On December 10 the European Council discussed concerns expressed by Hungary and Poland regarding the rule of law mechanism included in the draft text of the ‘Regulation on a general regime of conditionality for the protection of the Union budget’. The objective of the regulation is to protect the Union budget, including the Next Generation EU Recovery Fund, its sound financial management and the Union’s financial interests against any kind of fraud, corruption and conflict of interest. The text submitted to the European Council was the result of conciliation negotiations between the European Parliament and the Council.
In the end, the European Council left the content of the draft regulation intact, and invited the European Parliament and the Council to immediately take the necessary steps to formally adopt the regulation, together with other connected instruments.
According to the rule of law mechanism, appropriate measures shall be taken when breaches of the principle of the rule of law in a Member State risk affecting the sound financial management of the EU budget or the protection of the EU financial interests ‘in a sufficiently direct way’. Although it is not immediately clear what is to be understood by the qualification ‘sufficiently direct’, the breach apparently has to be a serious one. Anyway, in such a situation the Commission shall submit a proposal for an implementing act to the Council, for adoption by qualified majority.
A rule of law mechanism was already proposed by the Commission in 2018. However, more particularly in the context of its July 2020 discussions regarding the Recovery Fund and the Multiannual Financial Framework, the European Council concluded that ’a regime of conditionality’ to protect the EU budget and the Recovery Fund ‘will be introduced’. In that regard the European Council noted the Commission’s intention to submit a proposal ‘for adoption by the Council by qualified majority’.
The decision making in the European Council of December 10 represents the final stage of discussions in response to the fierce opposition of Hungary and Poland against the establishment of an EU rule of law mechanism. Both Member States were – and still are – of the opinion that the establishment of such a mechanism is contrary to the Treaties.
In light of these objections, and in order to arrive at a satisfactory compromise, the European Council has accepted that Member States may launch an action for annulment of the regulation, once adopted, with the Court of Justice. Although such an appeal has no suspensory effect (Article 278 TFEU), the European Council has noted that the Commission will wait for the outcome of the Court proceedings, before proposing concrete sanction measures against individual Member States.
In its conclusions, the European Council states a number of elements the Commission should take into account when exercising her prerogatives in the matter. In that context, the European Council takes note of the Commission’s intention to adopt ‘guidelines’ regarding the way it will apply the rule of law mechanism. In connection with the development of such guidelines, the European Council mentions elements like the subsidiary character of the mechanism, the principle of proportionality, the Commission’s responsibility for assessing concrete situations as well as, in that context, the accuracy and relevance of the information on which to base its assessment.
Now, of course, one may wonder whether such ‘instructions’ may unlawfully interfere with the way the Commission intends to exercise her competences once applying the rule of law mechanism. Leaving aside that the conclusions of the European Council are political in nature (so, not legally binding), such an argumentation is not very convincing since the Commission President is a member of the European Council and, apparently, has subscribed to the elements mentioned by the European Council.
More generally speaking, the main complaints of Hungary and Poland against the rule of law mechanism do not seem very promising. Indeed, the conferral of competences upon the Commission to investigate possible infringements of the EU’s financial interests and, ultimately, to come forward with measures to sanction individual Member States, can be considered to be in accordance with the Commission’s role as ‘gardien du traité’ (guardian of the Treaty), as referred to in Article 17(1) TEU. In this case the more so, since the powers attributed to the Commission may result in the submission of proposals that must be explicitly adopted by the Council, by qualified majority. Last but not least, the Member State concerned can of course appeal to the Court of Justice against concrete sanction measures addressed to it. In that sense the legality of the relevant decisions will also be tested by the highest European judge. On the other hand, also in such a case the appeal will not have suspensory effect (the reference here is to the same Article 278 TFEU, as mentioned earlier). That means that the contested act will remain in force in the first instance.
In reactions to the outcome of the European Council discussions it is said that, because of the complications connected to the launching of an appeal, with the Court of Justice, against the regulation itself, the implementation of the rule of law mechanism may be seriously delayed, for years. However, that concern is not entirely justified, since the parties involved in a Court procedure (in this case most probably Hungary and Poland as applicants, and the European Parliament and the Council as defendants) can ask for an ‘expedited’ procedure providing for fast and simplified arrangements. Therefore, as Commission Vice-President Věra Jourová rightly commented after the European Council’s session, the delay may be one year, or even less.
All in all, the decision making by the European Council of 10 December must be welcomed. The toolbox of the EU to combat violations of the EU’s fundamental values as embedded in Article 2 TEU will be enriched by a new and effective policy instrument. The fact that the application of the regulation may be delayed for a while, in case Hungary and Poland will indeed contest the legality of the rule of law mechanism in legal proceedings before the Court of Justice, does not alter that finding.
Jaap de Zwaan, TEPSA Secretary-General
NB. This was my last Editorial written in my capacity of TEPSA Secretary-General. I will step down by the end of this calendar year. I wish my successor as Secretary-General, Jim Cloos, the best of luck and thank the TEPSA network, the Board and, more particularly, the Secretariat in Brussels, for an excellent cooperation over many years. Keep in touch, stay safe and healthy!