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November 17, 2020


EU: Rule of law dispute may delay but will not stop recovery fund

BY Antonio Barroso, Andrius Tursa, Carsten Nickel

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( 5 mins)
  • Poland and Hungary are expected to maintain their tough line in the talks with the EU over the budget and recovery package.
  • The rule-of-law mechanism could undercut the political standing of both countries’ right-wing governments in the longer term.
  • West European governments face their own trade-offs, but the magnitude of the pandemic challenge will likely motivate further concessions to allow passage of the package.

Ahead of the European Council’s virtual meeting on 19 November, the Hungarian and Polish governments have vetoed the package entailing the Multiannual Financial Framework for 2021-27 and the Covid-19 recovery fund. Earlier, a qualified majority of EU ambassadors had signed off on the mechanism linking the distribution of EU funds to the rule of law. This prompted a veto from Budapest and Warsaw in the following vote: to enable the bloc to issue bonds for financing the recovery fund, unanimous support from all member states would have been required for lifting the EU’s so-called own resources ceiling.

The formal veto came after the rule-of-law mechanism had already been diluted since the summer. Recall that the initial, pre-pandemic idea had been to apply the so-called reverse qualified majority principle, i.e., only a sufficient number of member states could have stopped the Commission from cutting funds based on rule-of-law concerns. But negotiations in the Council and, more recently, with the European Parliament, returned a draft that would already require a qualified majority to impose any cuts in the first place. Moreover, the language around the mechanism was interpreting rule-of-law issues mainly as questions of sound financial management.

The illiberal perspective

One obvious way to understand the conflict is through the prism of illiberal politics in CEE. In this context, Hungary and Poland have strong domestic incentives to keep up the fight. Governments in both countries are struggling to contain the Covid-19 pandemic, and another dispute with the EU could serve as a timely distraction. Public media have been framing the issue as a struggle over sovereignty and independence from the EU’s dictate, a line that has resonated with their right-wing electorates in the past. This is particularly relevant for the Law and Justice (PiS) party, which has seen its approval ratings drop to the lowest point since mid-2018, largely due to its controversial plans to further tighten legislation on abortion.

But beyond such short-term concerns, a more stringent rule-of-law mechanism could be an effective instrument to halt the erosion of democratic standards in Hungary and Poland. This, however, would pose grave political risks for Fidesz and PiS. Strong EU pressure – backed by potential funding cuts – could eventually weaken both parties’ influence over the media and the judiciary, which are key institutions to maintain their political power in the longer term. Losing access to the EU funds could also disbalance their wide clientelist networks, another pillar of their political power.

Challenging negotiations

Another dimension to the conflict is the usage of qualified majority voting on politically still unresolved issues. After the decision on the relocation of migrants, yesterday’s vote on the rule-of-law mechanism is another instance of a German-led initiative with major consequences for CEE being put to a vote when it is clear that political agreement has not yet been reached. Recall that the June Council compromise on the financial package was worded fluffily in this area, effectively aiming at resolving the rule-of-law question via agreement on precisely the mechanism of which it was clear that Poland and Hungary would not accept it. In this sense, at least, the vetoes will not have come as surprises; pushing ahead with the vote might be seen as the Council presidency’s attempt to move ahead with the talks by forcing every country to document its position.

Big net-payers such as the Netherlands will continue to push back, not least given the challenge from illiberal parties in the March 2021 Dutch elections. But even trickier than the position of frugal liberals such as the Dutch – who never liked the idea of the recovery fund in the first place – is the predicament for pro-spending liberals such as the French. Paris wants both the recovery fund and a greater focus on the rule of law. While obstructing the budget and recovery fund would hurt the big net benefactors Hungary and Poland, Fidesz and PiS understand well that post-pandemic economic and fiscal pressures, in some southern European countries and, by extension, in the European Parliament, put them in a strong negotiating position.

Looking ahead, outsourcing the recovery fund into a separate intergovernmental entity circumventing Poland and Hungary would split the EU. This will be anathema to many, and especially to Germany, now that Berlin has turned substantially to allow greater EU spending. At the same time, soothing language may not be enough for Poland and Hungary. The only way forward might be an even greater focus on preventing corruption and related problems while highlighting the centrality of Article 7 for dealing with actual rule-of-law issues such as judicial independence.

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