Value and Values – EU and Rule of Law | IIEA
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Value and Values – EU and Rule of Law

Value and Values – EU and Rule of Law

Introduction 

As a founding value of the European Union (EU), the rule of law must be upheld in each Member State. This is both a precondition of accession to the EU and an imperative for continued membership. Despite this centrality, challenges to the primacy of rule of law values have arisen in certain Member States and have been well documented in recent years. These have proved to be difficult to eliminate and have resulted in a back-and-forth between the European Commission and the Member States in question, with each side conceding in some areas while pushing back or remaining firm in others. This has necessitated the pursuit of more creative approaches by the European Commission, particularly when it comes to sensitive matters such as the distribution of EU budgetary funds.  

The EU Budget & the Rule of Law  

Despite the centrality of rule of law principles to EU membership, the Commission has struggled to enforce adherence to the rule of law and the Article 7 procedure, designed to deter Member States from rule of law backsliding, has had little perceptible impact. Furthermore, the gulf between Member States which uphold the rule of law, and those which do not, was exacerbated in the aftermath of the COVID-19 pandemic, as focus shifted to the Recovery and Resilience Facility which was created to help member states recover from the pandemic. Balancing the requirement for these funds with the mandate to avoid any misappropriation of these monies has created a conundrum for the Commission.  

In response, the European Commission attached the so called ‘Conditionality Regulation’ to each Member State’s receipt of their allocation of the EU budget for 2021-2027 and NextGenerationEU package, a novel, temporary instrument to fund the EU’s recovery. This proved to be a significant obstacle in negotiating the EU’s €1.8 trillion seven-year budget at the end of 2020, the Multiannual Financial Framework (MFF). The rule of law conditionality mechanism was initially blocked by Poland and Hungary and subsequently softened substantially in order to allow disbursements under the recovery fund to be suspendedif “generalised deficiencies” in the rule of law were discovered which would affect the budget. However, during a period wherein rule of law backsliding appeared to be accelerating in the EU, a clear statement of principle protecting the Union’s founding values was issued in order to link the value of EU dispersed monies to respect for the values of rule of law and democracy.  

In response, Hungary and Poland brought legal proceedings before the Court of Justice of the EU (CJEU) querying whether the conditionality mechanism was permissible under the Treaties. The Court of Justice dismissed the legal challenges raised by Hungary and Poland “in their entirety” in February 2022, clearing the path for the linking of receipt of pandemic recovery funds to adherence to the rule of law.  

On 16 February 2022, the Court ruled that the regulation is intended to protect the EU budget from effects arising from rule of law breaches, rather than penalising the actual breaches and dismissed the case presented by Poland and Hungary. The Court emphasised the importance for EU Member States to comply with rule of law principles, as the enjoyment of other rights are predicated on the maintenance of these values.  

Unlike the more general Article 7 procedure, the conditionality regulation is specific to the use of EU funds  and in order for it to be applicable, there must be an a priori legitimate concern over the mismanagement of funds disbursed. This is relevant in terms of the following analysis of the difference in approach by the Commission in relation to Hungary and Poland, which were previously viewed in tandem in discussions on rule of law violations. Poland’s rule of law breaches centred around the independence of the judiciary; corruption is allegedly the bigger issue in Hungary, endangering EU funds in a more immediate and visceral manner.  

Hungary 

On 27 April 2022, the EU triggered its rule of law conditionality mechanism against the Hungarian Government. This unprecedented move was primarily due to Hungary’s failure to rectify alleged widespread corruption. The Commission pointed to systemic issues in Hungary pertaining to public procurement and irregularities in the auctioning of state-owned agricultural land. It further mentioned a limited system of effective investigation and failure to prosecute alleged criminal activity. It is the persistence of these structural issues over several years and a lack of willingness to rectify them that led the Commission to develop alternative methods of ensuring rule of law compliance.  

Hungary had two months to respond to this communication from the Commission and on Monday, 27 June 2022, Hungarian Justice Minister, Judit Varga, announced that Hungary had sent its reply to the Commission. A lengthy back-and-forth is now expected, and the decision on whether to cut funding or not, rests with the Council of the EU, which would need to approve the decision by a qualified majority.

