By Gabriela Baczynska
BRUSSELS (Reuters) - The European Union opened a legal case against Hungary on Wednesday over a threat to close a Budapest university founded by the liberal U.S. financier George Soros, an accusation the country's leader rejected as unfounded.
The EU's executive Commission sent Budapest a formal notice, saying a new Hungarian higher education law violated academic freedom and democratic values, and gave it a month to respond.
Hungarian Prime Minister Viktor Orban gave an initial response shortly afterwards, rejecting accusations Budapest was threatening the Central European University (CEU) and dismissing the Hungarian-born Soros as a "financial speculator".
At a European Parliament debate on Hungary, Orban clashed with deputy Commission head Frans Timmermans, who said Brussels was also worried with his stance on asylum-seekers, a draft law on non-governmental groups (NGOs) and the rights of the Roma.
"The single biggest miracle in my lifetime is the fall of the Berlin Wall ... and that Hungary became one of the democratic nations of Europe," Timmermans said.
"That is something that was done by the Hungarian people themselves, striving for freedom. Protecting their freedom, however, is now a common European task."
The CEU case is the latest in a string of Orban policies in ex-communist Hungary that have left Brussels and many EU states exasperated by what they see as his authoritarian tendencies.
Budapest has said the legal changes were needed to prevent foreign universities from issuing dubious diplomas.
Orban, in power since 2010, has often bashed the EU and repeatedly clashed with non-governmental organisations sponsored by Soros, who promotes a liberal and internationalist worldview that the nationalist-minded Hungarian leader dislikes.
He said he strongly opposed the philanthropist's support for opening Europe more to immigration, but said Hungary was committed to the EU.
"In many aspects, we are unhappy with how the EU works," he said. "When we criticise the EU, it's because we want to correct these mistakes and we want to reform the European Union."
The CEU, a respected graduate-level institution, has stood as a bulwark of liberal thinking in Hungary and across eastern Europe since it opened in 1991 after the fall of Soviet-backed communism in the region.
Its president, Canadian Michael Ignatieff, appealed this week to Brussels for help.
Orban's critics say the move against the school is part of his broader push to stifle dissenting voices and put independent institutions - including the judiciary, media and NGOs - under closer government control.
Belgian liberal Guy Verhofstadt, a leading member of the European Parliament, told Orban his policies were protectionist, nationalist, illiberal and paranoid, and they reminded him of those in the communist-era Hungary.
"You see enemies everywhere in Hungary. In the media, in the energy sector, in NGOs, in the academic world," he said. "You signed up to the values of the Union. You have violated every single one of them."
Manfred Weber, the head of the European People's Party, the largest parliamentary faction that includes Orban's own Fidesz party, called on Budapest to "take on board the Commission's request and implement them".
The EU could impose sanctions on Hungary if it does not respond adequately to its notice, but its actual scope to punish Hungary is limited. Sanctions would require the unanimous backing of the other 27 states and Orban can count on his nationalist allies in Poland to oppose any harsh action.
Brussels officials hope Orban can be persuaded to seek a compromise, a possibility highlighted by Timmermans' repeated expressions of gratitude for Orban's readiness for dialogue.
"I think the Hungarian government will try to find a deal. The style of the discussion may not be very elegant but there will be some sort of a compromise in the end most likely," said one diplomat.
(This refiled version of the story fixes headline).
(Additional reporting by Jan Strupczewski and Waverly Colville; Editing by Tom Heneghan)