DEVECSER, Hungary – It was just past noon, last Oct. 4, when Karoly Horvath returned home from fishing a local lake, here in provincial western Hungary. His wife and 12-year-old daughter were home to greet him, too – just as the waves of red sludge crashed through the door and windows.

Within seconds, the toxic mud was above their waist, burning the skin. Unable to move, Karoly could only watch mother and child screaming in agony.

“It was the most awful thing,” says Karoly, 38. “As a husband and father, stuck in that red sludge, seeing that happen to them before my eyes, but being so helpless to do something about it.”

His wife, Eva, was hospitalized with burns across 70 percent of her body. At least she survived: ten were killed in what instantly became Hungary’s deadliest industrial accident ever. Greenpeace went so far as to call it one of Europe’s worst ecological disasters “ in the past 20 or 30 years .”

For Hungary, the rupture of a Communist-era reservoir of aluminum waste was one part Chernobyl, one part Pompeii. In Devecser, it poured trauma upon trauma for a people already battered by years of economic hardship and political hatred.

Today, though, amid the gloom is a glimmer of hope: scores of hapless victims have discovered a rare source of empowerment – the courts – to pursue compensation from the wealthy, well-connected owners of the aluminum company. This reveals a surprising appreciation for the rule of law in a country often painted as fed up with its harsh brand of democracy, two decades into the post-Communist transition.

On the flip side, though, a new strain of Hungarian resentment has recently bubbled up: at the Roma living among them, known more derogatorily here as ciganyok, or “gypsies.” The venom illuminates how embittered Hungarians have grown, especially toward Europe’s most marginalized minority.

Observers may view the Horvath family as victims. But because they’re Roma, some Hungarians harbor doubts. The mantra around Devecser is, “For many, this wasn’t a red sludge, but a golden sludge.” The government is replacing all the homes destroyed – some 300 – which it’s now doing with tasteful, modern new housing that could almost pass for a cookie-cutter American suburb. The way Devecserians describe it, though, even their good-for-nothing Roma will soon have a new home.

Before the tsunami of waste hit, notes the Devecser mayor, quite a few ciganyok lived in “rat holes.” One local farmer, who lost his crops and prime soil to the sludge, suggests the Roma “would be happy to be hit by another red sludge next week.” Another man in town, who saw his newly refurbished home swallowed, claims the Roma unaffected by the flood “wish their homes had been hit.”

Horvath scoffs at the notion.

“Anyone calling it ‘golden sludge,’ I’d be happy to change places with them,” he says. “Let them stand in it three-four hours and experience the same pain. We’ll have scars the rest of our lives. People already see our brown skin; now they’ll see spots and think we have an exotic disease, too.”

This is the mindset of anti-Roma racism in Central Europe , writ small.

In Hungary, the far-right Jobbik party has exploited high unemployment and anti-government rage to crusade against cigánybűnözés – “gypsy criminality.” The blood libel has proven effective: in April 2010, Jobbik scored a startling 16.7 percent in parliamentary elections. Yet the sentiment stretches well beyond Jobbik supporters, as many Hungarians seize on the petty crimes of the few to pin collective guilt on the whole. Even with the reported killing of seven Roma in recent years – in one of the European Union’s newest members – it’s not hard to find Hungarians obsessing over cigánybűnözés.

Delving deeper, Hungary, for centuries a European powerhouse, now endures the humiliation of plummeting from regional front-runner to naughty laggard . The population of 10 million has been besieged by economic crisis, lies and corruption at the highest levels, and one of the most noxious political climates in Europe. Thus, they muster no sympathy for the Roma and their widespread poverty – though it’s widely known that when the post-Communist Hungary first whacked away at its bloated, decrepit industry, Roma were purged straight away. Then, when new “free-market” enterprises emerged, they wouldn’t employ Roma. As their defenders say, “First ones fired, last ones hired.”

In places like Heves County, where joblessness among adults aged 25 to 40 may run as high as 50 percent, miserable Hungarians and Roma chase the same scraps . Couple that with the common perception of Roma as petty criminals, forever pinching fruit and vegetable from the neighbor’s garden, while sponging welfare. Either that, or part of some cunning “mafia” – say, the scrap-metal business.

