The European Parliament approved a report on Hungary and is due to vote on whether there has been a clear breach of “European values” next week (12 September). In our view, the vote is an important event, even though it is highly unlikely to result in serious financial repercussions as the motion is most likely to be blocked.
The dispute centres around the rule of law and the strength of institutions in Hungary, and whether the recent changes warrant the full force of Art.7 of the European treaty, which allows for the full suspension of the voting rights of a member state as the most extreme penalty.
The vote on Hungary is particularly important, in our view, for the following reasons:
A. It is the first of its kind in terms of the disputes between the CEE states and Brussels.
B. Poland and Hungary have both signalled that they will block motions against each other, but the critical questions are whether this would happen in reality, as Poland appears to be trying to find a solution with Brussels, and whether other countries would also decide to block the motion. If they do, it would reveal potential future alliances relevant for the 2021-2027 EU budget, which is under review.
C. If the motion passes, we believe that Hungary will have no other option but to comply fully with the EU’s demands; however, this could severely accentuate the EU(ro) scepticism that is evident in most countries in the EU. Therefore, while the implications for Hungary and the EU should be minimal in the immediate future, the financial stability risks for the medium and long term, in reality, could escalate severely. Curiously enough, Fidesz is likely to become the strongest ally for the German CDU within the European People’s Party group – the conservative party at the European level. So, while Hungary may see a serious motion against its government next week, its influence on European policy direction is likely to grow in the coming years, in our view, as EPP remains the most important European party and the most likely winner of the European elections in 2019 – as such, it will nominate the head of the EU Commission. Within EPP, the departure of the UK and the weak approval rating of Italy’s Forza Italia party remove two critical contributors to the European movement, while Fidesz’s exceptionally strong approval rating could prove very useful at the next European elections.