UPDATE 2-Suspend Hungary's ruling party, EU centre-right's Weber tells colleagues

The centre-right's lead candidate for the European Parliament elections called on Wednesday for Hungary's Fidesz party to lose its voting rights in the grouping pending an inquiry into whether it has violated rule-of-law principles.

According to participants at a Brussels meeting to decide on the fate of Hungarian Prime Minister Viktor Orban's ruling party, Manfred Weber said the outcome of the evaluation would have "enormous political bearing". Orban, a feisty nationalist who has often clashed with the European Union over his anti-immigration campaigns and judicial reforms, told European People's Party (EPP) delegates that his party could not accept the proposal.

According to a document seen by Reuters, the evalution would be made by a committee chaired by former European Council head Herman Van Rompuy, with former European Parliament president Hans-Gert Poettering and former Austrian chancellor Wolfgang Schuessel also serving. "As a political family we must not only have principles and speak about values, but we must also lead by example," the document said.

The head of the European Commission, Jean-Claude Juncker, and 13 sister parties in the EPP have called for Fidesz's expulsion, but Annegret Kramp-Karrenbauer, head of Germany's Christian Democrats, proposed a compromise ahead of the meeting. Kramp-Karrenbauer, frontrunner eventually to succeed German Chancellor Angela Merkel, attended Wednesday's meeting in person to confirm to delegates that her party, the largest in the EPP, would back suspending Fidesz and setting up the committee.

Earlier, Orban's chief of staff said Fidesz would quit the EPP rather than see its membership suspended, saying it was a question of national "dignity". Austria's Chancellor Sebastian Kurz and Bavaria's premier Markus Soeder, both EPP members who have been among Orban's closest allies in the grouping, supported her position, sources close to Kramp-Karrenbauer said.

The decision of both Orban and Kramp-Karrenbauer to attend in person what would normally be a routine administrative meeting highlighted how high the stakes are: EPP membership for Fidesz confers mainstream respectability and influence that other populist parties lack. CHALLENGE

The Fidesz issue poses a particularly difficult challenge for Weber. His chances of succeeding Juncker as head of the executive Commission will be reduced without the votes of Fidesz's European lawmakers, of whom there are currently 12. On Wednesday Juncker, who is also from the EPP, repeated his call for Fidesz to be kicked out of the grouping.

"I think that Mr Orban is a long way from basic Christian Democratic values," he told German radio. Juncker was the target of a Hungarian government poster campaign depicting him as a proponent of mass immigration into Europe and as a puppet manipulated by Hungarian-American billionaire philanthropist George Soros.

The EPP grouping, the largest in the European Parliament, is also concerned over Orban's campaign against the private Central European University in Budapest that Soros founded. Sources close to Weber said Orban had at least partially met the German conservative's conditions for keeping Fidesz in the EPP, including by apologising to colleagues in the grouping for labelling them immigration-backing "useful idiots". (Additional reporting by Madeline Chambers and Andreas Rinke in Berlin, writing by Thomas Escritt Editing by Gareth Jones)

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