11 Juni 2021

Bringing a Knife to a Gunfight

The European Parliament, the Rule of Law Conditionality, and the action for failure to act

On 10 June 2021, the European Parliament adopted a Resolution on the Rule of Law situation in the European Union and the application of the Conditionality Regulation (EU, Euratom) 2020/2092. In this Resolution, the European Parliament expresses its concerns about the regression of the democratic situation in several member States and regrets the inaction of other institutions, notably the Council as regards the Art. 7 procedures initiated against Poland, in 2017, and Hungary, in 2018. The main focus of this Resolution, however, is the Rule of Law Conditionality Regulation.

After reiterating its position that this Regulation entered into force on 1 January 2021 and is directly applicable in its entirety in the European Union and all its Member States for all funds of the EU budget, the European Parliament regrets that the Commission has not yet triggered this mechanism by sending any written notification to any Member State, “despite many concerns about the breaches of the rule of law identified in the Commission’s 2020 Rule of Law Report, as well as the existence of two ongoing Article 7 procedures, which have an impact on the sound financial management of the Union budget and remain unresolved by Member States”. Even though they are not named, Hungary and Poland are clearly concerned.

Since the Commission has not responded to the Parliament’s request, expressed in a previous Resolution dated 25 March 2021, to provide information to the European Parliament and did not activate the procedure laid down in the Rule of Law Conditionality Regulation in the most obvious cases of breaches of the rule of law in the EU, the Parliament then “instructs its President to call on the Commission, within two weeks from the date of adoption of this resolution at the latest, on the basis of Article 265 of the TFEU [the so-called action for failure to act], to fulfil its obligations under this regulation; states that, in order to be prepared, Parliament shall, in the meantime, immediately start the necessary preparations for potential court proceedings under Article 265 of the TFEU against the Commission.” According to Art. 265 TFEU, “should the European Parliament, the European Council, the Council, the Commission or the European Central Bank, in infringement of the Treaties, fail to act, the Member States and the other institutions of the Union may bring an action before the Court of Justice of the European Union to have the infringement established.”

Even though this Resolution contains many interesting aspects, I will focus on this threat of an action for failure to act. After having described the background of the conditionality issue, I will try to assess the chances of success of such a potential action against the European Commission. My personal assessment is that the chances of success for this legal avenue are rather slim and the Parliament arguably should have employed other means to defend the rule of law.

The 2018 proposal for a Rule of Law conditionality

The idea of linking the payment of EU funds to the values of the Union has gradually developed as a potentially effective means of enforcing compliance. Some authors (see for example here and here) have argued that the Commission already had the power, even before the new Regulation, to suspend the payment of EU funds to a Member State that would restrict the independence of its judges. Indeed, Article 142(1)(a) of the Regulation of 17 December 2013 already allows the Commission to suspend all or part of interim payments where there was a „serious deficiency in the effective functioning of the management and control system of the operational programme  (…)“. This clause, interpreted in the light of the Charter of Fundamental Rights of the European Union, could have covered corruption, cronyism or the loss of independence of the courts, which can then no longer effectively verify the proper use of funds. However, the Commission never dared proposing such a bold interpretation of this provision. On the contrary, probably in order to have a more indisputable legal basis and to avoid the accusation of abuse of power, the European Commission proposed, on 2 May 2018, a regulation allowing to suspend the payment of part of the structural funds to Member States that violate the principles of the rule of law, in particular the independence of the judiciary.

According to Article 3(1) of the proposed regulation, appropriate measures shall be taken where a generalised deficiency as regards the rule of law in a Member State affects or risks affecting the principles of sound financial management or the protection of the financial interests of the Union. The same article, in its paragraph 2, gave several examples of „generalized deficiency“, in particular: a) endangering the independence of judiciary; (b) failing to prevent, correct and sanction arbitrary or unlawful decisions by public authorities, including by law enforcement authorities, withholding financial and human resources affecting their proper functioning or failing to ensure the absence of conflicts of interests and (c) limiting the availability and effectiveness of legal remedies, including through restrictive procedural rules, lack of implementation of judgments, or limiting the effective investigation, prosecution or sanctioning of breaches of law.

