Same, Same but Different?
The Pitfalls in Unfreezing EU Funds
On the morning of 14th December there was not a single EU-focused media platform, which would have failed to report on the Commission’s yet again landmark decision to authorise the unblocking of cohesion funds earmarked to Hungary. Hence a sizable sum, €10.2 billion will be at the disposal of the often-criticised member state to claim reimbursements. The decision came in the immediate prelude to the eagerly anticipated European Council meeting of 14-15th December 2023, supposedly as a beacon for the Hungarian Prime Minister to soften his position on Ukraine and to avoid Hungary’s veto.
The Commission’s decision to release a significant amount of EU money is a testament to some serious pitfalls in the mechanism, which governs the unblocking of frozen EU funds. To recall, Hungary’s endowments are blocked via two different channels, based on two different conditionality criteria, which have some overlapping points. Both prescribe reforms to preserve the independence of the judiciary, which according to the Commission’s justification has been successfully accomplished by Hungary. The Commission has, however, never published a detailed plan that would attach a specific amount to be released to every sufficiently satisfied conditionality criterion. In this blog post, I showcase that the overlap between the two conditionality mechanisms and the absence of a robust ex-ante blueprint for releasing frozen funds make the unblocking process highly obscure. This lack of transparency both decreases the efficiency and robustness of conditionality, and increases the tendency for inter-institutional conflicts.
Two (Different) Conditionality Mechanisms
Hungary’s access to a considerable chunk of EU funds was blocked pursuant to two December 2022 decisions, on the basis of two different conditionality instruments which possess different aims and implementation mechanisms.
Starting with the ‘general regime of conditionality for the protection of the Union budget’ also dubbed as the rule of law conditionality mechanism, the consultative phase of the instrument was triggered by the Commission on 27 April 2022. Following a necessary back and forth between the two negotiating sides, documented in the recital section of the Council implementing decision of 15 December 2022, the relevant Hungarian authorities adopted 17 remedial measures to avoid the freezing of funds. These attempts were, however, deemed insufficient, which led to the Commission’s suggestion to the Council to stop channelling the country’s Resilience and Recovery Fund (RRF) (€5.8 billion) until appropriate guarantees of protecting the EU’s budget were in place.
Notably, the rule of law conditionality mechanism cannot be triggered unless a sufficient link between rule of law breaches and the violation of the EU’s budget has been established. Therefore, both the remedial measures and the 27 super milestones proposed by the Commission as conditions to be achieved, are largely focussed on improving budgetary control such as auditing and anti-corruption safeguards, reducing single participant public tenders, and setting up an Integrity Authority to “reinforce the prevention, detection and correction of fraud”. At first sight the implementation of the novel rule of law conditionality mechanism gives the impression that the tool is a refined complementary to the cohesion fund conditionality. While the former focuses more succinctly on reducing corruption and improving the handling of EU money, the latter extends to ensuring compliance with the EU Charter of Fundamental Rights and hence respecting the fundamental values of the Union, including the rule of law.
However, some overlaps between the two still exist. Reforms pertaining to restore judicial independence were demanded both as concrete measures among the 27 super milestones and as fundamental tenets in Hungary’s Recovery and Resilience Plan (RRP). Hence, they were among the key linchpin of activating the novel rule of law conditionality instrument. Judicial autonomy was, however, also the central motivating concern for the Commission’s decision on 22 December 2022 to suspend the financing of Hungary’s programmes under the cohesion policy, the maritime and fisheries, and home affairs funds (€22 billion).
In practice, the Council’s implementing decision under the rule of law conditionality mechanism and the Commission’s decision under the cohesion fund conditionality mechanism both list the same issues with Hungary’s judiciary and justify the suspension of different channels of funding with an overlapping wording. Problems related to the Hungarian Supreme Court (Kúria), the Constitutional Court, the curtailed powers of the National Judicial Council and the over-stretching authority of the National Office for the Judiciary all come up in both documents as issues to be resolved by the relevant Hungarian authorities.
However, the Commission’s decision to suspend cohesion funds also demands that Hungary adhere to all four horizontal enabling conditions codified under Regulation 2021/1060. Consequently, the Commission’s decision raised a list of other issues beyond judicial independence, including Hungary’s so-called child-protection law, abuses of academic freedom and the rights to seek asylum in the country’s territory.