However, in a signal of willingness to cooperate with the Commission, on 7 July 2022, Hungarian Minister of the Chancellery, Gergely Gulyás, announced that the conditions stipulated by the Commission for the unblocking of recovery funds have now been accepted by the Hungarian Government. Hungary has agreed to the following:

  • Reduce the proportion of single-player tenders for both EU public procurement and public orders to below 15%.
  • Introduce scope for judicial redress against the public prosecutor’s office in cases of criminal corruption.
  • Introduce a period of public consultation before enacting legislation and reducing the among of ‘special, rapid legislation’.
  • Devote a significant part of EU funds received to achieving the highest possible level of energy independence.

Hungary is both the first and only EU Member State to be subject to the conditionality regulation to date. The singling out of Hungary highlights the polarising effect that the war in Ukraine has had on Hungary’s relationship with the EU and fellow Member States, but particularly on Hungarian-Polish mutual cooperation and support. As Hungary remains ambivalent regarding Russia’s war in Ukraine, it has become increasingly isolated from its EU neighbours. This splintering was articulated by Jarosław Kaczyński, leader of the ruling Law and Justice party, who resigned from his position as deputy prime minister on 21 June 2022. He had stated unequivocally that Poland cannot continue to cooperate with Hungary, if it continues to fail to condemn Russian aggression.  

Poland 

On 1 June 2022, the European Commission approved Poland’s request for €35.4 billion as part of their Recovery and Resilience Plan under the Recovery and Resilience Facility (RRF). In conducting an analysis of Poland’s plan under the RRF criteria, the Commission stipulated that specific milestones relating to strengthening the independence of the judiciary must be reached before funds can be disbursed. Specifically, it requires the compulsory reform of the disciplinary regime applicable to Polish judges before the request for a first payment is made.  

The reform, aimed at improving the attractiveness of the investment climate in Poland, stipulates that:    

  • All disciplinary cases against judges will be adjudicated by a court that complies with EU law requirements, unlike the current Disciplinary Chamber. 
  • Judges may not be subject to disciplinary action for submitting a request for a preliminary ruling to the CJEU.  
  • A strengthening of procedural rights must be carried out in relation to disciplinary legal proceedings. 
  • Judges subjected to past rulings from the Disciplinary Chamber will have the right to review these rulings by an independent court, established by law.  

The Commission has also mandated as a milestone the implementation of the use of Arachne, an IT tool that mines data to identify risky projects, contracts or beneficiaries or contractors, and which is helpful in anti-fraud detection. 

Differentiating Factors 

Despite the scale of the reforms necessary to unlock the Polish recovery funds, this is a significant turning point in the long-running conflict between the European Commission and Poland on rule of law matters. Some analysts have pointed out that unlocking the funds was a political decision by the Commission based on political rather than legal advances. Whether the political pressure on the Commission has been sufficient in itself to force the unlocking of funds for Poland is uncertain. However, the different approaches adopted by the Commission to Poland and Hungary following Russia’s invasion of Ukraine is striking, as both countries had previously challenged the legality of the conditionality regulation before the CJEU.  

In announcing the Commission’s endorsement of the funding, Commissioner for Economy, Paolo Gentiloni, explicitly referred to the Commission’s recognition of the need to reinforce public services at a “time when a large number of Ukrainians have been welcomed into Poland”. This indicates that the significant shift in stance by the Commission is, at least in part, due to Poland’s considerable assistance to and acceptance of 3.5 million Ukrainian refugees.  

Furthermore, there have been recent indications that Poland may be gradually moving towards renewed compliance with the rule of law, with President Andrzej Duda signing a bill into law on 13 June 2022 which scraps the problematic disciplinary chamber. However, several amendments to this bill, including one which would annul rulings issued by the disciplinary chamber prior to its liquidation, were rejected by the Polish Parliament.  

