ECJ rules in favour of making EU cash handouts conditional on a country’s respect for rule of law

by Cristian Florescu

The European Court of Justice (ECJ) has ruled in favour of making EU cash handouts conditional on a country’s respect for rule of law, writes Euronews

The so-called rule of law or conditionality mechanism could see money withheld if a member state does not respect the bloc’s core values.

These include democracy, equality, respect for human rights, non-discrimination and justice.

“Compliance with those values cannot be reduced to an obligation which a candidate state must meet in order to accede to the European Union and which it may disregard after accession,” the judges said.

The ruling paves the way for the European Commission to apply the mechanism for the very first time and request the freezing of EU funds, a process that could take between five and nine months.

How did the ECJ case come about?

Budapest and Warsaw brought legal action against the European Parliament and the EU Council, the bloc’s two co-legislators, in early 2021.

During the legal case, the institutions were supported by interventions from the European Commission, which drafted the original proposal, as well as from Belgium, Denmark, Germany, Ireland, Spain, France, Luxembourg, the Netherlands, Finland and Sweden.

What has been the reaction to the ruling?

Poland and Hungary quickly condemned the ruling after its publication.

“We need to defend ourselves against an attack on our sovereignty, Poland has to defend its democracy against blackmail that aims to take away our right to decide about ourselves,” said Poland’s Deputy Justice Minister Sebastian Kaleta.

Hungary’s Justice Minister Judit Varga called it “a politically motivated judgment” and “living proof that Brussels is abusing its power”.

European Commission President Ursula von der Leyen welcomed the judgment and said her team will incorporate the court’s findings into their strategy.

What’s the conditionality mechanism?

The mechanism was designed in parallel to the negotiations over the €1.1 trillion multi-annual EU budget and the €750 billion coronavirus recovery fund.

Following negotiations in late 2020, which included failed threats of veto, the system entered into force in January 2021. Hungary and Poland brought their legal actions shortly after.

So far, the system has never been activated, despite dramatic developments in recent months.

In early October, the Polish Constitutional Court delivered an extraordinary ruling that directly challenged the primacy of EU law, one of the bloc’s cornerstone principles, and the ECJ’s competence.

The verdict sent shockwaves and enraged many heads of government and MEPs, who demanded immediate action from the European Commission.

But von der Leyen said her team would wait until the ECJ issued its verdict and confirmed the instrument’s legal validity. The executive also argued it was drafting a series of guidelines to help officials implement the tool.

The explanations were not enough for MEPs, who had sued the Commission for inaction.

How powerful is the mechanism and how will it work in practice?

The mechanism’s rules give the European Commission, often referred to as “guardian of the treaties”, the power to initiate the procedure to freeze EU funds.

First, the executive has to build a legal case against a member state suspected of breaching EU law and endangering the common budget. The accused country can reply to the executive’s accusations, exchange information and attempt to correct the unlawful situation.

If the European Commission believes the wrongdoing persists, it can formally issue a recommendation to freeze EU funds. The decision then goes to member states, which have to approve it by a qualified majority (55% of EU countries representing at least 65% of the total EU population).

Potential punitive measures include a suspension of payments, termination of legal commitments, early repayment of loans or a prohibition to enter new financial agreements. The measures can be later lifted if the disciplined country corrects the situation.

In total, the whole procedure can take up from five to nine months, according to EU officials.

What happens now?

All eyes turn now to von der Leyen, who will have to make the final call on whether to activate the budgetary procedure. Hungary will hold its national election on 3 April, a politically sensitive circumstance that could influence her thinking.

In recent months, Commission officials have been exchanging letters with Hungarian and Polish authorities regarding certain aspects the executive considers damaging to the rule of law, such as alleged corruption in Hungary and accusations of a lack of judicial independence in Poland.

These letters do not amount to an official start of the conditionality mechanism but imply a legal case is being built against both countries, which are net beneficiaries of EU funds.

In 2020, Poland received €18 billion from the bloc’s budget, while Hungary got €6 billion.

Given the untested nature of the instrument, it’s still unclear how effective it could be in practice. If eventually approved, the suspension of EU funds would affect government entities and public authorities at the national, regional and local levels.

While the regulation includes provisions to ensure the final beneficiaries of EU funds, such as NGOs and farmers, do end up receiving the money and don’t pay the price, triggering the process could fuel anti-EU sentiment inside the punished country.

Both Poland and Hungary are still waiting for the approval of their national recovery plans, which will allow them to tap into the €750 billion funds. The Commission has refused to give its green light to their programmes as long as rule of law concerns are not addressed.

Meanwhile, the two countries remain under the Article 7 procedure, which could deprive them of voting rights on EU policy. The process has been stalled for years because it requires the unanimity of all member states (minus the accused country). Poland and Hungary have vowed to block each other’s votes.

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