Kester Eddy in Budapest -

At lunchtime on Monday, March 11, a (very) thin line of four students sought to block the entrance to the parliament's car park in Budapest: the students - sporting placards declaring "Don't betray Democracy" - held their sit-down protest against the imminent vote on the controversial "fourth amendment" to Hungary's constitution, due that afternoon.

But just as security forces soon dispersed the protesters, so too, inside the house, did the ruling Fidesz-Christian Democrat MP caucus dispense with the opposition. Amid a noisy protest, 265 voted in favour, with 11 against and 33 abstentions, of making the 14-page document law, pending its presidential review.

The vote flew in the face of appeals in the previous week by the EU, the US and Council of Europe urging Viktor Orban, the Hungarian prime minister, to delay the parliamentary vote and allow a full impact assessment of the proposed constitutional amendments.

On the afternoon of March 8, Jose Manuel Barroso, president of the European Commission, phoned and later wrote to Orban to say he feared the amendment appeared to enshrine in the constitution some laws with which the Commission had expressed concern.

Despite a polite, if short, reply, assuring Barroso of his commitment to "European norms and regulations," the attention appeared to stiffen the prime minister's resolve. Orban told his party on Monday, March 11 that he would not "give way" to international pressure. Approval of the amendment would create an "irreversible" situation whereby parliament's power to protect the constitution would supersede that of the Constitutional Court, making parliament the supreme sovereign institution.

This in effect supports critics of the package, who say it threatens the independence of the judiciary, contravenes the principle of separation of state and church, and ultimately benefits Fidesz via restrictions on political advertising. Along with a narrow definition of heterosexual marriage and family, it also restricts the powers of the constitutional court by annulling any decisions made before the new constitution came into effect in January 2012.

"Orban is now building up an autocratic regime on a daily basis, and we are living in an era of constitutional dictatorship where everything depends on the will of just one man - Orban," Attila Mesterhazy, the Socialist leader, told reporters after the vote.

Socialist MPs hung black flags out of the windows of Parliament "in mourning for Hungarian democracy."

Andras Schiffer, leader of the green LMP, said the prime minister worked "continuously" to eliminate the rule of law, while former prime minister Ferenc Gyurcsany cited Orban's declaration in 2007 that, "the rulings of the Constitutional Court are binding on everyone; there are no loopholes, or getting round it, this is an iron law of Hungarian democracy."

Taking to the streets

The vote sparked demonstrations in front of parliament and in front of the Presidential Palace, where several thousand gathered before a large contingent of anti-terrorist police barred entry. Displaying banners declaring, "The Constitution is not a Game", they urged President Janos Ader - who is absent on an official visit to Germany - not to sign the parliamentary vote into law. Although attended by all age groups and largely peaceful, some clashes with the police were later reported.

However, the government's communications office defended the amendment, saying parliament had been forced into the move by the Constitutional Court's ruling in December last year that had annulled part of the "Temporary Provisions" to the Fundamental Law (ie. Constitution).

The Court had not issued a "substantive criticism" of the Temporary Provisions, but rather objected on formal grounds, the office argued, and hence the amendment was not anti-constitutional. "According to the Constitutional Court, a unified Fundamental Law can mean only one document, thus the National Assembly is obliged to incorporate all constitutional-level provisions in one legislative text."

But despite this, and soothing statements by Janos Martonyi, the foreign minister, who told the Financial Times that international concerns were based on "misunderstandings" and - in contrast to his prime minister's statement in parliament - that "the legislature felt the powers and competences of the constitutional court were extended and not reduced," the reverberations from Monday's vote are likely to continue as both international institutions and business assess the impact.

The situation is further complicated by the recent appointment of Gyorgy Matolcsy, the mercurial former finance minister, to head the central bank. Matolcsy rattled markets on March 8 by stripping most of the powers from the two deputy governors appointed during the time of the previous governor, Andras Simor. The move raised concerns that the bank will lose independence as it moves to support government efforts to boost growth and jobs in the run-up to the next general election, due in the spring of 2014.

Opposition to the amendment now centres on hopes that the president will veto the package - a " very unlikely move," according to Szabolcs Kerek-Barczy, executive director of the Freedom and Reform Institute, a right-leaning Budapest think-tank, who points out that Ader and Orban are old friends from university days. "In that case, Fidesz would nevertheless pass the same amendment very soon. Ader then would have no other choice but to resign. I am sure, though, he will not veto, and even if he did, he wouldn't resign. Thus Orban will drag Hungary into a more full autocracy," Kerek-Barczy says.

The political and legal unpredictability in Hungary poses potentially serious problems for business and investment, Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London-based risk analysis company, tells bne. "The problem is that Hungary needs foreign investors - both strategic and financial - in order to help the economy grow and to avoid, should market sentiment not remain favourable, being forced into the arms of the International Monetary Fund," he says. Yet "the government is going out of its way to undermine investor confidence further at a critical time for market sentiment."