Rule of law and the protection of the European Union's budget – the conditionality regime

Friday 28 April 2023

Ligia Cecilia Popescu
Wolf Theiss, Bucharest

The careful monitoring of Member States’ compliance with the rule of law principle has been high on the European Union's (EU) Commission list of priorities for a while. 

The Rule of Law Reports (RLR) are assessment tools containing a chapter dedicated to the analysis of the status of compliance in each Member State, in several essential areas respectively: the anti-corruption framework, the justice system, media pluralism and institutional issues related to checks and balances, public service media, and the implementation of judgments of the European Court of Human Rights.

Since January 2021, Regulation 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the European Union budget (the Regulation) is in force as an instrument against risks resulting from breaches of the rule of law principles.

In a nutshell, the conditionality regime allows the EU to suspend funding to the Member States or make reductions in funding in case of violations of the rule of law.

The Commission's Guidelines for the implementation of the Regulation include:

  • the criteria relevant to take measures (relevant breaches of the rule of law principle and risk assessment against the EU financial interests);
  • the protection of the rights of the final recipients or beneficiaries of EU funding (ensuring continuous payments under EU programmes or funds under all circumstances);
  • the interplay between the Regulation and other protection tools (EU financial rules, the sector-specific rules including the cohesion policy, Common Agricultural Policy, the Recovery and Resilience Facility);
  • the use of proportionality criteria in the assessments made;
  • a procedure for taking measures (including the sources of information for the Commission, the effects of complaints, and input of the Member States).

However, this linkage between compliance with the rule of law and EU funding emerged as a rather controversial issue.

On 11 March 2021, Poland and Hungary challenged the Regulation in the EU Court of Justice alleging infringements of the Treaty on European Union (TEU) and of the Treaty on the Functioning of the European Union (TFEU), the circumvention of the procedure in Article 7 TEU, that the EU had exceeded its powers, and a breach of the principle of legal certainty. The Court dismissed both actions. 

Similarly, in Romania, the conditionality regime also created strong internal political controversy, being regarded by some as potentially jeopardising the economic development of the country through EU funding support. The concerns expressed likewise included potential breaches of legal certainty, as noted above.

As the Court maintained,[1] the taking of measures against a Member State under the conditionality regime will require the existence of a proportional link between the breach of a principle of the rule of law, on the one hand, and an effect (or the serious risk of an effect) on the sound financial management or the financial interests of the EU, on the other hand. The breach must concern a situation or conduct attributable to an authority of a Member State and must be relevant to the proper implementation of the EU budget.


[1]Judgments in Cases C-156/21 Hungary v Parliament and Council and C-157/21 Poland v Parliament and Council Court of Justice of the European Union in PRESS RELEASE No 28/22 Luxembourg, 16 February 2022