The measures in question could be of several kinds, up to the suspension of funds, depending on the nature, seriousness and scope of the failure on the one hand, and on the type of management of the programmes concerned (direct, indirect or shared management) on the other.

Under Article 5 of the proposal, where the Commission finds that there are reasonable grounds to believe that the conditions laid down in the Regulation were met, it would send a written notification to the Member State concerned, setting out the reasons for its finding. After a phase of dialogue, if the Commission considered that the widespread failure of the rule of law was established, it would submit to the Council a proposal for an implementing act laying down appropriate measures. Interestingly, the proposal provided for the decision to be adopted by a reverse qualified majority, meaning that the decision would be deemed to be adopted by the Council unless the Council decided by qualified majority to reject the Commission’s proposal within one month of its adoption.

The watered-down version brokered by Germany

This proposal remained in limbo in the European legislative process for several years, until it became a central issue in the context of the European Union’s economic recovery plan for the Covid-19 pandemic in 2020. As readers will probably recall, France and Germany agreed on an ambitious plan that would see the EU take on debt on international financial markets for the first time to finance national economic recovery projects in the form of grants and soft loans. However, this plan met with opposition from several so-called ‚frugal‘ countries, led by the Netherlands. As one of the conditions for lifting their opposition, the so-called “Frugals” demanded that strict conditionality be attached to the disbursement of the funds in question. This requirement brought the 2018 proposal back into the centre of the debate. Unsurprisingly, it was fiercely opposed by Poland and Hungary, the two Member States of the Union currently subject to an Article 7 procedure for clear risk of a serious breach of Union values.

In September, it became clear that the 2018 proposal would be passed through the legislative procedure and that Hungary and Poland would not be able to oppose it due to qualified majority voting. These two states then set out to hold hostage the recovery plan (even though they would be major beneficiaries of it) whose legal pillars, the multi-annual financial framework and the so-called ‚own resources‘ decision, required a unanimous vote in the Council.

Faced with this threat, and instead of considering alternatives such as adopting the recovery plan in the form of enhanced cooperation, the German presidency sought to water down the 2018 proposal to make it more acceptable to the two rebellious member states.

First of all, the conditions for triggering the mechanism were changed. On the one hand, the term „generalised deficiency“ was replaced by the term „breaches“ – a less stigmatising term, but one which, perhaps unintentionally, could facilitate the triggering of the mechanism in that it is a less demanding threshold.

Secondly, these violations of the principles of the rule of law in a Member State must now affect or seriously risk (instead of simply “risk”) affecting the sound financial management of the Union budget or the protection of the financial interests of the Union “in a sufficiently direct way” (this requirement of a sufficiently direct link being also a novelty).

Thirdly, the procedure for adopting measures has been changed compared to the original proposal, since the Council will now decide by a ’normal‘ qualified majority instead of reverse qualified majority.

Finally, an ‚emergency brake‘ was added to the text. The recitals (and not, it should be noted, the body of the text) refer to an option for the Member State concerned, if it considers that there has been a breach of the principles of objectivity, non-discrimination and equal treatment of Member States, to ask the President of the European Council to refer the matter to the next European Council. In such exceptional circumstances, no decision on the measures should be taken until the European Council has discussed the matter. This process should, in principle, not last more than three months after the Commission has presented its proposal to the Council. However, in view of the voting arrangements in the European Council (consensus), there is a risk that this option will de facto allow the qualified majority requirement to be transformed into a quasi-unanimity requirement.

The Political Compromise at the European Council

Despite the mitigations agreed under the German Presidency, Hungary and Poland persisted in their veto. The watering down of the mechanism was therefore combined with an extra-legal compromise in the form of conclusions adopted by the European Council on 11 December 2020. These conclusions provide, inter alia, that 1) the European Commission must adopt „guidelines“ before implementing the mechanism (even though the text does not provide for such guidelines at all); 2) should an action for annulment be introduced with regard to the Regulation (which Hungary and Poland were expected to do), these guidelines will be finalised after the judgment of the Court of Justice so as to incorporate any relevant elements stemming from such judgment; and 3) the examples of triggering factors set out in the regulation are to be read and applied as a closed list, even though Art. 4(2)(h) of the Regulati