All of this seeds the earth for an outpouring of hate speech and political extremism. A 2010 study by a Budapest-based thinktank, Political Capital, has suggested that while hard-right attitudes have declined in places like Poland, they doubled in Hungary : from 10 percent in 2003 to 21 percent in 2009. During that span, the sense that “everything and everyone is bad” shot up from 12 to 46 percent.

Unable to wring the necks of their elites, ordinary Hungarians vent their impotence at the Roma, who are, at least, beneath them on society’s bottom rung. Freud might have diagnosed a psychosis that mirrors the parent who beats a child, who in turn kicks the dog. Aggression as a mode of survival.

Devecser, then, serves as microcosm. It was like any other Hungarian town in Veszprem County before the great wave struck, a valley with deep agricultural traditions, in recent years wounded by crumbling job prospects. Locals also nursed antipathy for the Roma concentrated near the town center. That downtown is also home to what is known as a “black” high school – meaning, “white” Hungarians send their kids to school in larger cities nearby. Left behind, the Romanies are effectively segregated.

So deep is the resentment, it takes no prompting for some Hungarians to volunteer hair-raising comments about Roma. When a foreign journalist asks at the cake shop what the local specialties are, a friendly Hungarian customer answers “fried Gypsy.” Jokingly. Or what he thinks is a joke.

At the Devecser town hall, Mayor Tamas Toldi patiently describes in great detail how the red sludge decimated Devecser. Then, his ambitious vision to resuscitate Devecser and its environs, especially by attracting Western industry and energy-crop agriculture.

An imported tree form, known here as “summer energy,” can be sold, burned as fuel, and is some of the only stuff to grow on this contaminated ground. Mayor Toldi and others banned all food agriculture for the next 10 years, to conduct enough tests, protect health and prove the area safe.

The “golden sludge” reference to Roma has come up so often, the question must be put to Toldi. To which the mayor responds, “I can confidently say, what happened to some was clearly in their interest.”

Toldi says he’d like to create local training centers, where young Roma and others can learn practical vocations, like how to become a carpenter, locksmith or mechanic. He then explains another fresh idea, which he says is aimed at ethnic integration. Most of the new homes will be finished in August, then ready for inhabitation. Will Roma soon live cheek-by-jowl with the local Hungarians? Or will another form of segregation unfold? It’s yet unclear, though Toldi says he prepping some Roma.

“What I’m telling them is, ‘If you come here with needs, then we’ll have our expectations: You have to greet your neighbor, you have to be polite, you have to act according to certain family values and have kids only if you can raise them,’” he says. “They have to fit into their new neighborhood.”

“We understand they have certain disadvantages, but we’re trying to inspire and push them in certain directions so their children receive a proper education and have fewer of these disadvantages.”

Karoly Horvath – and many Roma and non-Roma alike – have greater expectations of their own. Not just a new home, but restitution for property lost. Or for property dramatically devalued. When the government announced that any victim who hoped for compensation from the aluminum company, MAL, would have to do it on their own, many took action.

One local lawyer, Akos Nemeth, says he “felt my birthplace could disappear from the map, so I had the urge to do something.” Nemeth, 33, now represents more than 130 sludge-related cases, roughly one-third involve Roma like the Horvaths. Much has changed for the better, he concedes, from the old authoritarian days when no one would have dared stand up to the system. Today, Hungary sees extremes: some paralyzed by the old mindset versus those now Western-influenced and highly litigious.

“There are still many, like my parents, who dress nicely, go politely to the lawyer’s office to fill out papers, but that’s enough,” says Nemeth. “There are also those who’d sue somebody for 1 forint.” Regarding the red sludge, though, “It’s really good to see people take legal steps to protect themselves.”

Karoly Horvath is suing not only for land and property lost, but for the 25 years’ worth of fishing gear he accumulated: angling was one way he put food on the table each week. That, and working the local flea market, renowned among Hungarians even in the capital, Budapest, for its used bicycles.

Minimally, says Horvath, he wants “someone to stand in front of us, look into our eyes, and say sorry for the 57 days that we had to take painkillers six times a day, and got only one hour of sleep.”

He praises Nemeth as a fellow Devecserian willing to work for free – only the judge will determine his cut in any settlement.

“He fights like a lion, regardless of the color skin of his client,” says Horvath. “He knows that if someone harms me, we’re entitled to the same rights as everyone else.”

Nemeth agrees.

“Even a squirrel has rights,” he says with a smile. “But those rights must be defended.”