The EU budget compromise: A missed opportunity to protect the rule of law

After months of tough negotiations the EU’s leaders eventually reached a budget compromise. The deal brokered by Germany watered down key elements of the new rule of law conditionality, risking to make it just another weak instrument in the EU’s rule of law toolbox. (Once again) the German government showed a substantial lack of ambition to protect the EU’s core values.

A Comment by Julian Brummer

 

The summit’s conclusion lifted the veto of Hungary and Poland against the next multiannual financial framework (MFF) 2021-2027 as well as the Next Generation EU fund (NGEU) that is supposed to fight the economic consequences of Covid-19, adding up to a historic total value of 1.8 trillion Euro. Prior to that, Poland and Hungary had held the entire process hostage, due to the foreseen “regulation on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in Member States”, better known as the so-called rule of law conditionality. 

 

Why do we need a rule of law conditionality (asap)?

The democratic backsliding, rise of populism and erosion of the rule of law in several member states of the Union were not only caused by but have continued to fuel the constant political and economic turmoil in the EU for almost a decade now. The most advanced manifestation of these developments can be currently found in Hungary and Poland. Since 2010, Viktor Orbán has pursued his path towards what he calls an “illiberal democracy”. And in Poland, the Law and Justice party (PiS) undermines judicial independence with one reform after another, despite several rulings of the European Court of Justice. 

These trends represent a continuous and increasing breach of European core values, enshrined in Article 2 of the treaty of the European Union. Civil society has come under heavy pressure, independence of the judiciary is threatened, democratic competition is seriously impeded and the exercise of fundamental rights continues to be neglected on many occasions. Interestingly, it is the very same governments violating the EU’s core principles that are the biggest relative recipients of EU funds. The Hungarian prime minister Orbán has mastered the illicit extraction from European funds to build a kleptocratic system and erect the political, economic, and cultural hegemony of his Fidesz party, causing political scientists to call Hungary a Post-Communist Mafia State.

All of this is alarming – not only for those being affected and not just for specific member states, but for the Union as a whole. The emergence of semi-autocratic countries within the EU has already worsened political cohesion and solidarity among its members. It also offers dangerous precedents and playbooks for similar trends in other member states, damages the EU’s global soft power and makes it even more difficult to act side by side in international relations vis-à-vis emerging powers like China.

Until now, the EU was not able to reverse or at least halt these developments for various reasons. All instruments on the EU’s disposal failed or became dysfunctional. Rather “soft” instruments, like the European Commission’s judicial scoreboard or the first-time ever rule of law report have not created any meaningful disincentives for the EU’s nascent autocracies. The power to suspend EU funding under the Common Provisions Regulations is too limited with no real effects on the systematic misuse of EU money. 

The European Anti-Fraud Office (OLAF) has no enforcement powers and neither Hungary nor Poland joined the jurisdiction of the recently created European Public Prosecutor’s Office (EPPO). A landmark decision by the European Court of Justice (ECJ) that ruled Poland’s controversial judicial reform in breach with the European treaties has been undermined by new reforms. In the meantime, Hungary has simply ignored a ruling by the ECJ, which found Hungary’s asylum policies to violate European law, setting a dangerous precedent. Finally, the triggering of the EU’s “nuclear option” against Hungary and Poland, the so-called Article 7 procedure – which hypothetically could ultimately lead to a suspension of their EU membership – reached a deadlock and is unlikely to yield any results.

It is against this background, that the idea of a mechanism was put forward that would link disbursements of future EU funds to the respect of European core values, especially the rule of law. A serious and constant breach was envisaged to lead to the suspension of money until the sources of these breaches would be removed. Since countries like Hungary are not only highly dependent on financial transfers but actually use these transfers to erect illiberal power structures, it is probably the most effective way to force the respective governments to halt and reverse the dismantling of their democratic institutions. 

Germany took up the Council’s presidency in July 2020, pledging to attach a rule of law conditionality to the next multiannual EU budget. The proposal on such a mechanism adopted by the Commission back in 2018 was more narrow in scope but easy to trigger, since it would require a (reversed) qualified majority of member states (RQVM) voting against new suspensions in the Council. The European Parliament broadened this proposal and included systemic human rights violations in its scope, spelling out what it considers serious rule of law deficiencies. It also suggested an independent panel of experts to assess potential deficiencies and recommend a triggering of the suspension procedure. 

 

What mechanism did we get and how?

To make it short: Germany did not fulfil its announcement and brokered a budget deal that includes very little of the initially envisaged rule of law conditionality. The scope of possible applications was reduced dramatically after long negotiations in particular with Poland and Hungary. The threshold in the Council was set very high. Finally, European leaders postponed triggering such a suspension procedure for 1-2 years without any valid legal basis, circumventing the actual legally binding text and arguably breaching European law by acting ultra vires, i.e., acting outside the limits of its assigned legal competences and violating the competences of other EU institutions.

