16 February 2022

No More Excuses

The Court of Justice greenlights the rule of law conditionality mechanism

Sitting as a full court, due to the exceptional importance of the case, the Court of Justice has dismissed the annulment actions brought by the Hungarian and Polish governments against EU Regulation 2020/2092.

Informally known as the Rule of Law Conditionality Regulation, this Regulation specifically empowers the Commission to propose to the Council to adopt measures such as a suspension of EU payments in a situation where national breaches of the rule of law (i) affect or (ii) seriously risk affecting the sound financial management of the EU budget or the protection of EU financial interests in a sufficiently direct way. To simplify, Regulation 2020/2092 has made the rule of law a horizontal and permanent condition for EU Member States to respect whenever they implement the EU budget. This is not to say that it was not previously possible to suspend EU funding on rule of law grounds but “earlier financial provisions did not specifically lay down response mechanisms with a similar force to those under Regulation 2020/2092”.

Today’s judicial denouement will not surprise anyone familiar with this file due to the mostly hopeless nature of the multiple pleas in law raised by the Hungarian and Polish governments – total of 9 and 11 respectively – in support of their applications. However, the key objective pursued by Orbán and Kaczyński has been achieved: Regulation 2020/2092 is yet to be formally activated although it officially came into force on 1 January 2021.

This de facto unlawful suspension of the application of the Regulation is connected to the infamous “compromise” adopted by the European Council on 10-11 December 2020. In short, in order to avoid Hungary and Poland vetoing the 2021-27 EU budget and Next Generation EU recovery fund, the European Council instructed the Commission – sorry, strongly advised – to not apply the new rule of law conditionality mechanism until after the Court of Justice rules on its legality and the subsequent finalisation of (superfluous) implementing guidelines by the Commission. In light of the continuing non-application of Regulation 2020/2092, the European Parliament took the extremely rare step of suing the Commission for failure to act last October. This means that the Court of Justice is far from done with Regulation 2020/2092.

To keep this post reasonably short, a non-exhaustive account of the main substantive issues addressed by the Court in today’s two judgments will be provided. Before doing so, the Court’s noteworthy response to a procedural issue relating to the transparency of the legislative process will be briefly outlined:

Today’s twin judgments in Case C-156/21 and C-157/21 are not the first EU rulings relating to Regulation 2020/2092. Indeed, following an annulment application lodged by the present author in 2019, the General Court annulled in April 2021 the Council’s refusal to disclose the confidential opinion of its legal service (CLS) regarding the Commission’s initial draft of what became Regulation 2020/2092. Subsequently, Hungary and Poland extensively relied on passages from this confidential opinion before the Court of Justice. For the Court, and in line with the position previously adopted by AG Campos Sánchez-Bordona, the Council’s interlocutory application must be dismissed on account of the overriding public interest in the transparency of the legislative procedure. I for one am personally grateful to the Hungarian and Polish governments for providing the Court with an opportunity to strengthen the right of EU citizens to access information relating to a legislative procedure. 

On which legal basis?

Is Hungary and Poland’s claim that Regulation 2020/2092 should be annulled in its entirety supported by a wrong choice of its legal basis? The Court – unsurprisingly – thinks not. Article 322(1)(a) TFEU is the appropriate legal basis for the new mechanism, and indeed the EU has the power to adopt the regulation to make sure that breaches of the principles of the rule of law won’t seriously compromise the sound financial management of the EU budget and/or the financial interests of the EU.

Remarkable is the Court’s renewed emphasis – to put it informally – that the EU is not a cash machine and EU law not an à-la-carte menu. The Court however went beyond these two points to emphasise as strongly as never before that the EU must also be able to defend the EU’s shared values which define the very identity of the EU within, of course, the limits of its powers.

In this context, the ECJ interestingly links rule of law and solidarity, the former being described as a value common to the EU and the Member States “which forms part of the very foundations” of the EU and its legal order, and the latter being described as a fundamental principle of EU law which is implemented i.a. through the EU budget. In another remarkable and welcome development, the Court reminded the current Hungarian and Polish authorities that compliance with Article 2 TEU Values “cannot be reduced to an obligation which a candidate State must meet in order to access to the [EU] and which it may disregard after its accession”.

Article 7 TEU

Hungary and Poland had argued that Article 7 TEU would be the only means available under EU law to protect the rule of law and that the EU legislature has organised a parallel “easier, quicker and more effective” Article 7 procedure via secondary legislation. In response to this, the Court held that the procedure under Article 7 and the one established by Regulation 2020/2092 pursue different aims and have a distinct subject matter.

This is again in line with the position of the AG: “There is nothing to prevent the use of instruments other than that in Article 7 TEU” to protect the rule of law. In this context, the ECJ helpfully explains that the EU legislator is entitled to establish additional procedures regarding Article 2 TEU values as long as these procedures complement and not seek to recreate or supersede primary law procedures.

