UPDATE 3-Hungary re-elects PM, far-right opposition gains

Mon Apr 7, 2014 11:13am EDT

* PM Orban's party to have big majority in parliament

* Far-right Jobbik backed by one in five Hungarian voters

* Investors concerned over PM's go-it-alone policies

* Not yet clear if Orban will secure constitutional majority (Adds OSCE criticism of election, Orban's comments)

By Gergely Szakacs and Krisztina Than

BUDAPEST, April 7 (Reuters) - Hungarian Prime Minister Viktor Orban, who has clashed repeatedly with the European Union and foreign investors over economic policy, said on Monday a weekend poll victory gave him a clear mandate to "continue what we have started".

A twenty percent vote for the far-right opposition Jobbik party, accused of anti-Semitism, raised concern among ethnic minorities. That outcome will be noted also in other European Union countries expecting a rise in right-wing and anti-immigration parties at May European Parliament elections.

Orban has raised concern among foreign investors and in the EU with policies including a windfall tax on the banking sector, and reductions in household energy prices.

But many Hungarians see Orban, a 50-year-old former dissident under Communism, as a champion of national interests.

After 99 percent of ballots were counted from Sunday's vote, an official projection gave Orban's Fidesz party 133 of 199 parliament seats, guaranteeing it will form the next government.

That tally also gave Orban's party the two-thirds majority needed for it to change the constitution, but only by one seat. Final results could still push Fidesz back below the threshold.

The same projection gave the Socialist-led leftist alliance 38 seats, while far-right Jobbik was on 23 seats.

International election observers said the election was, overall, transparently administered; but some factors gave undue advantage to the ruling party.

Orban's Fidesz had revamped the election system in a way which its critics say favoured the ruling party.

"These (factors) included the manner in which a large number of changes to the legal framework were passed, restrictive campaign regulations, ...biased media coverage," the mission of the Organisation for Security and Co-operation in Europe (OSCE) said in a statement.

Speaking at a news conference, Orban rejected the criticism.

"We got a clear and unquestionable authorisation to continue what we have started," Orban said.

Chancellor Angela Merkel's spokesman told a news conference Orban had a special responsibility to use his majority "with a sense of proportion, restraint and sensitivity".

Orban said he planned to retain a windfall tax on the bank sector he has introduced over the past four years,

When asked about the forint's exchange rate, he declined to comment, saying it was a matter for the central bank.

Some market players believe the bank, led by a close Orban ally, could weaken the currency further, a risky strategy at a time when investors are already jittery about emerging markets.

Hungary's forint weakened 0.4 percent by 1343 GMT.

FAR-RIGHT HARBINGER

Jobbik's performance is being watched closely for clues about how other nationalist right-wing parties, such as France's Front National and the Netherlands' Party for Freedom, will perform in European Parliament elections next month.

In terms of its share of the national vote on party lists, Jobbik won 20.54 percent, up from 15.86 percent of all votes four years ago.

Its showing was the strongest of any far-right party in the EU in the past few years, according to Cas Mudde, Assistant Professor at the School for Public and International Affairs at the University of Georgia in the United States.

He said the previous strongest result for a far-right group was the 20.5 percent won by Austria's Freedom Party last year.

"There is no doubt that Jobbik will be among the strongest far-right parties in Europe, which is particularly striking because it is also one of the most extreme of Europe's far-right parties," Mudde told Reuters.

Jobbik has pledged to create jobs, be tough on crime, renegotiate state debt and hold a referendum on EU membership. While it denies being racist, it provides a lightning rod for suspicion among some Hungarians towards the Roma and Jews.

Hungarian Gypsy Party chairman Aladar Horvath ran with the promise of representing Hungary's 700,000 Roma, but his party got less than 9,000 votes. He said Jobbik's gains made it more difficult to end tensions between Roma and majority Hungarians.

"As Jobbik gains, Fidesz is forced to defend its voter base and act tougher, but that toughness closes doors on us," Horvath told Reuters. "Stricter law enforcement and Spartan social policy make it harder for the Roma to break out of the ghettos."

INVESTORS WARY

In the past four years, Orban's policies have included a nationalisation of private pension funds, swingeing "crisis taxes" on big business, and a relief scheme for mortgage holders for which the banks, mostly foreign-owned, had to pay.

Orban has pledged more of the same if re-elected, and the business community expects him in particular to press ahead with a plan to transfer big chunks of the banking sector into Hungarian hands, and impose more burdens on foreign power firms.

His policies helped Hungary emerge from recession, but some economists say Orban may have scared off the kind of investment Hungary needs for long-term growth.

"The government is yet to deliver on its promises to stabilise policies and create a better environment for FDI," Unicredit analyst Dan Bucsa said in a note. (Additional reporting by Marton Dunai; additional reporting by Stephen Brown; Writing by Christian Lowe; Editing by Ralph Boulton)