The 21st century has witnessed a sharp decline of liberal democracy. Democracy that declared its victory after the fall of the Berlin Wall and the collapse of communist regimes are now being challenged by non-liberal and authoritarian regimes. This challenge is also taking place in Europe, especially with the rise of populist parties adopting Eurosceptic ideas. The European Union (EU), on the other hand, is founded upon liberal democratic values enshrined by Article 2 TEU and claims a firm commitment to liberal democracy today. However, the rise of illiberalism in Hungary as well as in some other East-Central European countries represents a major challenge to liberal democracy. In 2014, Hungarian Prime Minister Viktor Orbán indicated that democracy can be illiberal, and he rejected the liberal values advocated by the EU. By conducting a document analysis, the thesis examines the compatibility of liberal democracy as promoted by the EU and illiberal democracy as promoted by the Hungarian government. By means of an investigation of the EU’s mechanisms against the Member States that violate Article 2 TEU, this thesis finds that illiberal democracy is not compatible with liberal democracy. Instead, the norms and values the EU is established upon are being eroded by Hungary since 2010 when the Fidesz party led by Viktor Orbán won the elections. Orbán is attacking core values of democracy, especially the rule of law, media and civil society to create a homogeneous society in Hungary. Therefore, the regime in Hungary should be considered as an authoritarian regime. This thesis further argues that the EU should find a more systemic solution to tackle the illiberal states within itself.