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Despite offering few details on the mechanism linking European Union (EU) funding with the rule of law, the recent deal on the 2021-2027 budget and recovery fund still raises the probability of financial penalties to countries with perceived rule of law deficiencies, most notably Hungary and Poland. A more specific proposal for the implementation of such mechanism is expected during Germany’s presidency of the EU, which runs until the end of the year. It might be subject to approval by qualified majority in the Council and an absolute majority in the European Parliament, which limits Hungary’s and Poland’s chances of blocking it.
The recent agreement on the seven-year EU budget and a recovery fund was delightfully welcomed across Central and Eastern Europe (CEE), which will see considerably higher allocations compared to the 2014-2020 period. Leaders of the right-wing governments in Hungary and Poland have been celebrating a double victory as the linkage between the distribution of EU funds and rule of law principles in the Council conclusions is rather vague and lacks a specific mechanism for implementation. However, such celebrations might be premature.
The language on the rule of law issue was likely diluted to facilitate overall agreement on the long-negotiated deal. However, the communique still refers to the fundamental principle of rule of law conditionality for distributing the EU funds, with the specific mechanism for its application postponed to a later stage. Importantly, the introduction of such mechanism may now merely require qualified majority support in the Council (meaning 55% or 15/27 of the EU member states representing 65% of the bloc’s population) and an absolute majority in the European Parliament. This means that Hungary and Poland alone will not be able to block the initiative. These countries might be joined by, for example, Slovenia, whose right-wing Prime Minister Janez Jansa is advancing a controversial reform of public media. Lithuania could also stand by Poland, which relies on Warsaw for strategic security and energy reasons. However, it is still highly dubious whether Poland and Hungary would manage to secure sufficient backing to block the adoption of such a mechanism.
While details for the rule of law mechanism are still lacking, the agreed deal outlines the overall principle that measures (penalties) proposed by European Commission in case of breaches would be adopted by the Council by qualified majority. On the one hand, that would be a step back from the 2018 proposal calling for such measures to be adopted by qualified reverse majority (meaning that they enter into force unless rejected by qualified majority in the Council). On the other hand, the current proposal still notably raises the probability of reduced EU funding for member states with rule of law deficiencies, as sanctions under the current Article 7 procedure can be introduced only by unanimous decision in the Council.
The timeline for the introduction of a more specific mechanism remains unclear. However, with the rule of law being one of the key topics of Germany’s presidency of the Council of the EU, it could be expected in the second half of 2020. Calls in the European Parliament to strengthen the rule of law conditionality as well as Poland’s intentions to continue with the controversial judiciary and media reforms may give additional impetus for this.