Battle for growth is biggest test yet for isolated Hungary

His critics may call him the “Viktator” and accuse him of turning his country into “Orbanistan”, but Hungary’s prime minister seems to be at the peak of his political powers.

Viktor Orban secured a second term as Hungary's premier last month with another crushing election victory, which saw his Fidesz party retain the two-thirds majority in parliament that it has used since 2010 to radically overhaul the state.

He used that power to the full: amending the constitution and introducing a blizzard of legislation that opponents say has eroded Hungary’s democracy, while striking hard at big – and mostly foreign-owned – business to aid the country’s ailing economy.

Orban’s “revolution”, as he is happy to call it, put him on collision course with the European Union and its central bank and raised the hackles of some of Europe’s largest firms.

He has also been accused of airbrushing Hungary’s history to remove its darker hues, and of doing too little to fight corruption and anti-Semitism.

But it is all grist to the Orban mill: the more he is assailed, particularly by foreigners, the louder he proclaims himself defender of the nation.

This time four years ago, he was girding for battles that appeared potentially fatal for his career. Orban vowed to chart his own economic course, ending loan talks with the International Monetary Fund and defying the EU over Hungary’s spending, in a scrap that saw Brussels impose its excessive deficit procedure on Budapest.

He clashed further with the EU over sweeping constitutional reform, an alleged attack on the independence of the central bank, and the appointment of close allies to key national institutions that were previously non-partisan.

Financial disaster To fill holes in his budget, Orban nationalised private pension funds and imposed special taxes on the telecommunications, energy, banking and retail sectors, causing outrage among some who accused him of targeting foreign firms.

As the forint currency swung sharply and opposition parties predicted financial disaster, Orban and his allies lambasted foreign interference in Hungary’s affairs and vowed to sweep the debris from what they called years of socialist mismanagement of the economy.

At the same time, Orban’s government won popular approval by imposing cuts in utilities prices and seeking to make banks absorb losses from a scheme to help people struggling to repay foreign-currency mortgages.

"He wore them down with a war of attrition," Tim Ash, head of emerging markets research for Standard Bank in London, said of Orban's battles with Brussels. "He often does things that are quite radically outside the box, and lots of established institutions don't like that.

“The euro zone was in such a mess, it basically had no heart to fight with Orban and they needed him to play ball. They had bigger problems elsewhere and couldn’t be bothered to take him on.”

Many of the big international companies that claim to be targeted by Orban's policies simply "can't get out" of Hungary, Ash added.

“They have invested a lot in the country and are basically stuck there. Orban knows that. But they could significantly deleverage, which has happened, and that could impact on growth.”

Sceptics say Orban’s crisis measures will cause major problems in years to come, but he insists that his policies have led to exports increasing and debt, inflation and unemployment falling.

Orban’s critics dispute his claims, but government and opposition agree that Hungary must now move from a search for stability to a push for the kind of growth that some of its neighbours in central Europe are enjoying.

“The economy is recovering – just about – and Orban’s had his battles with the European Union, the IMF and big business. The next thing is to see how he fares in battle for growth,” said Mr Ash.

Critical voices "To take growth to the next level, Hungary needs consumers and investors to feel confident . . . He needs to make peace with the banks and big investors. We will have to wait and see whether Hungary can catch up."

Orban has fought the EU to a standstill and his left-wing opponents are in disarray, but he is still assailed by media watchdogs for strangling critical voices in Hungary and blamed by anti-corruption groups for doing too little to fight graft and for presiding over a period of conspicuous prosperity for his allies in business.

"The fact is we don't know anything about (Fidesz's) plans. All we heard is that they will continue with more of the same," said Robert Laszlo, elections specialist at the Political Capital Institute in Budapest.

“But I don’t expect any moderate politics, and talk of ‘consolidation’ is banned now in Fidesz. I expect this so-called ‘freedom fight’ and ‘revolutionary politics’ to continue,” he added.

“For 25 years Orban has been fighting someone: first the Soviet Union, and now the EU, banks and globalisation.”