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Talking Points:

  • Hungarian Prime Minister Viktor Orban denies all charges levied by EU’s parliament
  • The ultimate sanction is to remove Hungary’s voting rights but Poland is likely to veto that measure
  • The Euro did not react to the news, but the disjointed union could prove troublesome in the future

Check out our Economic Calendar for upcoming economic data and central bank events.

The European Union suffered another blow to stability on Wednesday as the European Parliament voted to pursue disciplinary action against Hungary. The unprecedented decision was backed by more than two-thirds of MEPs and marked the first censure motion against a member state under EU rules. Parliament issued the admonishment labeling Prime Minister Orban’s government a “systematic threat to the rule of law.” Mr. Orban denies the charges brought against his government.

The charges deal with two of the most contentious topics in the Union, immigration and domestic checks and balances. The action today was brought about largely because of the latter. Still, any further action would also need to be approved by national leaders. The most aggressive measure, to remove Hungary’s voting rights, would likely be vetoed by Poland which has shown moderate support for Mr. Orban’s government in the past.

Markets were accepting of the news, with little movement in both the Euro and the Hungarian Forint following the decision. While the vote’s passing is simply the first step for further action, the decision comes at a time when European stability is being threatened on multiple fronts. In isolation, the conflicts would be unlikely to threaten such a broad alliance but as the United Kingdom looks to complete the Brexit process and the United States has the continent locked in a tariff dispute, other nations like Italy and Hungary have developed somewhat dissenting views on the European Union.

With that in mind, developments in single countries should be watched closely to gauge the cohesion of the European Union and the strength of the Eurozone and its common currency over the long term.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.