Far-right hero and thorn in the side of the EU, Viktor Orbán just lost big in Hungary. Yet Hungary's economy is in the drain and Orbán 's ultra-wealthy friends still control the judiciary and the media. So what's next for Hungary? Can Péter Magyar purge the illiberal deep state Orbán left behind? And can he save Hungary's economy? Or will he just be like Macron or Trudeau, a disappointing reformer? Or perhaps even like Putin or Erdogan, a promised liberal reformer who is actually just the next strongman.

To answer these questions, we need to do a quick recap of how Orbán lost. Most political analysts believe that Orbán lost primarily for two reasons. First, after initially bringing unemployment down by a lot after getting elected in 2010, Hungary's economy under Orbán has performed quite a bit worse than comparable East European economies. For example, Hungarian wages have stayed far behind comparable countries such as, for example, Poland, but also many other countries in the EU since 2008. What's worse, after a massive COVID spending spree, a rise in energy prices, and the depreciation of the Forint, Hungaria suffered the worst inflation crisis in all of Europe under Orban.

The second reason analysts often mention is that the scale of corruption under Orban was just getting too much. For example, Orban's rich friends, such as his childhood friend, Lőrinc Mészáros, who just so happens to have become Hungary's richest man since meeting Orban, have won up to 25% of all state contracts, coincidentally, in the years after Orban was elected. But the thing is, it's easy to accept corruption if everyone is getting richer. But if the economy is stagnating, if inflation is eating away at people's salaries, then too blatant corruption can really tick off your voters.

So ticked off in fact that despite spending years to rig the political system in his favor by changing voting districts and despite controlling Hungary's entire traditional media landscape like radio and TV, Orban's government had just gotten so blatantly bad at his job and so blatantly corrupt that it did not matter anymore. His far-right Fidesz party, which used to have a super majority in 2022, now lost badly to the conservative Péter Magyar and his Tisza party. The only other party that cleared the 5% voting threshold to get into parliament was the far-right Mi Hazank party.

And for us, it's just Orban and Peter Maguar. And that's a real problem for Orban because he had manipulated the voting system in such a way that it benefited the biggest party even more than it always did. And this is how with just 44.87% of the vote. Orban got a so-called supermaajority in 2014 which allowed them to rewrite the constitution to give both his party more power and to enrich themselves and to entrench themselves by creating a massive deep state of Fidesz loyalists which could only be removed by a super majority.

The elements of the deep state include: such as the president who can refer any bill to be approved by the constitutional court which consists of not one not two but 15 Fidesz loyalists. The next part of the deep state is the so-called fiscal council, which could nuke any new government budget at any moment. Fourth, there is the prosecutor general, who can choose to try to prosecute Tisza officials while protecting Fidesz oligarchs. And finally, element number five, there is the media authority, which ensures the media remains loyal to Orban.

These deep state defenses were why it was so important that Magyar not just won, but rather that he won by a landslide. And ironically, Hungary's unfair electoral system that benefits the biggest party helped him to do it, turning 53% of the vote into the two-thirds supermajority that he needs to dismantle most of these elements of Orbán's deep state. At least in theory. Because honestly, this is also where expectations need to be realistic. These institutions are not empty shells. You're dealing with people, networks, and incentives built over 16 years of Orban rule. Replacing laws is fast. Changing how the system actually behaves is much slower.

On top of that, while Orban probably did not expect to lose by this much, he still left behind some more insurance by privatizing major parts of the state into independent trusts and institutions controlled by Fidesz loyalists such as the Foundation for Hungarian Culture, several university trusts, and the state oil giant MOL New Europe Foundation. So there's the NGO and trust part of his defense, and then there's also the second part of his defense, which is that Fidesz oligarchs still control some of Hungary's biggest corporations, such as the massive MBH bank and 4IG Telecom group. So even if Magyar and his two-thirds majority is able to purge the official government, he still inherits a government that is much weaker than the one that Orban inherited in 2010.

And this is important because Hungary's economy is a mess. Specifically, it's still one of Europe's poorest countries with despite Orban spending about 5% of GDP on boosting fertility rates. And it seemed to work initially. Now fertility has fallen back to its all-time low levels, far below replacement rates. And combined with Orban's ultra strict immigration policies, it means that Hungary's population is steadily falling while those of neighboring countries are rising. Combine this spending with what many have argued was essentially vote buying, and it's no surprise that Hungary's government deficit is one of the worst in the EU.

So other than cutting corruption, which we have discussed will be quite difficult. Magar's government is simply starting from a very weak position when it comes to the economy. But on the bright side, promising to restore the rule of law will gradually unlock about 22 billion euros in EU funding. So, not surprisingly, Hungary's currency the Forint has rallied on the news that Péter Magyar won.

But whether or not that will be the case will not just be a matter of how easy Orban's deep state can be dismantled. It will also be a matter of what Péter Magyar wants. because he can say that he wants to stop democratic backsliding, but I think it's important to keep in mind that Orban himself started out as a liberal. Erdogan in Turkey started out as a pro-EU democracy reformer. Heck, even Vladimir Putin started out as a reformer whom EU countries were quite hopeful about. Peter Magyar is a staunch conservative that started out as an Orban ally. So, will the Orban deep state truly be dismantled or will he just take it over? Time will tell.