Why is the Unblocking Process Problematic?
Even though judicial independence is a key pillar of well-functioning democracies, and reiterating its importance could be useful, its invocation by both conditionality mechanisms is a source of confusion. The latest review of the Commission that facilitated the release of €10.2 billion worth of cohesion funds to Hungary claims that the country managed to address some of the above mentioned deficiencies in its judiciary system. If true, Hungary has thereby accomplished the partial implementation of both the 27 super milestones, as well as the horizontal enabling conditions due to the congruence between the two criteria. This begs the following questions: If one fund (RRF) is not released due to the partial fulfilment of the relevant conditionality, why should the other, the cohesion fund, be released if it’s equally subject to mere partial completion? Alternatively, why shouldn’t the EU release a smaller amount of both funds for greater transparency and accountability if Hungary apparently made steps forward in both regards? Lastly, why has the Commission failed to draw up a detailed ex-ante agenda, which would rank milestones or enabling conditions according to importance and would attach to each satisfied item an exact amount of funding due to be unblocked?
Since Hungary simultaneously accomplished only the partial fulfilment of both conditionality mechanisms via the same reform attempts, it remains entirely unclear on what basis the Commission decided how much money gets unblocked and via which channel of funding. In particular, it is highly obscure why the cohesion, maritime and fisheries, and home affairs funds were incrementally given the green light, while the RRF continues to be fully withheld. It is equally unclear how the exact amount to be released was determined. These uncertainties and ambiguous black boxes in the decision-making process to unblock funds, together with the particular timing of the decision convey the impression that the Commission indeed gave in to blackmailing. It is thus unsurprising that the EP was quick to label the decision as a “serious mistake”. Rumours have already been circulating in the media well before 13th December about a possible EP veto of von der Leyen’s nomination as Commission President for a second term, should the institution give in to Hungary’s demands presumably without due scrutiny of its reform attempts. Even if the Commission’s review process was thorough enough, the lack of transparency and proper accountability understandably propels doubts about the Commission’s integrity, and fuels inter-institutional rifts.
How to Improve Conditionality
As long as some secondary legislation remains subject to a unanimity vote, issue linkage and political games will likely resurface time and time again. In late 2020, it was the Multiannual Financial Framework and the own resources regulation– both subject to unanimity- which induced problems. Issue linkage delayed the implementation of the rule of law mechanism, as Hungary and Poland threatened with a veto unless concessions were granted to them [p.265]. Thus, the Commission was compelled to wait for the Court of Justice’s decision on Hungary’s and Poland’s request for annulment, and was requested to formulate detailed implementation guidelines before initiating the process. More recently, headlines were dominated by Hungary’s alleged gamble to get hold of its funds in exchange for giving the green light to initiating Ukraine’s EU membership talks, and adopting a new aid package to the war-torn country. Orbán abstained at the first vote, but vetoed the EU’s plan to aid Ukraine.
While political games cannot be completely eradicated, tensions, especially in the latter case, could have been reduced by improving conditionality. It is admittedly difficult to quantify qualitative changes, and maybe it is also normatively undesirable to put a price tag on judicial independence. However, a detailed, predetermined agenda of gradually releasing funds in return for the completion of well-defined reforms would ensure greater transparency and accountability. It could perhaps also reduce the kind of inter-institutional tensions between the EP and the Commission, mentioned above. Moreover, it might also increase the Commission’s credentials for being less susceptible to blackmailing.
Conclusion
Despite the above criticism, the EU’s efforts to tackle its internal rule of law crisis, after years of idling and inaction due to the structural weakness of Article 7, should be welcomed. Real attempts have been made both within the framework of the rule of law conditionality mechanism and the horizontal budget conditionality regime to address rule of law backsliding. Furthermore, the Commission dutifully carries out vital monitoring in the framework of 3-month reviews and other novel instruments like the annual rule of law country reports. Hence, safeguards to guarantee transparency when implementing conditionality with regards to the rule of law do exist. Nonetheless, the efficiency of conditionality mechanisms could be improved, especially when it comes to the unblocking of frozen funds. To this end, overlaps between different instruments should be eschewed, conditionality criteria should be neatly delineated, and a more transparent, more comprehensive unblocking plan should be presented ex-ante.
