Compromising the Rule of Law while Compromising on the Rule of Law

On 10 December 2020, the European Council adopted conclusions regarding the draft Regulation of the European Parliament and of the Council on a general regime of conditionality for the protection of the Union budget (“Conditionality Regulation” hereinafter). Rather than a ringing declaration reaffirming the importance of the rule of law for the EU, the EUCO Conclusions undermine the rule of law on all fronts.

The EUCO Conclusions are formally non-binding, the outcome of a “compromise” brokered by the German presidency of the Council with the governments of Hungary and Poland. But they are clearly intended to cast a long shadow over the Conditionality Regulation to make it practically unusable. Both Hungary and Poland are currently subject to protracted Article 7 proceedings before the Council in order to determine the existence of a clear risk of a serious breach by Polish authorities of the rule of law (referred to the Council by the Commission in 2017) and a clear risk of a serious breach by Hungarian authorities of many of the EU’s foundational values (referred to the Council by the Parliament in 2018). These procedures have been stuck in the Council while the German presidency has done little to help enforce the rule of law in either Member State. Instead, the German presidency chose to ignore the substantial evidence that Hungary and Poland threaten basic European values and gave them what they wanted in this “compromise” so that they would not hold the EU budget and Recovery Fund hostage to their rule-of-law-violating demands. Hostage-taking is punished in most jurisdictions, but evidently not in the EU. In the EU, it gets rewarded even if it means breaching the EU Treaties to appease those breaching the same Treaties at home.

When the hostage threat emerged, the German Chancellor emphasized the need for “all sides” to make compromises. One might find that stance surprising considering that she previously said, “It is important that we defend the rule of law, which is one of our goals during the German Presidency.” The agreement that the German presidency brokered started from the premise that democracies should compromise with autocracies, which is akin to saying law-abiding citizens must make compromises with criminals. Moreover, the EUCO Conclusions award a great victory to Orbán and Kaczyński, which can now look forward to years of non-enforcement and only weak, too-little-too-late enforcement after that. Whether the EUCO Conclusions are treated as legally binding by other EU institutions, in breach of the Treaties, or just informally influence enforcement of the Conditionality Regulation, which we argue they should not, European leaders will have allowed Orbán and Kaczyński to further water down the mechanism meant to bring an end to their ongoing and close-to-be-completed destruction of all internal checks on their power, and in the case of Hungary’s “mafia state”, industrial-scale corruption and personal enrichment thanks to EU funds.

Some EU leaders may assert that EU money will now be brought under the rule of law given that the Conditionality Regulation is now guaranteed to pass. But they are wrong.

1. This is not a victory for the Rule of Law

The purpose of the Conditionality Regulation as originally proposed was to condition the distribution of EU money on compliance with the rule of law so that EU money no longer funded national autocrats. Orbán’s Hungary and Kaczyński’s Poland have been included by democracy experts in a group of 10 countries that have engaged in the most severe democratic backsliding in the past ten years. Freedom House now considers Hungary no longer a democracy but the EU’s first “hybrid” or quasi-authoritarian regime. Poland’s rankings in global indices have also fallen fast so that Poland is now considered only a “semi-consolidated democracy”. EU money has paid for much of this destruction, and the Conditionality Regulation originally grew out of a sense that this flow of funds should be stopped. But the form of the Conditionality Regulation as it has emerged through the law-making process is a shrunken version of its previous self – hard to trigger, limited in what it can reach, with the rule of law not even included in its title anymore due to another “compromise” we owe to the German presidency. Moreover, its implementation, “thanks” to the EUCO Conclusions, will be delayed.

Over the ten years that the rule of law problem has been festering in the EU, EU institutions should have learned that time is absolutely of the essence and that only prompt action is effective. And yet, the EUCO Conclusions aim to build in yet another postponement before the Conditionality Regulation can be used because they state, with the von der Leyen Commission’s collusion, that the Regulation shall not be enforced before the European Court of Justice issues a ruling on its legality and not before a complex consultation process with the Member States produces “guidelines” that will make clear how the mechanism will be used.

Delay constitutes appeasement because it permits Orbán and Kaczyński to further entrench the destruction of the rule of law in ways that make reversal more difficult if not virtually impossible. This bodes ill for protecting the rule of law.

But perhaps protecting the rule of law is no longer the point. The Conditionality Regulation was once designed primarily for that purpose but now appears primarily designed to protect the budget because it can only be triggered when funds have already been misspent. That was already hardwired into the earlier compromises which even took “the rule of law” out of the title of the Regulation. Under the EUCO Conclusions, however, the supposedly independent Guardian of the Treaties is instructed to delay enforcing the weakened the Conditionality Regulation. A delay in implementing the Regulation will mean that most of the funds this Regulation is supposed to protect will already have been committed while the Regulation awaits its debut.

The Recovery “Next Gen” Fund is designed to be spent quickly. It is supposed to allow EU Member States, hard hit by the Covid-19 virus, to mitigate the effects of the shutdowns and economic dislocations that have resulted from the pandemic. As a result, national allocations are very probably to be spent precisely during the two years it will likely take for the ECJ to review it. Under the European Council Conclusions, the Commission will be hamstrung from reviewing these budgetary commitments as they occur.

