocked billions of dollars worth of loans and financing, particularly to Kiev.

EU critics also say the 62-year-old’s creation of Hungary as an “illiberal state” tramples on the rule of law the country promised when it joined the EU.

von der Leyen said: “Hungary has chosen Europe. The country will return to the European path. The alliance will become even stronger.”

Financial markets seemed to agree, with the Hungarian forint hitting a four-year high on Monday morning and 10-year government bond yields falling by as much as 50 basis points.

Both the Kremlin and the White House viewed the Eurosceptic Orbán as ideologically friendly and a thorn in the side of the EU.

Prime Minister Viktor Orbán’s Hungary acted as a hindrance to EU decisions and policies on migration, energy and funding for Ukraine.

His ouster and election loss to Magyar, 45, a former member of Orbán’s Fidesz party before founding the center-right opposition Tisa party just two years ago, will be a blow to both Russia and Washington. The United States sent Vice President Vance to Hungary just before the election to show support for Mr. Orban.

Timothy Asch, senior emerging market sovereign strategist at RBC BlueBay Asset Management, said the “winners” of the Hungarian general election were “Hungary, Europe, Ukraine, the little guys.”

And what about the “losers”? “Trump, Putin, Vance, the big guys,” Ashe told CNBC via email.

The White House has not yet publicly commented on the election results. A Kremlin spokesman said the Kremlin would respect the election results and strive for “realistic relations” with the country’s new leadership.

Holger Schmieding, chief economist at Berenberg Bank, commented on Monday that a clear majority of Hungarian voters rejected Mr Orbán’s “illiberal democracy, anti-EU antics and pro-Putin tendencies”.

“Over the past five years, no European policymaker has done more to weaken the EU’s internal cohesion and external influence than Orban,” Schmieding said, citing the prime minister’s efforts to ease sanctions against Russia and block aid to Ukraine, including recently vetoing a 90 billion euro ($105.2 billion) loan to Ukraine.

He added that Russia could tighten EU sanctions, while the EU could provide greater financial support to Ukraine.

“Europe’s increased support for Ukraine is a significant setback for Russian President Vladimir Putin. Over time, it could even affect President Putin’s calculations of how long he can continue the war, putting serious strain on Russia’s economy,” Schmieding said.

By winning 138 of the 199 seats in the Hungarian government, the Magyar Tisza party achieved a “supermajority” and the ability to enact far-reaching reforms and policies.

Analysts say the Magyar government is likely to try to soften changes to Hungary’s constitution by Orbán and his Fidesz party and weaken its influence over the country’s laws and media.

But it is unclear how far the Magyars, a conservative and former supporter of Orbanism, will deviate from Mr. Orban’s approach.

“For the next four years, I will work for a free, European, well-functioning and caring Hungary,” Magyar posted on Facebook on Monday.

This will come as welcome news to Brussels officials, who have expressed surprise since 2010 at President Orban’s increasingly authoritarian tendencies and pressure on the judiciary and media.

Some analysts told CNBC that issues such as Ukraine’s membership in the EU, Russian energy, relations with the United States and EU-wide immigration policy are likely to remain at issue, and it is important not to overestimate the extent to which Hungary’s political orientation will merge with mainstream European politics.

Russia also maintains a tight grip on Hungary’s energy mix.

Does Orbán’s resignation mean that “Europe will now speak with one voice on all these issues from one day to the next? I don’t think so,” Teneo managing director Kirsten Nickel told CNBC on Monday.

“If you look at President Trump, the ability of this administration to continue to increase pressure on Europe is ultimately tied to trade exposure, security exposure from the European side to the United States. That’s not going to go away. So I think some of the structural factors that give President Putin influence and give President Trump influence in Europe are not going to go away,” he said.

Zuzanna Veg, a program officer at the German Marshall Fund, told CNBC that it will take time for Hungary to wean itself from dependence on Russian oil and gas. Eastern European powers continue to import Russian energy supplies despite the Ukraine war.

“The hard, hard facts are that Hungary remains dependent on Russia for energy, nuclear power, oil and gas, so renegotiation is going to be a complicated process,” he told CNBC’s “Europe Early Edition.”

“This is a relationship that needs to be reconsidered and will be one of the key challenges that the Magyar government will have to address in the coming months and years.”

Still, the Magyars were already listed as a foreign policy priority for Hungary’s engagement in Europe in Sunday’s victory speech, which expected the new government to “take a more cooperative and collaborative approach to the European Union.”

“He has effectively doubled down on Hungary’s traditional foreign policy priorities of firmly placing Hungary within the European Union,” she said.