By Gabriela Baczynska
BRUSSELS (Reuters) - Emboldened by his landslide electoral victory, Hungarian Prime Minister Viktor Orban has raised the stakes in his many fights with the European Union - ranging from liberal democratic rights to ties with Russia as it wages war on Ukraine.
Breaking ranks with the EU, which seeks a unified front in opposing Moscow's demand for rouble gas payments, the 58-year old nationalist said Budapest could pay in Russian currency.
Here is what is at stake in the battles between the 27-nation EU and Orban, what the bloc is going to do next, and how long it will take.
WHAT'S THE PROBLEM?
In presenting plans for his new term, Orban said Budapest would not change its stance on gender issues despite EU criticism that he has restricted the rights of gays.
In 12 years in power, Orban has also tightened restrictions around media, academics, political opposition, NGOs and migrants - such policies flying into the face of the liberal democratic tenets of the EU.
The U.S. rights advocacy Freedom House classifies Hungary as "partly free", the only EU country failing below the "free" score but polling at par with Ukraine, Tunisia and India.
Transparency International ranks Hungary 73rd out of 180 countries globally on its Corruption Perceptions Index, with Bulgaria being the only EU country falling behind.
The Organization of Security and Cooperation in Europe said the Apr.3 vote was free but not fair, "marred by the absence of a level playing field" and undue advantages for Orban's Fidesz.
WHAT HAS THE EU DONE SO FAR?
Citing corruption, the EU's executive European Commission - tasked with upholding the law across member states - has blocked access to 7.2 billion euros earmarked for Hungary to help lift economies from the COVID slump.
"That will not be paid for the foreseeable future," an EU diplomat said this week of funds worth about 5% of Hungary's economic output.
The EU's most prominent tool so far for protecting the rule of law more broadly is known as "Article 7" and envisages maximum punishment of stripping a country of its right to vote on matters affecting the entire bloc.
But it has proven ineffective as Orban's nationalist allies in Poland have barred the required unanimity of all other member states apart from the one in the dock.
As Warsaw and Budapest dug in their heels, the EU's battles with nationalist rulers damaging its cohesion from within emerged as an existential challenge at par with the COVID pandemic, climate change and fraught ties with China and Russia.
WHAT MORE WILL THE EU DO?
"There is little hope there will be any appetite from the government to start reestablishing democracy," said a French green EU lawmaker, Gwendoline Delbos-Corfield, adding the EU should escalate its response.
The bloc will now be stepping up efforts to cut funds to Hungary.
The Brussels-based Commission announced the launching of a new sanction tool that could block Hungary's access to any and all money from its 2021-27 budget worth a total of 1.1 trillion euros.
Some EU countries also want to press on with Article 7, with the next discussion - but no decisions - about Hungary due on May 13 among ministers of the 27 countries.
Beyond keeping up pressure on Hungary, there is little hope that Warsaw would unlock the Article 7 punishment even though Budapest's dovish stance vis-à-vis Russia has now strained Orban's alliance with the Polish government.
The new, so-called "conditionality mechanism" to block access to EU cash for those violating laws has yet to be tested. It is unclear how exactly it would work since it has been prescribed vaguely enough to get Orban and Warsaw on board.
European Budget Commissioner Johannes Hahn said it would take Brussels 6-9 months before it would propose that EU countries authorise cutting money for Hungary. He declined to say how much Hungary could lose exactly and other officials said it would only happen in gradual steps.
Member states would have up to three months to adopt the recommendation by qualified majority rather than unanimity.
That means meting out punishment would be easier this time and countries including Germany and France would fall under pressure to show their true colours rather than hide behind Warsaw blocking sanctions on Budapest.
As the EU launches a new campaign against Orban, a senior EU diplomat expressed concern Budapest might block the bloc's climate policies in retaliation.
"There is a degree of nervousness about what he might do now," said the person, who spoke under condition of anonymity. "We are potentially heading into a very difficult period with Hungary. How far does Orban want to take it?"
(Additional reporting by Jan Strupczewski, John Chalmers, Writing by Gabriela Baczynska, Editing by Angus MacSwan)