One may note in particular the Court’s response to the (silly) lex specialis type argument whereby the EU could allegedly only review and eventually sanction violations of Article 2 values via the sole Article 7. For the Court, this view ignores that multiple provisions of the EU Treaties, which have furthermore been given effect by multiple EU secondary law acts, confer on the EU the power to review and sanction national violations not only of the rule of law but of every Article 2 TEU value. The Court’s interpretation also confirms that the European Council was plainly mistaken – as some of us made clear at the time – to endorse the lex specialis view in December 2020. Today’s judgments instead could not make clearer that the Commission must wake up and use all instruments available to it to address threats and/or violations of Article 2 values from different angles.

Another point in relation to the European Council: With respect to the “emergency brake” it gave itself so as to give a last chance for a Member State to delay the decision-making process, which one may note Hungary demanded before using it in support of its annulment application, the Court rapidly tackles it by recalling a basic point of EU law: a mere non-binding recital cannot confer any formal role on the European Council. Another instance confirming the validity of the criticism previously levelled at the EU “compromise” of December 2020.

Rule of Law is EU Law

For the very first time (to the best of my knowledge), two national governments have formally claimed that the EU would not be legally empowered to act in the face of breaches of the rule of law as the rule of law would allegedly be a political ideal which cannot be the subject of a definition in EU law (Hungarian government), with the EU legislature also denied the power i.a. to legally define the rule of law (Polish government). The Hungarian government deliberately misrepresented the definitional work undertaken by the Venice Commission to argue that the core components of the rule of law cannot amount to legal principles and that the European Commission would have adopted a different understanding of the rule of law. Both propositions are just plainly false.

In reply to these claims, the AG conceded that the rule of law may be viewed as a broad concept before however rightly emphasising that the EU law meaning of the rule of law has been extensively developed in the Court’s case law, including each of the legal principles listed in Article 2 of the Regulation defining the rule of law, and “there is nothing to prevent the EU legislature from defining it more precisely in a specific area of application” such as Regulation 2020/2092.

Building on the AG’s sound approach, the ECJ held that no Member State can seriously claim not to be in a position to determine the core content and the legal requirements flowing from each of rule of law principles listed in the Regulation as each of them has been “the subject to extensive case-law of the Court”. It follows that the Hungarian and Polish governments’ argument alleging a breach of the principle of legal certainty must also be dismissed.

In this context, the Court emphasised that the EU legislator is entitled to adopt a specific definition of the rule of law on account of the specific aims and subject matter of the relevant piece of legislation. In what is my personal favourite paragraph, the Court has powerfully reiterated that Article 2 TEU is “not merely a statement of policy guidelines or intentions, but contains values” which “are an integral part of the very identity of the European Union as a common legal order” and “are given concrete expression in principles containing legally binding obligations for the Member States”. The (desperate) claim that the EU rule of law principles are of a purely political nature which cannot be the subject of a legal analysis must therefore be rejected.

The Court similarly rejected another hopeless claim yet regularly used by current Hungarian and Polish authorities based on national identity: while national authorities have “a certain degree of discretion” when it comes to implementing rule of law principles in light of the specific features of each national legal system, this cannot obviously be construed as carte blanche to apply EU rule of law principles differently, let alone disregard them post accession, or prevent the adoption by the EU of uniform assessment criteria as it did under Regulation 2020/2092.

Lastly, and an aspect which will no doubt be amply discussed, the Court found the Regulation to fully satisfy legal certainty as it subjects the Commission to strict procedural requirements and circumscribes the adoption of relevant measures to several substantive conditions including (i) a “sufficiently direct link” aka “genuine link” between a rule of law breach and an effect or serious risk of effect on sound financial management or financial interest of the EU and (ii) a situation or conduct attributable to a national authority which is relevant to the proper implementation of the EU budget. One may note that the adjective “genuine” is not mentioned explicitly in the Regulation. One may understand the use of “genuine” as a mere clarification that the Commission must of course prove, in each case, the existence of a non-hypothetical effect or serious risk of effect and establish how the relevant breaches of the rule of law it has identified produce or risk producing such an effect or serious risk of an effect. Future litigation will likely centre on the Commission’s determination of this “genuine link” in each case, so think again if you thought this would be the end of the rule of law conditionality story.

No more excuses

The EU is facing an autocracy crisis. This crisis has been “eating away at the rule of law and at democracy itself in affected EU member states”. Rather than promptly and forcefully addressing what the President of the ECJ has publicly presented as a threat to “the very survival of the European project”, key EU actors have mostly engaged in a façade of action prioritising the creation of new tools over the forceful and coordinated use of the tools they have.

One may only hope that the Commission will stop looking for new excuses not to make a prompt and forceful use of Regulation 2020/2092. The situation in Hungary is for instance ripe for immediate application. The same can be said of the situation in Poland where, one must recall, national authorities have ‘constitutionalised’ the systemic violation of EU legal requirements relating to the principle of effective judicial protection.