KALOCFA, Hungary, March 7 (Reuters) - Austrian farmers working in Hungary could be forced off their land under new laws initiated by Prime Minister Viktor Orban, a prospect that angers Vienna and could revive conflict between Orban and Brussels.
Orban, bolstering his reputation as a champion of national interests against foreign interference, accuses the farmers of using sharp practices to obtain the land.
"Where there is farmland, there is battle," his agriculture minister Sandor Fazekas told a farming conference in Budapest last month.
But the European Commission has little patience with Orban after clashing with him on issues from media freedom and independence of the judiciary to swingeing taxes on business sectors with high foreign ownership, such as banks and utilities.
While Brussels examines whether Orban's land laws infringe the bloc's principles of free movement and shared economic rules, Orban's government is appealing to Hungary's history as a nation often called upon to defend its fertile plains from envious foreigners.
"We need to do everything we can to ensure that farmland, be it leased or owned, remains with Hungarian people, Hungarian farmers and Hungarian smallholders," Fazekas said.
Orban's party is comfortably ahead of the main leftist opposition groupings in opinion polls before a parliamentary election in April. However, the far-right Jobbik party has challenged the government to take even stronger action against foreign land users.
Hungarians sometimes refer to Austrians as their in-laws because of the joint empire they forged in the 19th century. But Hungarians struggled for equal status in that union and there is still a wealth gap.
Many Austrians living in the east of their country go to Hungary for cheap dental treatment, while Hungarians cross the border to sell fruits and vegetables or tackle household repairs for less than most Austrian workers would accept.
Budapest says some Austrians got around an EU-approved moratorium on foreigners owning farmland by drawing up special contracts with the landlord, which give them quasi-ownership rights. The government has drafted a law which, when it comes into force in May, will render those contracts illegal.
Starting in May, foreign farmers can in theory own farmland because the moratorium expires. In practice the requirements are so onerous that most of the farmers operating with the quasi-ownership contracts will have to shut up shop.
Previous measures that hurt foreign investors were on a much bigger scale. A relief scheme for struggling borrowers cost the banks - most of them foreign-owned - about 1 billion euros ($1.4 billion). Austrian lenders Erste Bank and Raiffeisen were among the biggest losers.
Vienna says that while the latest legislation is likely to affect only some of the 200 Austrian farmers working in Hungary, it challenges the EU's fundamental rules.
The European Commission told Reuters it is looking into whether Hungary's changes are compatible with EU law, especially if they result in Austrian farmers losing their land with no compensation.
Austrian Agriculture Minister Andrae Rupprechter said he expected the Commission to rule next month.
"Free movement of capital is in question," he told Reuters in Vienna. "I'm confident that the commission will make a clear judgment in our favour."
Austria hopes to resolve the issue bilaterally, saying the farm ministers will meet promptly after Hungary's election.
The issue is something of a personal crusade for Orban. In a previous stint as prime minister, 13 years ago, he held a cabinet meeting in a barn in the farming village of Kalocfa, about 25 km (15 miles) from the border with Austria.
He had come to the village, surrounded by flat open fields of wheat and maize, to focus attention on the Austrian farmers.
"We need to put an end to this. This Austrian racket that has been going on here cannot continue," Orban said then.
"Every Austrian farmer who has evaded Hungarian law and bought land should be happy to get away with it unscathed."
Near Kalocfa today, an Austrian farming company has about 700 hectares (1,730 acres) of land, three workers there told Reuters. They said the owner was not on the site, but a jeep with an Austrian number plate was parked near an office building at the farm.
The owner did not respond to a request for an interview. Some foreigners bought farmland outright during a brief period when it was legal for them to do so.
The mayor of Kalocfa, 33-year-old Andras Szabo, said local people had mixed views on the Austrian presence. "Sometimes it is good, other times it is bad. I think an Austrian farmer is neither better nor worse than a powerful Hungarian farmer."
But he said many smallholders cannot expand their property because of rising land prices. Szabo's family farms on a meagre 43 hectares near a road carrying heavy truck traffic.
Others in the region also complained about having to compete for land. They did not want to be named for fear of antagonising their Austrian neighbours.
Near the village of Bajansenye, locals said more than half of the farmland is used by foreigners.
One smallholder in his 40s said he moved to a nearby village with a dream of building his own farm, but was stuck with a tiny plot because of foreigners buying up all the land. ($1 = 0.7225 euros) (Additional reporting by Georgina Prodhan in VIENNA; Editing by Christian Lowe and Ruth Pitchford)