Enforcing the rule of law in the EU – the European Court of Justice upholds the conditionality regarding the budget

The European Court of Justice approves the conditionality mechanism

Today, the European Court of Justice upheld the conditionality mechanism which makes the receipt of financing from the Union budget subject to the respect by the Member States for the principles of the rule of law, see judgments in Cases C-156/21 and C-157/21.

The Regulation 2020/2092 on a general regime of conditionality for the protection of the Union budget establishes a general regime of conditionality for the protection of the Union budget in the case of breaches of the principles of the rule of law in a Member State. In order to attain that objective, the regulation allows the Council, on a proposal from the Commission, to adopt protective measures such as the suspension of payments to be made from the Union budget or the suspension of the approval of one or more programmes to be paid from that budget.

The full bench of the European Court of Justice has rejected challenges to these rules. The Union is founded on common values and compliance by the Member States with the common values is a condition for the enjoyment of all the rights deriving from the application of the Treaties to a Member State.

The sound financial management of the Union budget and the financial interests of the Union may be seriously compromised by breaches of the principles of the rule of law committed in a Member State. The rules are not designed to penalise a Member State for breaches of the rule of law as such.

The European Commission has now to review the breaches of the rule of law in several Member States and to propose the necessary actions in order to safeguard the Union budget.

Upholding the rule of law is and remains fundamental for civilized societies

While many believed that the checks and balances established over centuries in the Western world would withstand any assault on the rule of law, and would moreover be adopted by many other countries, not least the Eastern European countries having acceded the European Union, the developments over recent years have proved otherwise.

Upholding the values of the European Union

Upholding the values enshrined in the EU founding treaties, as developed, and set forth in Article 2 of the Treaty establishing the European Union, has always been a formidable task for the European Union institutions.

While the so-called infringe-ment procedure against an EU country that fails to implement EU law (for instance for not implementing EU legislation on the protection of the environment) is widely accepted, an action against a Member State for disrespecting the EU's fundamental values is not.

EU Member States have raised concerns about the rule of law in Austria, when the Freiheitliche Partei Österreich acceded to power under its leader Jörg Haider more than twenty years ago, and more recently with Hungary, Poland and Romania.

Article 2 of the Treaty of the European Union (TEU) establishes as core values that "The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail."

Article 7 TEU sets forth a procedure in two steps: If they consider that there exists a clear risk of a serious breach by a Member State of the values referred to in Article 2, the European Parliament, the European Commission, or one-third of Member States can ask the European Council to make such a determination. For the Council to adopt such a determination, four-fifths of the Member States must agree and the Parliament consent. The majority threshold is high, but less than the unanimity requirement for taking the next steps.

The next steps are a formal warning, and ultimately sanctions and the suspension of voting rights. This is where procedures have stalled in the past against Hungary and Poland.

Both countries obtained the support of at least each other which was insufficient to forestall a decision in the first phase, but enough to stop the second step, i.e. sanctions or the suspension of voting rights.

The Article 7 TEU decision-making process is arduous, and the unanimity requirement is an obstacle to success to act against very serious threats, such as the Polish Constitutional Court stating that several articles of EU Treaties are incompatible with Poland's constitution.

Will new instruments freezing the flow of money be more effective?

In view of the deadlocks encountered in Article 7 TEU proceedings, a new instrument was devised, consisting in withholding EU money to the Member State in question. The new rules were adopted in Regulation 2020/2092, despite the fierce opposition of Hungary and Poland in the negotiations concerning the EU budget and the extra budgets for overcoming the economic consequences of the COVID-19 pandemic, € 800 billion next-generation stimulus fund.

Hungary and Poland challenged the rules in the European Court of Justice. In summary, they argue the new rules circumvent the Article 7 procedure and have nothing to do with the protection of the EU budget. The Court has now rejected the arguments; the new rules are not to penalize a Member State for breaches of the rule of law as such but for the distinct issue of protecting the budget. The judgment has paved the way for action by the EU and made it easier to fight for EU core values.

Any procedure must be initiated by the European Commission and decisions using the new mechanism must be made by the Council. But unlike the Article 7 TEU sanctions mechanism requiring unanimity among Member States, decisions to freeze funds may be made by qualified majority. This means that it becomes more difficult for a country to find enough like-minded countries in order to veto a decision.

A number of Member States and the majority of the European Parliament are adamant that the Commission starts using the rules, with the Parliament even considering legal action against the Commission for dragging its feet. Moreover, two big Member States are more than hesitant to support decisive actions against Hungary and Poland. The struggle to find a coherent and strong response to the challenges of the rule of law is not over.

At this moment, a number of issues await decisive action, from the dispute over the appointment of judges in Poland, to lignite mining at the Turow open pit mine on the border with Saxony and the Czech Republic to the Romanian Constitutional Court arguing that Romanian law overrides EU law.

Prof. Dr. Rainer Bierwagen