(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Mike Dolan

LONDON, April 14 (Reuters) - Hungary's rejection of

right-wing nationalist Viktor Orban after 16 years in power is a

clear shot in the arm for its domestic markets. It should also

lift EU assets more broadly, removing a persistent roadblock for

a bloc now forced to go it alone.

The outgoing prime minister's self-styled "illiberal

democracy" not only left the Hungarian economy in a precarious

state but clashed with basic EU democratic principles,

triggering a series of vetoes on EU-wide policy and some 18

billion euros ($21.12 billion) in frozen EU funds to Budapest.

What's more, Orban's public embrace of Moscow on issues from

Ukraine to energy and foreign policy complicated the EU's rapid

rearmament to counter the Russian military threat to its East

since the Ukraine invasion in 2022.

His ouster comes despite - and some say partly because of -

U.S. President Donald Trump's explicit endorsement, and only

underscores the electorate's decision to turn back toward the EU

centre precisely as Transatlantic ties are fraying and the bloc

must increasingly fend for itself on defence and trade.

Peter Magyar, whose upstart centre-right Tisza party has won

a supermajority giving him power to reverse Orban's

constitutional changes, will not solve Hungary's problems

overnight. Battles lie ahead with Brussels over budgets, frozen

funds and the speed of reforms, and relations with Ukraine will

need careful handling.

But the sense of relief around EU capitals - that the

multiple frustrations of the Orban period may be passing at

last - was clear on Monday.

With traders eyeing a possible Budapest move toward euro

membership, Hungary's forint surged to its best levels

against the single currency in four years, 10-year Hungarian

government borrowing costs fell by half a percentage

point to their lowest since 2024, and the stock market

gained almost 5%.

The latest twists of the Iran war and energy shock made

broader European market moves harder to read, but investors took

the vote as reinforcing Europe's continued outperformance.

"It's a great result for Europe," said Lauren van Biljon,

senior portfolio manager at Allspring Global Investments. "It

sets Europe up for a far more cohesive stance - and that's

everything from NATO to kind of everyday European business but

then also to Ukraine."

'UNDERAPPRECIATED'

For Morgan Stanley, the domestic Hungarian market

implications are obvious - the unfreezing of EU funds alone,

which amount to some 8% of Hungary's annual gross domestic

product (GDP), could add 1-1.5 percentage points to Hungarian

growth.

But the read-across to broader European equities is what the

bank calls "underappreciated".

It pointed to two specific catalysts: greater EU policy

coordination, and the possible release of a 90 billion euro

joint loan to Ukraine - agreed in December but vetoed by Hungary

- both of which it sees as supportive for EU equity sentiment,

particularly in bank and defence stocks.

Morgan Stanley also sees the result supporting a continued

narrowing of the valuation gap between European and U.S.

equities. The euro zone discount to U.S. equivalents is at its

lowest in three years and roughly half its peak just before the

2024 U.S. election.

A full repricing will likely require de-escalation in Iran -

on which there is little clarity yet.

The deeper message of the election, though, may matter most

to an EU bloc increasingly anxious about changing political

winds - internal and global - threatening its founding

principles.

For Laszlo Bruszt - a Central European University professor

whose institution was itself driven from Budapest by Orban in

2019 - the result carries a particular resonance.

"Orban's fall does challenge the sense of inevitability that

had surrounded the global drift away from liberal democracy," he

wrote in Project Syndicate.

(The opinions expressed here are those of Mike Dolan, a

columnist for Reuters.)

Save the date: On April 23 at 1300 GMT/9 a.m. EDT, ROI

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($1 = 0.8522 euros)