I think this decision doesn’t have that much to do with Hungary. Hungary on a global scale is pretty much irrelevant, but I think muslim countries are pretty important for UEFA and they also wouldn’t have liked to see the stadium in rainbow colors. Also interesting that Hungary asks for politics to be left out, but at the same time we see tons of Hungarian „fans“ with black shirts during all their matches, probably not related to politics at all ...
Western politicians can’t complain about UEFA, when they keep financing the Hungarian and polish government. Personally I wish that Poland and Hungary would be kicked out of the EU, but sadly that won’t happen.
Also now that I learned more about this topic: I think the major of Munich himself said that this was supposed to be a protest against the new Hungarian law, so he can’t complain that this won’t be allowed. If they would have done the same for all matches (and not just the match against Hungary), there probably wouldn’t have been a problem.