It therefore remains to be seen whether substantive changes to Poland’s current status quo will be implemented in order for the funds to be released. Justice Commissioner, Didier Reynders, remarked that he had “substantial doubts” over Poland’s willingness to reinstate judges suspended since the judicial reforms had taken effect. The Commissioner added that the milestones stipulated in Poland’s recovery plan addressed only some of the longstanding concerns pertaining to judicial independence. Whilst Poland will not receive the portion requested of the €800bn NextGenerationEU recovery plan until the milestones outlined above are reached, the urgency of receipt of these funds has grown following the influx of Ukrainian refugees, further compounding the need to reach an agreement with the Commission.  

There are, however, other forces at play in the Commission’s change of heart vis-à-vis Poland. In addition to the positive feeling towards Poland due to both its welcoming of Ukrainian refugees and advocacy for a tough response to the Russian invasion, the country also removed its objection a proposed EU Directive implementing the OECD global minimum corporate tax rate. This is another example of the ‘tug of war’ practices ongoing between Member States and the Commission on rule of law – with one side conceding on an issue in order to achieve objectives in other areas, such as receipt of recovery funding.  

Hungary, on the other hand, has signalled its lack of willingness to agree to this Directive, which requires unanimity to become transposed into law. Hungarian Foreign Minister, Péter Szijjártó, warned that the new corporate tax rate comes at a time of significant challenges to businesses and has the potential to damage European competitiveness. This hesitancy has resulted in French Finance Minister, Bruno Le Maire stating that the EU could consider bypassing Hungary in order to approve the OECD deal. Hinting at the use of the veto as a bargaining chip, Mr Le Maire implied that Hungary’s objections were based on a political objection rather than an objection to the tax rate itself.  

The respective political landscapes in each country could be interpreted as playing a significant role in the respective government approaches to the rule of law tension with the Commission. The Hungarian Government retains a pro-Kremlin stance and Prime Minister Viktor Orbán’s electoral victory in national parliamentary elections in April 2022 indicates that a volte face is far from imminent. Prime Minister Orbán’s comfortable constitutional majority arguably places him in a different camp to the Polish ruling Law and Justice party, which narrowly won the last national election and which faces another parliamentary election in autumn 2023. 

Conclusion 

Both Poland and Hungary contested the legality of the rule of law conditionality regulation in front of the CJEU, on the basis that this mechanism lacked a legal basis in the European Treaties. The European Court of Justice rejected this claim outright. In recent years, these two EU Member States have been backsliding on rule of law and have supported each other in the European Council in this context. However, the nature of their respective rule of law backsliding has differed, with Poland focusing on minimising the independence of the judiciary while Hungary has repeatedly failed to tackle endemic corruption, thereby posing a greater danger to EU funds. Divergence is also evident between the two Member States in terms of their attitudes towards Russia’s invasion of Ukraine, and the acceptance of refugees. The domestic political landscapes may also play a role in terms of willingness to comply with rule of law requirements. Wider considerations, such as a renewed impetus for EU enlargement are also significant, as the necessity grows for the Union to show a unified, pro-rule of law stance at a regional level and for the Commission to be deemed capable of careful management of the integrity of the small but impactful EU budget.  

What is striking, in this pattern of move and countermove between the Commission and Poland and Hungary, is the value which the EU places on values, such as rule of law, freedom of expression, democracy and respect for human rights, without which the EU itself would be ungovernable. On the one hand, the value to the EU of all Member States signing off on the new corporate tax regime is hugely important at a global level, on the other hand the value to Poland and Hungary of the release of the Recovery Funds is considerable in this moment of crisis in Europe.  While Member State governments are no longer reticent about expressing their criticism of errant states, the Commission, acting as an honest broker is seeking to strike a delicate balance between the imperative of compliance with EU values and the obvious value of EU funds to these fragile democracies. So, while holding Poland and Hungary to account by attaching the conditionality mechanism to the disbursement of well needed EU funds, the Commission is unequivocally stating that solidarity and financial support go hand in hand and that there is no price or value that can be put on upholding democracy and other fundamental EU values.