By Robin Emmott
BRUSSELS (Reuters) - Europe is in a bind over what to do about Hungary and a feeling that the former Soviet satellite is drifting back towards authoritarianism under Prime Minister Viktor Orban.
In the next few weeks the European Union's parliament and executive are due to pass judgment on changes to Hungary's new constitution along with the Council of Europe, a broader body that promotes democracy and human rights on the continent.
European institutions have already made clear they believe the constitutional amendments which Orban's conservatives pushed through the Hungarian parliament in March are at odds with the EU's democratic ideals and weaken judicial independence.
Orban - nicknamed "Viktator" by opponents at home and compared with an old-style Latin American strongman by some European liberals - has challenged critics to present evidence that his actions are anti-democratic. "Saying ‘we don't like something' is not concrete enough to react," he said in March.
EU efforts to decide action on Hungary are likely to expose divisions in both the European Parliament and the Commission, as well as highlighting the bloc's limited power to deal with peers judged to be straying from the democratic path.
Campaigners are pushing for action. "Without sustained pressure from the EU and the Council of Europe, these constitutional and legislative changes will have long-lasting adverse effects on fundamental freedoms and human rights," Human Rights Watch said in a report on Hungary in May.
At the moment the EU has two tools to make member states such as Hungary play by the rules.
One involves suspending Budapest's voting rights in the 27-nation bloc, but this punishment is so powerful that many EU leaders and Orban's fellow conservatives in the European Parliament are loath to use it. The other, by contrast, offers no sanctions beyond resorting to court action that would be drawn out and with no certain conclusion.
Orban, who co-founded his Fidesz party a year before the fall of Hungarian communism in 1989, has frequently been at odds with opponents at home and with Brussels since he began his current term three years ago.
"Orban is testing us," said a senior EU official, who estimates the Commission has sent at least one formal letter of concern or complaint a month to Budapest about Orban's reforms since the 50-year-old lawyer began his second term.
His unorthodox policies to cut debt and revive the economy, such as effectively nationalizing private pension funds, have drawn fire, along with his appointments of some political allies as policymakers at the supposedly independent central bank.
But the biggest dispute has erupted over the changes to the constitution, made possible because Fidesz won a two thirds "supermajority". The EU, United States and rights groups have accused Orban of using these to limit the powers of Hungary's top court and undermine democracy. They followed steps in 2011 to change media laws and the retirement ages of judges.
Orban denies the constitutional amendments are anti-democratic but proposed some legal changes last week to address Brussels' concerns.
Saying he is "ready to discuss all points in a civilized and fruitful way", his government has proposed deleting two sensitive clauses involving the courts and tax payments. However, another restricting the publication of political advertisements would stay.
Orban's critics have attacked one of the clauses which would have allowed the head of an office in charge of the judiciary to transfer cases from one court to another. The government argues this would spread the burden on an overloaded legal system.
The European Commission has expressed concern about the risk of "arbitrariness" when court cases can be transferred.
"Everyone has the right to a pre-established and reviewable determination of which judge will hear his or her case. This is essential to prevent arbitrariness," the Commission has said.
One EU official put it more bluntly. "Our concern is that this will lead to shopping around for the most sympathetic judge," said the official, who declined to be named because of the sensitive nature of the issue.
Concerns also surround the general incorporation of legislation into the constitution. This means that any future administration wishing to repeal it would also need a two thirds parliamentary majority, something only one other government, a Socialist coalition, has achieved since the fall of communism.
Undaunted, the Orban administration dismisses such fears. "The Hungarian Government is committed to the European norms and values and fully cooperates with the European institutions in addressing any concerns raised," a government spokeswoman said in response to Reuters questions.
THE NUCLEAR OPTION
Watching Orban arrive at an EU summit last month, no one would have guessed he stands accused of dragging Hungary towards authoritarianism. With the cameras rolling, fellow EU leaders greeted him with handshakes and smiles, even sharing a joke or two. "We are not North Korea," said one Hungarian diplomat.
Yet when Orban returns for the next EU summit on June 27, his welcome may not be so warm. Before then, the European Commission, Parliament and 47-nation Council of Europe are all expected to condemn various aspects of the constitutional amendments as breaches of EU law, officials and diplomats say.
The Council of Europe's Venice Commission will set the ball rolling on Friday when it is due to issue its legal opinion on the amendments in Hungary, which joined the EU in 2004.
Separately, a civil liberties committee of the European Parliament is due to vote on a draft report criticizing Orban on June 19, with a plenary vote to decide the full parliament's position in July. The European Commission is also expected to pass judgment soon.
The problem is how to follow up condemnation with action, as a failure to penalize Orban will make the European Commission and Parliament look even weaker than they already do.
Under its "infringement procedures", Brussels can punish countries breaking the rules but these are regarded as ineffective because they provide for no sanctions other than going to the European Court of Justice.
Alternatively, the EU can invoke Article 7 of its treaty to suspend a member's voting rights but countries such as Germany, the main foreign investor in Hungary, see this as too drastic.
"We have the infringement procedures, and there is Article 7 which is an atomic bomb. In between there is nothing," said Viviane Reding, the EU's justice commissioner.
The European Parliament also has the power to activate Article 7, but it is also divided on taking this step because Orban has the support of conservative members, who make up the largest group in the 754-seat assembly.
Invoking Article 7 is not easy. First EU countries, excluding the member state in the dock, must agree unanimously that their peer has broken the union's law. Then a majority of member governments, representing at least 62 percent of the EU's roughly 500 million inhabitants, must vote to suspend the offending country's voting rights.
The EU and its predecessors have only once imposed sanctions on a member state in their 56-year history, suspending contact with Austria in 2000 when Joerg Haider's far-right Freedom Party joined the government. The sanctions were lifted after a few months and Haider quit as party leader.
In an attempt to find a middle way on Orban, Germany, the Netherlands, Finland and Denmark proposed in March that Brussels be given new powers to freeze funding to a member state that fails to respect EU values.
Other EU governments support the idea, modeled on a system already used for disciplining countries that break rules on issues ranging from fishing quotas to budget deficits, although they stress they are not singling out Budapest.
"If we can take each other to task on fish and finances, surely in a community of values we can take each other to task on fundamental principles," said Dutch Foreign Minister Frans Timmermans. "We are not aiming at this or that country, but want to be able to address us all."
Coming up with a new mechanism would not be quick, and many EU governments would want to avoid the lengthy and divisive business of changing the EU treaty if necessary, diplomats say.
The Council of Europe could decide to put Hungary under the kind of surveillance it reserves for new democracies such as Albania and Serbia, marking a first for an EU country. But even there, its duty would be to report back to its member governments with only recommendations for action.
"Orban has a free pass at the moment," said Mujtaba Rahman, director of European research at Eurasia Group. "If taking over the central bank is not enough, if everything the government has done is not enough, then undermining the constitution is not going to be the defining issue."
(Additional reporting by John O'Donnell and Justyna Pawlak; editing by David Stamp)