Ferenc Gyurcsány has achieved what no other Hungarian prime minister has managed since democracy was restored in 1990. His socialist-liberal coalition government was re-elected for a second term in the run-off voting that took place on 23 April. All four previous governments since the fall of the one-party state had been thrown out of office by a disillusioned public after serving just four years. By contrast, Gyurcsány actually increased the government's majority from ten seats to thirty-five in the 386-seat parliament.

Gyurcsány's victory was very much a personal triumph. The multi-millionaire businessman and one-time communist youth leader, who returned to full-time politics in 2002 and took over as prime minister barely eighteen months ago, revived the Magyar Szocialista Párt (Hungarian Socialist Party's) fortunes within an improbably short time. By the eve of the elections he had eliminated the double-digit lead in opinion polls previously enjoyed by the conservative opposition party, Fidesz – Magyar Polgári Szövetség (Hungarian Civic Alliance). At the same time Gyurcsány's personal popularity rating had moved well ahead of that of Fidesz's long-standing leader, Viktor Orbán, whose powerful rhetoric inspires fervent support and bitter hostility in almost equal measure.

No previous election had pitted such strong personalities against each other. However, the choice that Hungarians faced in the elections went well beyond simply two contrasting personalities. There were two very different visions on offer. Besides, the government could boast of a strong economic record, albeit one that might be undermined in the coming months if the current huge budget deficit is not speedily dealt with. But how did the different political visions, the contrasting personalities and the country's economic performance interact in influencing the Hungarian electorate's choices? And can the voters be said to have embraced a particular set of policies?

State, market and nation

Gyurcsány stood for a policy modelled, in many respects, on New Labour's in Britain. Ironically for a party that is the legal successor to Hungary's one-time communist ruling monolith – it used to be known in those days as the Socialist Workers' Party – the socialists have embraced globalisation, open markets and free competition. They have been extending the boundaries of privatisation as well as encouraging public-private partnership in financing and building major infrastructure projects. They have also been looking for ways to promote efficiency in public services by involving private enterprise, for example, in health service management. They are enthusiastic pro-Europeans, seeking to adopt the euro in 2010.

In their social policy, the socialists have been arguing for more targeted welfare benefits to help the poor and disadvantaged in particular in place of the more traditional universal provisions. Their junior coalition partners, the Szabad Demokraták Szövetsége (Alliance of Free Democrats / SzDSz), have been championing neo-liberal ideas, including the introduction of a flat-rate tax – increasingly popular in the formerly communist-ruled countries of the region – and calling, in general, for the frontiers of the state to be rolled back.

Like the socialists, Fidesz has travelled a long way from its origins as an anti-establishment youth movement in the final days of the one-party regime. It went through a liberal, pro-western phase in the early 1990s before emerging as a socially-conservative and economically interventionist party that seeks to promote specifically Hungarian national values and interests. It is somewhat Eurosceptic in outlook and has been voicing doubts about foreign investment – and what it views as excessive foreign influence – in Hungary. Before the elections it called for a review of the December 2005 sale of Budapest's fast-expanding Ferihegy airport to the British Airports Authority. It also promised to alter financial incentives in such a way as to benefit Hungarian-owned small and medium-sized companies.

Orbán's étatist policy put his party at odds with the small, centre-right Magyar Demokrata Fórum (Hungarian Democratic Forum / MDF) which was already smarting from Fidesz's attempts to annex or eliminate other parties on the right of the political spectrum. Ibolya David, the MDF's leader, denounced Orbán as more of a populist than a true conservative. Her party's unexpected success in passing the 5% threshold required to get into parliament on the proportional list and her resolute opposition to working with Orbán virtually finished off Fidesz's chances of getting back into government already after the first round on 9 April.