Moreover, in Hungary, we can expect that the Orbán government will behave in the new budget cycle the same way it behaved in the last budget cycle. From 2014-2020, the budget strategy of the Hungarian government was “frontloaded absorption.” The majority of the funds for the entire 2014-2020 cycle were already committed by Spring 2018, when the national parliamentary election was held. Given that the next Hungarian national election is scheduled for spring 2022, we can expect the funds allocated in this new budget cycle to also be committed before the election, which itself will almost surely be before the ECJ has cleared the Regulation for use.

Of course, if the Regulation takes effect on 1 January 2021, then the Commission can go back and retroactively look at how the money was spent, once it is given the green light to do so. But the Regulation itself says that while the Member State may be docked funds for violating the rule of law, the final recipients of the money should not be the ones to suffer. As the Regulation states in Article 5(5): “the Commission shall do its utmost to ensure that any amount due from government entities or Member States in accordance with paragraph 2 of this Article [implementing the withholding of funds] is effectively paid to final recipients or beneficiaries…”

Suppose a corrupt government inside the EU awards contracts to its friends using EU money and does so quickly while the ECJ has the Regulation under review. The EU will still guarantee that the friends are paid, even after it finds that the money has been corruptly spent. This is not such a hypothetical case. As the Corruption Research Center Budapest showed in its analysis of 248,404 Hungarian public tenders from 2005 through 2020, “The share of public procurements won by crony companies . . . has increased significantly since 2011.” Moreover the problem of corruption seemed to be even worse in EU-funded contracts than in contracts with purely domestic sources. If Viktor Orbán repeats during the new budget cycle what he did during the last one, then he will award his friends the lion’s share of the EU-funded public contracts in the next year and a half before the election. If the Commission is authorized to spring into action only two years from now, after both the recovery and budget funds have largely been committed, the Commission may well find that EU funds have been corruptly spent. But as the Regulation is currently written, the EU will still have to ensure that Orbán’s friends are paid. Well done to the German presidency!

No wonder Viktor Orbán immediately published a video on his Facebook page on the day that the EUCO Conclusions passed, bragging about the champagne that awaited him after the vote. After all, he knows better than anyone that rule of law delayed is rule of law destroyed.

2. The EUCO Conclusions systematically undermine the Conditionality Regulation

The (unlawful) delay in enforcement of the Regulation limits its effects in time and in fact makes it ridiculously easy for any corrupt government simply to favour its friends without limits. But the EUCO Conclusions also blunt the effects and limit the potential of this Regulation in other ways while they also cast doubt on other mechanisms for controlling rogue states in the EU. Let’s review the entire content of this “compromise” whose compatibility with the EU Treaties and justiciability will only be briefly examined in the next section as both issues have already been compellingly analysed by Alemanno and Chamon and Dimitrovs.

The EUCO Conclusions begin in point 1 with a legally inaccurate statement by suggesting that only Article 7 TEU may be used to “address the breaches of the Union’s values under Article 2 TEU”. In addition to embarrassingly misrepresenting the text of Article 7 TEU which does not concern mere breaches of Article 2 TEU but rather aims to address “a clear risk of a serious breach … of the values referred in Article 2 (Article 7(1) TEU) and “the existence of a serious and persistent breach” of Article 2 values (Article 7(2) TEU), this statement contradicts what the European Court of Justice has already settled in finding that the attempted purge of Poland’s Supreme Court was a violation of the rule of law under Article 2 TEU, concretised by Article 19 TEU. Article 2 TEU, as a result, can clearly be the subject of an infringement action. In addition, the Council has already accepted the fact that the Commission’s pre-Article 7 framework can be used to prevent and/or accumulate evidence of breaches of Article 2 values prior to invoking Article 7 notwithstanding the now totally discredited opinion of the Council Legal Service claiming otherwise in 2014. The EUCO Conclusions don’t just blunt the effects of the Conditionality Regulation but they cast aspersions on anything the other institutions can do and have done to enforce Article 2 values. One may note in passing that the EUCO does not seem aware of the EEA financial mechanism which provides that all programmes and activities funded by it for the period 2014-2021 “shall be based on the common values of respect for human dignity, freedom, democracy, equality, the rule of law and the respect for human rights including the rights of persons belonging to minorities”. This provides a basis for suspending funds to EEA recipient not complying with those values, including the rule of law. In other words, an external agreement like the EEA, which is an integral part of EU law, is yet another mechanism to address the breaches of the Union’s values notwithstanding what the EUCO conclusions claim.

While less harmful, point 2 of the EUCO Conclusions, by emphasising that the Regulation “is to be applied in full respect of Article 4(2) TEU” gives an unfortunate veneer of credibility to the fallacious claim of just two governments out of 27 that dismantling checks and balances can be justified in the name of their alleged “constitutional identity”. Paragraph 2 of the conclusions, in other words, adopts the perspective of two rogue states and reassures them that their “concerns”, no matter how unsubstantiated, fallacious and deceitful, will be respected.

Point 2 then provides a long list of understandings that the European Council lays out