Europe cheers Orbán defeat – but Hungary’s future remains contested

The ousting of Hungary’s conservative nationalist leader Viktor Orbán is being hailed as a victory for liberal democracy and the European Union.

The leaders of Poland, France and Germany, and European Commission President Ursula von der Leyen, were among the major EU figures to congratulate Prime Minister-elect Péter Magyar on Monday, after he won a decisive victory in the country’s election on Sunday.

The ousted Prime Minister made regular use of Hungary’s veto power to block EU decisions, fiercely criticized the bloc and impeded assistance to Ukraine in support of his ally Vladimir Putin — notably obstructing billions of dollars worth of loans and funding to Kyiv.

EU critics also say the 62-year-old’s creation of Hungary’s “illiberal state” stepped on rule-of-law commitments the country made when it joined the bloc.

Von der Leyen said: “Hungary has chosen Europe. A country reclaims its European path. The union grows stronger.”

Financial markets also appeared to lend their approval, with the Hungarian forint hitting a four-year high and 10-year government bond yields plummeting up to 50 basis points on Monday morning.

Both the Kremlin and White House had valued Eurosceptic Orbán as a kindred spirit ideologically and a thorn in the side of the EU.

Orban’s Hungary had acted as a blocker to EU decision-making and policies on immigration, energy and funding for Ukraine.

His ousting and election loss to the 45-year-old Magyar — a former member of Orbán’s Fidesz party until he founded the center-right opposition Tisza party just two years ago — will be seen as a blow for both Moscow and Washington. The U.S. sent Vice President JD Vance to Hungary in a show of support for Orban immediately before the election.

Timothy Ash, senior emerging markets sovereign strategist at RBC BlueBay Asset Management, said the “winners” of the Hungarian election are “Hungary, Europe, Ukraine, the little guy.”

And the “losers”? “Trump, Putin, Vance, the big guy,” Ash told CNBC by email.

The White House is yet to comment publicly on the election result. A Kremlin spokesperson said Moscow respected the election result and would work for “pragmatic ties’ with the country’s new leadership.

A clear majority of Hungarian voters had rejected Orbán’s “illiberal democracy, his anti-EU antics and his pro-Putin leanings,” Holger Schmieding, chief economist at Berenberg Bank, commented Monday.

“No European policymaker had done more to weaken the internal cohesion and the external influence of the EU over the last five years than Orbán,” Schmieding said, citing the prime minister’s attempts to soften sanctions against Russia and to block aid to Ukraine, most recently vetoing a 90 billion euro ($105.2 billion) loan to Ukraine.

Russia could now see tougher EU sanctions, while the bloc may be able to offer up greater financial assistance to Ukraine, he added.

“More European support for Ukraine is a significant setback for Russian President Vladimir Putin. Over time, it may even affect his calculus as to how long he can continue his war amid serious strains on the Russian economy,” Schmieding said.

Winning 138 out of 199 seats in the Hungarian government gives Magyar’s Tisza party a “super-majority” and the ability to enact wide-ranging reforms and policies.

Analysts say Magyar is likely to try to loosen Orbán and his Fidesz party’s changes to the Hungarian constitution, and to weaken its influence over the country’s laws and media.

However, as a conservative and former proponent of “Orbánism,” it is unclear how far Magyar will deviate from Orban’s approach.

On Monday, Magyar posted on Facebook that he would “work for a free, European, well-functioning and compassionate Hungary over the next four years.”

That will be welcome news to officials in Brussels, who had expressed consternation at Orbán’s increasingly autocratic tendencies and pressure on the judiciary and press since 2010.

Some analysts told CNBC that it was important not to overestimate the degree to which Hungary’s political direction would coalesce with Europe’s political mainstream, with Ukraine’s accession to the EU, Russian energy, the relationship with the U.S. and EU-wide immigration policy likely to remain contested issues.

Russia also continues to hold a tight grip on Hungary’s energy mix.

Does Orbán’s departure mean that “Europe as of now speaks with one voice on all of these issues from one day to the next? I don’t think so,” Carsten Nickel, managing director at Teneo, told CNBC on Monday.

“If you look at Trump, the ability of this U.S. administration to keep the pressure up on Europe has to do with, ultimately, trade exposure, security exposure, from the European side to America. That is not going to go away. So I think some of the structural factors that give Putin influence, that give Trump influence in Europe, they’re not going to disappear,” he said.

Zsuzsanna Vegh, program officer at the German Marshall Fund, told CNBC that it would take time for Hungary to disentangle itself from its dependence on Russian oil and gas. The Eastern European power has continued to import Russian energy supplies despite the war in Ukraine.

“When it comes to cold, hard facts, Hungary continues to be dependent on Russia in terms of energy, nuclear, oil, gas, so it’s going to be a complicated process of renegotiation,” she told CNBC’s “Europe Early Edition.”

“This is a relationship which will need to be rethought, and that is going to be one of the key challenges for a Magyar government to tackle in the coming months and years.”

Still, she expected the new government to “have a much more collaborative cooperative approach to the European Union,” with Magyar already listing, in his victory speech Sunday foreign policy priorities that put Hungary’s commitment to Europe.

“He effectively doubled down on the classic foreign policy priorities of Hungary, which were placing the country firmly within the European Union,” she said.