Compromises made on rule of law pre-condition for EU Member State funding

Polly BotsfordMonday 25 January 2021

When the European Council agreed the European Union budget for 2021 in December, it added a mechanism called the conditionality regulation. Under the regulation, if a Member State has breached the rule of law, then EU funding payments can be withheld.

As Eider Gardiazabal Rubial, a Spanish Member of the European Parliament, described it: ‘the EU is not an á la carte establishment, where you can keep your rights but not meet your obligations.’

The conditionality regulation is the latest EU mechanism deployed in response to what the European Commission and the Court of Justice of the European Union (CJEU) have declared breaches of the rule of law in Hungary and Poland over the past five or so years.

Actions taken by both Hungary and Poland include placing the appointment of judges more firmly in the hands of politicians, forcing the retirement of judges, and taking disciplinary proceedings against other judges.

The attachment of rule of law conditions to EU funding to prevent or reverse such actions appears to be a revolutionary step, delivering tangible financial penalties for abuses. In both Hungary and Poland, EU funding has a significant role to play, making up between two and three per cent of their gross domestic product. The two Member States are both in the top five highest recipients of EU funds.

Having to make that link to EU funds effectively rules out all civil law cases within a Member State

Laurent Pech
Professor of European Law, Middlesex University London

In practice, the regulation may be rarely activated, however. One reason is its narrow definition. To be able to restrict funds, the European Commission must identify a breach of the rule of law by a Member State, such as an attack on the independence of the courts. According to the new regulation, the Commission must then also be able to demonstrate that the breach has a sufficient direct link to EU funds. If there is no link, the Commission cannot apply the regulation.

‘It’s as if they have deliberately designed the regulation to have very little teeth,’ says Laurent Pech, a professor of European Law at Middlesex University London. ‘For instance, having to make that link to EU funds effectively rules out all civil law cases within a Member State. So a country could purge its own civil courts and there would be no recourse for the European Commission.’

The potential power of conditionality is also being undermined by delays, argue critics. Guidelines on how the conditionality regulation will be applied, which will include a methodology for how the European Commission will carry out its assessments, first have to be finalised.

If there’s a CJEU judgment on the underlying law, this will need to be taken into account in finalising the guidelines. Both Hungary and Poland have already argued that the conditionality regulation is unlawful under the Treaty on European Union (EU Treaty) and suggested they intend to take the legal avenue.

Pech argues that a court case could add months of delay at a critical moment in the budget cycle. ‘This current cycle is about supporting Member States in the immediate term due to the pandemic – meaning that EU funds will be released early – and so it is highly likely that Hungary will “frontload” its applications for EU funding,’ he says. ‘There is a scenario where Hungary will be able to spend as much as possible before both the CJEU decision on conditionality and before the Hungarian national elections in spring 2022 – and, once spent, any power to restrict funding will be, quite simply, too late.’

Tomasz Wardyński, Member of the IBA European Regional Forum Advisory Board and a partner at Wardyński & Partners in Warsaw, is also sceptical about the conditionality regulation. This is because the issue is about political divergence within the EU and globally, he argues. ‘It will not work because ultimately this is a political problem,’ says Wardynski. ‘The only way to stop the tide is politically.’

Earlier attempts to rein in what are seen as recalcitrant Member States have stalled. Following initial investigations by the European Commission into what became known as ‘systemic threats’ to the rule of law in Hungary and Poland, the Commission eventually took a step into the unknown by turning to Article 7 of the EU Treaty.

This previously unearthed part of the Treaty is referred to as the ‘nuclear option’ because it sets out a complex disciplinary procedure to be undertaken against a Member State. If the procedure is followed through to its conclusion, the voting rights of the Member State are ultimately suspended.

The European Commission began the process first in Poland in 2017 and then in Hungary in 2018. But the procedure has become bogged down in tactical delays and cumbersome hearings and, currently, appears completely stuck.

A new ‘rule of law mechanism’ then surfaced in 2019. This was a reporting tool that enabled the Commission to conduct a detailed survey of the state of play regarding the rule of law across EU Member States. Its first report was published in September and identified key failings in a number of countries, notably not only in Hungary and Poland but also in Croatia, Romania and Slovakia.

Didier Reynders, the European Commissioner for Justice, spoke to Global Insight about the new mechanism. ‘The report shows that many Member States have high rule of law standards, while there are also important challenges,’ he says. ‘The mechanism aims at preventing rule of law-related challenges from emerging or deepening and at kick-starting an inclusive debate across the EU.’

There are hopes that the new conditionality regulation and the Commission’s report will, at the very least, keep the importance of the rule of law on the agenda and will in due course have some traction.

‘The Commission remains committed to using all tools at its disposal [… and] plans a number of actions aimed at promoting a rule of law culture across the EU,’ says Reynders.

Image: Poland's Prime Minister Mateusz Morawiecki and Hungary's Prime Minister Viktor Orbán, September 2020. Alexandros Michailidis / Shutterstock.com