Verhofstadt was speaking after the European People’s Party last week voted to suspend, but not expel, Hungarian Prime Minister Viktor Orbán’s ruling Fidesz party over alleged violations of EU rule-of-law principles.
A compromise solution taken last Wednesday allowed the EPP to keep Fidesz in the fold for the time being, ahead of the European elections in May.
He said, “What is happening in the EPP is a joke.”
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Relations between EU and Orbán hit a low point during the 2015 migration crisis, when Orbán closed Hungary's borders to refugees and asylum seekers.
Last year, a majority of MEPs supported a motion to launch the punitive process of the EU Treaty’s rarely-used Article 7 against Hungary.
Earlier this year, Orbán wrote a letter apologising to the members of the EPP and appeared ready to end his attacks on the EU.
But a recent poster campaign, which featured a picture of both Commission President Jean-Claude Juncker and Hungarian-American billionaire George Soros, appeared to reignite tensions.
The poster says Hungarians "have the right to know what Brussels is about to do," before making several claims about EU proposals that would "threaten Hungary's security."
The European Commission said the claims are untrue.
“What is happening in the EPP is a joke” Guy Verhofstadt
At a news conference in Strasbourg, Verhofstadt, the ALDE leader, said the EPP had “lost its moral authority” if Orbán continued to remain in the group.
He appealed to the group to “solve the Orbán problem,” adding, “this is in their hands.”
Speaking last Friday, French President Emmanuel Macron said he did not understand the EPP’s decision not to expel Orbán’s party.
“I’m in favour of clarity. I don’t think this was clear. I didn’t understand where the MEPs of Mr Orbán are going to sit after the European elections. I understand that they will sit with the EPP. So I understand that nothing has changed.”
“Therefore, this is good news for the EPP and for Mr Orbán. I don’t think this is good news for the European project, for its coherence and for the clarity of its ideas,” he said, adding that the decision was evidence of a “clan mentality.”
In a radio interview this weekend, Orbán said Brussels politicians “live in a bubble” and have created a system that has “lost touch with reality.”
A three-man panel, led by Herman Van Rompuy, the former European Council President, is determining whether Orbán’s Fidesz party has acted in accordance with the EPP’s rules and values under the terms of its suspension from the group.
The bitter row with Fidesz and Orban has left the 12 sitting Fidesz MEPs in the EPP group uncertain about their positions.
However, speaking separately on Tuesday in Strasbourg, the EPP’s deputy leader in Parliament, Esteban González Pons, pointed out that “no final decision” had yet been taken by the pan-European party about Orban and Fidesz.
He told another press conference that as no decision has been taken it was impossible to speculate on the possible “consequences” for the parliamentary group.
The Spanish deputy said, “Our group in Parliament has its own procedure for dealing with such things and the parliamentary group is different from the EPP party.”
“Members of [the] group are not necessarily members of the party and vice versa. This means we have different ways of making our decisions. If the EPP party comes to a final decision it may have consequences for the group but, I repeat, no final decision has made yet about Fidesz members.”
He pointed out that the EPP group and Fidesz had worked together for 5 years and that this arrangement was “now coming to the end of this (legislative) period.”
Meanwhile, Verhofstadt also revealed that his group was “in full preparation” to enter into an agreement about forming a new grouping in Parliament after May’s EU-wide election.
He did not give details, but the party most likely to be a partner for ALDE is “La République en Marche” (LREM) in France.
Verhofstadt said, “Today is the launch of the election lists in France and we continue our talks with La République en Marche.”
This is Emmanuel Macron ‘s party which is often seen as close to the liberal group.