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BUDAPEST, Jan 14 (Reuters) - Thousands protested against the EU Saturday at a rally of the
far-right Jobbik party, calling for Hungary's exit from the bloc and adding pressure on the government which is seeking a funding deal with the EU and IMF to avert insolvency.
Two MPs of Jobbik, the second biggest opposition party in Hungarian parliament, set an EuropeanUnion flag on fire at the protest in front of the European Commission offices in Budapest.
"This week the EU declared war on Hungary in a very harsh and open way," Csanad Szegedi, a Jobbik member of European Parliament told the crowd of around 2,000 demonstrators.
After talks with lenders were derailed last month over a set of disputed laws, a plunging forint currency and spiking bond yields forced Prime Minister Viktor Orban's conservative government to back down and try to seek a fast agreement.
Orban is now reluctantly trying to make amends to lenders in order to secure a funding deal, which Hungary needs to be able to finance its debts from markets at a time when its economy is heading for a possible recession this year.
The EU has piled pressure on the government to change controversial legislation on its central bank and judiciary, and even raised the prospect of suspending vital EU funds to the economy if Orban does not make budget deficit cuts sustainable.
Orban also came under pressure from the United States which voiced concerns over democratic freedoms, after his Fidesz party pushed ahead to pass measures which critics say weaken public institutions such as the top court, and cement Fidesz' powers.
Many supporters of nationalist Jobbik believe the government should not bow to international pressure.
"Since we joined the EU we have not seen any advantages from that, Hungary should go its own way and keep its national sovereignty," Attila Gyalog, 24, said at the rally.
"Not only us, but many other countries believe now that they could be better off outside the EU," said Gyorgy Lillik, 63.
Hungary will have to change course in a significant way for the Commission to give the green light to aid talks. The EU's executive is expected to announce its verdict on some key Hungarian laws next week when it finishes its legal analysis.
Foreign Minister Janos Martonyi told daily Nepszabadsag on Saturday the government would examine the EU's concerns and will do its best to settle the disputed issues with an agreement.
"For us the most important thing is that we should come to an agreement with the European Commission and IMF as soon as possible," Martonyi said, adding that once talks start, an agreement could be reached within one to three months.
POLITICAL BLOW
If Orban does not secure a deal with lenders, the punishment from financial markets will be severe and he wants to avoid a full-blown market crisis even though going cap in hands to the IMF is a major political defeat, analysts said.
Public support for Fidesz dropped to 16 percent in January according to a poll by Ipsos. The party has lost nearly half of its 2.7 million voters since its sweeping election victory in 2010 which gave the party a two-thirds parliamentary majority.
Jobbik had 8 percent support in January, while over half of Hungarians are so disheartened with politics that they would not want to vote for any party.
"If there is no agreement and the forint plummets, then Orban will lose his own core voter base as well," said Zoltan Kiszelly, a political analyst.
Orban has favoured his core middle class voters with a flat tax and family tax breaks, but the record weak forint erases some of those financial gains and scares people, who had seen Hungary go through the 2008 crisis which forced the Socialist government to seek a bailout from the IMF and EU.
The Hungarian prime minister, who had previously declared that "Brussels is not Moscow" and having disputes with the EU was acceptable, has very little if any room of maneuver now.
If he strikes a deal with lenders, the forint firms and yields on Hungary's debt fall, Orban could win time to shore up public support. The next election is expected in 2014.
(Reporting by Krisztina Than)