At the historic European Council Summit in July 2020, European leaders adopted a concluding statement including only a brief and ambiguous reference to the rule of law conditionality. Noticeably, when the co-legislators, the Commission, the Parliament, and the Council subsequently embarked on trialogue negotiations, the German permanent representative to the EU Michael Clauss, entered the trilogue on behalf of the Council with a proposal so weak it would be just another dysfunctional instrument in the EU’s toolbox, claiming anything else would be vetoed by Hungary and Poland. 

However, the law on a rule of conditionality did not require unanimity in the Council. But instead of putting pressure on Hungary and Poland to agree on a functional mechanism, the German Council presidency blocked almost all attempts of the Parliament’s negotiation team to keep the initially envisaged conditionality. The final agreement then included a legal text that would unfold meaningful effect only if interpreted in the most expansive form possible and if a very broad majority of member states agreed to start a suspension procedure. Two conditions that were anything than certain to be met. Nevertheless, Hungary and Poland announced to hold the MFF/NGEU package hostage until this agreement would be withdrawn or amended. 

This standoff lasted for almost a month: 25 member states as well as the European Parliament against only two objectors. Whereas the Parliament clearly stated it would not reopen the deal under any circumstances, the German presidency shied away from exerting meaningful pressure on the Hungarian or Polish governments. Instead, Angela Merkel called on “all sides” to make compromises to break the budget deadlock, i.e., calling the Parliament to accept an even more watered-down version of the mechanism it already painfully compromised on.

Instead of simply putting the mechanism to vote (which could not have been blocked), the German presidency brokered a deal at European Council’s December summit that lifted the Hungarian and Polish veto by adopting a legally dubious conclusion. This solely political declaration “offers guidance” to the Commission on how to interpret the binding and unchanged legal text, partly even contradicting the legal provisions adopted by Council and Parliament, without having any legislative competences (here, here & here). Apart from limiting the scope even further, the summit’s concluding statement stipulates a postponement of the mechanism to be applied until a ruling by the ECJ clarifies its legal status. It is noteworthy that the European Treaties explicitly provide a regulation to remain in force, even when under review by the ECJ (except the ECJ itself decides to suspend it). 

However, if the Commission will not apply the mechanism before that ruling (as the Commission agreed on according to the European Council conclusion), this would not only breach Union law, but postpone the whole process for about one to two years. De facto, this would result in Viktor Orbán not being threatened to win Hungary’s 2022 parliamentary elections in an environment of little democratic competition and an overwhelming hegemony in Hungarian public and private media (allowing him to rule at least until 2026). And even then, it appears unlikely at this moment that the new mechanism will produce any meaningful disincentives for either the Hungarian or Polish government if applied as provided by the summit conclusion (which again, is not legally binding).

 

Rule of Law in the EU: German “de-escalation” is dangerous

During its presidency, the German federal government has once again demonstrated a lack of ambition when it comes to breaches of the rule of law and anti-democratic tendencies within the European Union. Against strong evidence to the contrary, Germany still downplays emerging autocratic structures rather than addressing them appropriately. This approach is short-sighted and will harm not only the bloc’s but as well Germany’s interests in the medium-to-long-term as was outlined above, since the EU’s unity remains one of the most important political and economic assets of Germany.

But Germany’s “de-escalation” is not surprising: The conservative-led government in Berlin kept rather good working relations with Orbán’s Fidesz, a member of the European People’s Party (EPP) alongside CDU and CSU. Close political, personal, and even economic ties are well documented. Many observers have continuously highlighted the importance of Hungary for German carmakers, who are actively engaged in the country’s economy and enjoy many privileges, like indirect tax cuts and beneficial labour costs. Finally, the reluctance of CDU/CSU to speak up against Fidesz remains the main reason why Orban’s party is still a member of the EPP (here, here & here).

Against this background it is not surprising but still disappointing that the German government did not act up to its self-proclaimed aim to protect the rule of law in the Union. Other, less salient illiberals among EU’s leaders like Bulgarian Prime Minister Boyko Borisov or Slovenian Prime Minister Janez Janša are following these developments closely.

 

The Polis Blog serves as a platform at the disposal of Polis180’s & OpenTTN’s members. Published comments solely express the authors’ opinions and shall not be confounded with the opinions of the editors or of Polis180.

Image via Unsplash 

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Julian is head of Polis180’s programme Perspective East. His main areas of interest include rule of law promotion and the fight against corruption in Central and Eastern Europe. He has studied political science, sociology and public law in Bonn and Ankara and is currently enrolled in the Master of Public Policy at the Hertie School in Berlin. At the moment he is completing a practical year at the European Parliament.

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