EU institutions strike budget deal on rule of law mechanism

Co-legislators strike deal on rule of law conditionality. [Shutterstock/Yavdat]

The European Parliament and the Council representing the EU27 reached a preliminary deal on linking the disbursement of EU funds to the rule of law after five rounds of talks, clearing a major hurdle in the wider negotiations on the bloc’s budget.

The compromise deal has major implications for the ongoing talks on the EU’s next seven-year budget as all the main political groups in the European Parliament have mandated a formal deal on linking EU funds to rule of law before signing off on the bloc’s long-term budget.

Under the deal, if the Commission proposes to limit disbursement in order to protect the EU budget from a wide arsenal of financial tools, member states will have to put it to a vote within a month, and it can be approved with a qualified majority.

In exceptional circumstances a member state can use an “emergency break”, under which the proposal will be discussed by EU leaders at a summit, which will “as a rule not take longer than three months after the Commission.”

The MEPs did not manage to convince member state negotiators to instead require a country to have to build a qualified majority coalition to block the Commission’s decision.

Nevertheless, according to the compromise text obtained by EURACTIV, the MEPs managed to insert a list of rule of law breaches that could trigger the process.

They include “endangering the independence of judiciary,” “failing to prevent, correct and sanction arbitrary or unlawful decisions by public authorities,” as well as “limiting the availability and effectiveness of legal remedies, … lack of implementation of judgments, or limiting the effective investigation, prosecution or sanctioning of breaches of law.”

Moreover, MEPs succeeded in expanding the scope of the mechanism from the previous proposal that applies only where rule of law problems already “affect in a sufficiently direct way the sound financial management of the EU budget” to include breaches that “seriously risk” affecting EU money.

Though the terms “systemic” and “generalised deficiencies” did not find their way into the final compromise, the lawmakers included text that clarified that the regulation would not only apply in individual cases but also to “breaches that are widespread or due to recurrent practices or omissions by public authorities, or to general measures adopted by those authorities.”

The compromise text now also mentions the EU’s new annual rule of law report as one of the references which the Commission should take into account when proposing financial sanctions.

In case the measures are adopted, the new mechanisms protects those who are already receiving EU support by clarifying that the member state in question has to continue to make good on its financial obligations and make payments to them.

MEP Petri Sarvamaa, one of the lead lawmakers on the file, hailed the compromise as a “historic deal for for the European Union.”

“Our strategy was to strip down the Council proposal piece by piece, one at a time,” Sarvamaa said.

“It doesn’t really make any difference whether it’s ‘generalised deficiencies’ or ‘breaches’ because you have the idea of generalised deficiencies inside the articles for the pragmatic delivery of this mechanism.”

Sarvamaa said “preventiveness and the risk” was one of the key goals for lawmakers, which, he said, is now reflected in the wording.

National parliaments will have to approve the legal act that will allow the EU to borrow €750 billion on the markets to pay for the recovery, and Hungary and Poland have already threatened to withhold consent if the rule of law negotiations result in an unsatisfactory outcome for them.

“Hungary respects the Treaties and sticks to the historic July European Council deal,” Hungarian justice minister Judit Varga said on social media.

“We expect EU institutions to do the same. Nothing is agreed until everything is agreed,” she added.

Not everyone, however, as satisfied with the outcome of the negotiations.

“Compromise on rule of law is, alas, lost opportunity. Mountain gave birth to mouse,” tweeted Gerald Knaus, co-founder of the European Stability Initiative (ESI) think tank.

“It will not make much difference. The key mechanism to defend rule of law in EU remains the Court of Justice of the EU.”


Daniel Freund, the Parliament’s negotiator from the Greens, said in a statement that “the mechanism is not as powerful as we in the European Parliament would have liked. But: the compromise is much stronger than what the German Council Presidency presented a few weeks ago.”

[Edited by Zoran Radosavljevic]

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