EU budget conditionality: Is the rule of law being sold short?

On Monday 28 September, the German Presidency of the Council of the European Union (‘the Council’) shared with its fellow member states a new proposal on how to connect respect for the rule of law to access of EU funds.

The proposal, still formally under wraps but leaked to press, seeks to bridge deep divisions inside the EU and is based on the results of the July’s extraordinary European Council summit that we analysed earlier this summer.

DRI’s Jakub Jaraczewski examines the key points from the German proposal and its implications for the EU.

Why does this proposal matter?

The EU’s financial future is linked to this proposal, as the proposed conditionality would apply to the EU’s multi-annual budget for 2021-2027 and the Next Generation EU covid-19 emergency recovery package. The intention here is to protect these common funds from the consequences of rule of law backsliding, such as corruption.

Yet just as importantly, this is the first time that the EU is attempting to address deficiencies in the rule of law by linking funding to the respect of core EU values. This is even more significant given that so far, neither political dialogue nor the Article 7 procedure, which enables a suspension of voting rights, have produced any progress in halting the rule of law backsliding in some member states.

How exactly would rule of law conditionality work under this proposal?

The European Commission would be in charge of identifying breaches of the rule of law in member states. Where it finds them, it would first enter a dialogue with the concerned country. Should this dialogue fail, the Commission would then propose to the Council to adopt appropriate measures against the member state. These can include a suspension of payments, as well as other ways of applying financial pressure.

How does this compare to the proposal made by the Commission in 2018?

The German presidency’s proposal builds on an earlier text put forward by the European Commission in 2018, but there are some significant differences. One is the fact that the 2018 proposal speaks of “general deficiencies” in the rule of law, while the 2020 proposal refers to “breaches” of the rule of law, which may change the type of rule of law issues it captures.

Another difference is the proposed mechanism to vote on these breaches in the Council. The 2018 proposal foresaw the use of reverse qualified majority voting, under which a proposal to sanction a member state would need to have most votes against it for the sanction to fail. In practice, this would have made it harder to stop the sanctioning mechanism.

Germany’s proposal only uses qualified majority voting, which is the exact opposite: a majority is needed to adopt the measures against a member state. In practice, this makes it harder to decide on a sanction because most states would need to commit to sanctioning a fellow member, something they have been very reluctant to do in the past.

What are the biggest points of contention so far?

The change of terminology from “general deficiencies” to “breaches” in the rule of law and the voting procedure change are two major points of contention. Additionally, the proposal introduces a “brake” mechanism, which would allow a country facing this procedure to call upon the European Council if it feels that it is being treated in a discriminatory or unfair way. While the German proposal only mentions the European Council “discussing” the matter and does not call for any vote there, such a mechanism would inevitably slow down the procedure. By including the new voting procedure and the “brake” mechanism, this proposal is significantly weaker than the 2018 Commission document.

The European Parliament has been eager to pursue far stronger conditionality and has already repeatedly expressed its disappointment with the earlier European Council conclusions. As such, we expect that many parties will object to these elements of the German presidency’s proposition.

How are member states likely to react to the proposal?

The member states are split on the issue. The so-called “Friends of the Rule of Law” group, which includes countries such as Belgium, Finland and Sweden, has decried the perceived watering down of the European Council conclusions. On the other side, countries most frequently associated with a backslide of the rule of law – notably Hungary, which has reportedly rejected the proposal  – see the proposal as going too far, and will continue to threaten to halt the EU budget-making process over any conditionality linked to values.

Southern European countries, in particular, could be worried that this conflict will slow down the covid-19 emergency recovery package, which is badly needed by Italy, Spain and other countries hit hardest by the pandemic.

The German proposal is an attempt to reconcile these conflicting positions, but it once more gives too much leeway to states to continue undermining the rule of law without sanction.

What needs to happen for this proposal to become reality?

The German presidency needs to reach an agreement with the European Parliament, which it aims to achieve by mid-October. This would enable a positive vote on the proposed budget and on the conditionality regulation in both the Council and Parliament.

It would also ensure that member states will ratify the EU Own Resources Decision, an additional legal instrument authorising adjustment to the EU financial framework, which is needed to unlock the 2021-2027 budget and the covid-19 package.

If all this were to happen, Germany’s proposed conditionality would be enshrined in EU law.

Would not adopting this proposal block the entire covid-19 financial response and the multi-annual budget?

Given the importance both sides of the debate attribute to this conditionality, if there is no agreement on whether and how to include it, there could be a budget deadlock. There is an extra spanner in the works this time around: national economies have been battered by the covid-19 pandemic and a large group of member states are eager to see the EU pass the budget as soon as possible.

The Hungarian government is using this economic pressure to weaken any rule of law mechanism, as it faces international criticism of massive corruption. While the regulation on conditionality could be adopted by a qualified majority, the Hungarian government is threatening not to ratify the changes to the Own Resources Decision.

What should be done?

The German presidency and the EU institutions should not cave to this pressure. Letting EU countries descend into corruption and authoritarianism will present even worse and more fundamental challenges to the EU if it is not halted immediately.

Democracy Reporting International (DRI) works to improve public understanding of the rule of law in the EU as part of the re:constitution programme funded by Stiftung Mercator. Sign-up to DRI’s newsletter and follow us on Facebook and Twitter to find out more about the rule of law in Europe.

Photo credit: European Union

Leave a Reply

Your email address will not be published.