European stock exchanges are showing stronger gains than expected following Viktor Orban's decision to step down as Hungary's prime minister. Analysts had anticipated only a modest reaction in regional markets, but trading volumes surged by 18% in Budapest and Frankfurt saw its benchmark index climb 2.3% by midday. The unexpected shift in Hungary's political leadership has triggered a reassessment of risk across Central and Eastern Europe.
The forint, Hungary's currency, strengthened against the euro for the first time in three months, rising 1.2% in early trading. Regional banks with exposure to Hungarian debt also gained, with Erste Group shares up 3.7% in Vienna. Investors cite reduced political uncertainty as the primary driver of the rally, though concerns remain about Hungary's fiscal deficit, which reached 6.7% of GDP last quarter.
In Warsaw, the WIG20 index added 1.8%, while Prague's PX rose 1.5%. Polish and Czech markets have benefited from spillover effects, as traders reduce positions in Hungary and seek alternatives in more stable economies. The European Central Bank has not commented on the market movements, but a senior ECB official told Reuters that liquidity conditions remain adequate.
The shift comes after Orban's party lost its two-thirds majority in parliament, forcing him to call early elections. His departure ends 12 years of continuous rule marked by disputes with Brussels over rule-of-law issues and economic policies. European Commission officials have indicated they will review Hungary's recovery fund access, currently frozen at €6 billion, once a new government is formed.
While the immediate market reaction has been positive, some analysts warn that structural challenges remain. Hungary's debt-to-GDP ratio stands at 76.6%, and inflation remains above 4%. The new government will face pressure to balance fiscal consolidation with growth targets set by EU funds.
Source: e24.no