Hungary opposition's landslide win heralds reforms

Peter Magyar's landslide victory in Sunday's Hungarian election has handed his centre-right Tisza party a sweeping mandate that will give it a free hand to enact reforms, bolster the rule of law and potentially unlock billions in European Union funding. Economists and political analysts say the incoming government's expected two-thirds supermajority was the most EU and market-friendly scenario — ⁠and before Sunday, one of the most improbable — and would likely trigger a strong rally in Hungarian assets on Monday. A number of uncertainties remain, and wary diplomats and analysts say the new government must deliver on its promises before reaping the full benefits, but the markets for now look willing to give Budapest's new masters the benefit of the doubt.

"The result is a game-changer and will allow Magyar to govern with a free hand," said Mujtaba Rahman, a managing director at Eurasia Group. "Most importantly, he will be able to unwind Orban's autocracy and deliver on all of the reforms the EU is demanding.

"That means at least 6.4 billion euros ($7.46 billion) from the resilience and recovery facility should flow quickly, shoring up the real ⁠economy and further consolidating Tisza's win."

The election had long been anticipated as the most market-sensitive in Europe this year given the eurosceptic Orban's frequent clashes with Brussels during his 16-year rule, over issues ranging from immigration to his closeness to Russia. Orban had expressed confidence throughout the election campaign despite lagging in opinion polls, saying his goal was to protect Hungary's national identity and traditional Christian values within the EU, while denying any wrongdoing.

But the markets had been signalling for weeks that investors expected change. The share prices of companies linked to Orban fell sharply, while market volatility gauges indicated that big currency moves were likely after the election.

Magyar, addressing jubilant supporters chanting "Europe, Europe" after Orban conceded defeat, pledged to make Hungary a strong EU and NATO ally and rebuild ties marred by years of conflict. "With the two-thirds majority allowing us to amend the constitution, we will restore the system of checks and balances," Magyar said.

"We will join the European Public Prosecutor's Office and guarantee the democratic functioning of our country. We will never again allow anyone to hold free Hungary captive or to abandon it."

One fundamental plank of Magyar's plan to kick-start Hungary's economy, which has been mired in near-stagnation for the ⁠past three years, was to unlock EU funds frozen as democratic standards eroded under Orban. "A constitutional majority is a different story entirely," said Ian Bremmer at GZERO Media.

"That would give Magyar the power to rewrite the constitution, clear out Fidesz loyalists from captured institutions, fully access EU funding, and even adopt the euro - a core campaign pledge."

On Sunday, Magyar called on Hungary's chief prosecutor, the head of the top court, the head of media authority and other officials to resign, saying the country's public institutions had been captured by Orban loyalists over the past 16 years.

Magyar has pledged a sweeping anti-corruption drive as his party seeks to meet EU conditions, including stronger judicial independence and public procurement, to unlock the funds. However, credit rating agencies such as S&P Global and Fitch Ratings, as well as some EU diplomats, are sceptical about whether any money still available under Hungary's pandemic recovery funding would be released.

Diplomats and analysts say comparisons with Poland's 2023 election, when Prime Minister Donald Tusk's pro-EU cabinet secured a quick release of ⁠EU funding on promises to roll back his nationalist predecessor's policies, may be misguided.

"There is no willingness to give out the money only on a promise like the EU did to Tusk in Poland, who was not able to deliver on most promises," said an EU diplomat.

"Tisza would need to demonstrate that it can deliver. But if something is legally impossible, and that can be demonstrated, then the EU could figure out ⁠a way."

Analysts at Capital Economics say the release of EU funding could help cut Hungary's budget deficit towards 3.5% to 4% of national output by the end of the decade and stabilise public debt - the EU's highest outside the euro zone.

"Overall, the election result marks a major turning point for Hungary's economy," Liam Peach said in a note. "The durability of any positive market reaction will now depend on how quickly Tisza moves to rebuild relations with the EU, ⁠secure EU fund disbursements and signal a credible medium-term fiscal anchor."