Fidesz's election slogan of "Work, Home, Family" was designed to reflect the traditional values of Hungary's small provincial towns and the countryside where a large proportion of the party's support is concentrated. It also sought to exploit the concerns of many Hungarians for the nearly 3 million fellow-Magyars who live in neighbouring countries. Yet Hungarians are deeply ambivalent about how to deal with ethnic Hungarian minorities who live outside the "mother country". An attempt to grant these communities Hungarian citizenship was defeated when a referendum attracted a turnout of under 20% in November 2004. The low turnout rendered the plebiscite invalid – to Gyurcsány's considerable relief because a vote in favour would have cost potentially huge sums in paying for the social benefits of the newly-naturalised ethnic Hungarians.

In spite of this and other setbacks, Fidesz has remained anchored to the idea of acting for – and, if possible on behalf of – all Hungarian communities, regardless of their geographical location. Fidesz has seen potential reciprocal benefits in this relationship, a point that was voiced during the election campaign by Istvan Mikola, the party's candidate for deputy prime minister, who told party activists that giving citizenship – and the vote – to fellow-Magyars in neighbouring countries would guarantee Fidesz twenty years in power.

Gyurcsány exploited concern about the implications of these and similar remarks among Hungarians who believe that their leaders should concentrate on the welfare of Hungarian citizens – and taxpayers. His energy and excellent communication skills proved more than a match for the charismatic Orbán, who four years earlier had himself come close to achieving a second term in office.

Gyurcsány cultivated a "can-do" image and radiated optimism about Hungary's prospects as one of the likely winners in the competition on the global market place. Though at the age of 44 he is two years older than Orbán, he appeared more youthful and dynamic than his rival who has been somewhat jaded by being Fidesz's leader for more than fifteen years. In their television debate the prime minister seemed better prepared with facts at his fingertips, and he outshone the usually fiery Orbán. By contrast, Orbán deliberately adopted a more subdued approach so as not to alienate floating voters who are known to dislike his conflict-seeking style.

An economic shadow

Gyurcsány's success would have been unimaginable without Hungary's robust economic performance in recent years. GDP is growing at a respectable – if not spectacular – rate of more than 4% a year. Inflation, at below 3%, is at its lowest since the 1970s. Unemployment, though creeping up to over 7%, is still below the European Union average. Because conditions at home are fairly good, relatively few Hungarians have taken advantage of the opportunities opened up for taking jobs in Britain and elsewhere since Hungary joined the EU in May 2004.

However, there are some serious weaknesses – not least among them the continuing regional disparities, with the areas west of the Danube generally enjoying much greater prosperity, partly due to more foreign investment, than those to the east. The most urgent problem, though, is the budget deficit – likely to be 7% of GDP in 2007, according to the European Commission forecast published on 8 May – which is the highest in the EU. That deficit endangers financial stability, and in any case, it needs to be brought down to below 3% over the next two years if Hungary is to be allowed to dump the forint in favour of the euro, on schedule, in 2010.

That will be an uphill task that may involve an increase in value-added tax, spending cuts or a combination of the two. Such prospects are unlikely to be popular among Hungarians – though part of the reductions is likely to come in the form of streamlining the bureaucracy. The government is expected to practise what it has been preaching by reducing the number of ministries from seventeen to perhaps twelve or thirteen. Gyurcsány's new mandate will make it easier for him now to introduce some tough measures. He is also hoping to sweeten the bitter pill with the help of additional regional development funds from the EU's next medium-term budget which will become available from 2007 onwards.

During the election campaign Gyurcsány made much of the benefits the increased contribution from the EU is expected to make to driving the Hungarian economy forward. Did this outward-looking, pro-European strategy triumph over Fidesz's more cautious, nationally-motivated and somewhat Euro-sceptic vision? It did: but not by much. The combined vote (on the proportional list) for the governing coalition parties at 50% was only 3% ahead of the total for the two conservative parties that got into parliament.

How successful the Gyurcsány agenda proves in the coming years is likely to determine which way Hungarians will be facing in four years' time. For now, though, the new government's first task is to produce a plan by September, as required by the European Commission, to outline how the gaping hole in the budget is expected to be filled.