European Parliament calls on the Commission to apply the rule of law conditionality on funding to Hungary

European Parliament calls on the Commission to apply the rule of law conditionality on funding to Hungary
The new banner NextGenerationEU being unveiled on the front of the Berlaymont building on 9 May 2021, credit: EU, 2021

A recent legal report calls on the European Commission to trigger the Rule of Law Conditionality mechanism with respect to Hungary before any funding is disbursed to the country under its national recovery and resilience plan.

The report was authored by three rule of law experts, Professor Kim Lane Scheppele (Princeton University), Professor R. Daniel Kelemen (Rutgers University) and Professor John Morijn (University of Groningen) at the request of the Greens/MFA group in the parliament. It provides a blueprint for applying the mechanism by issuing already now a written notification to the Hungarian government.

By now the Commission has received almost all national plans and approved the majority of them but Hungary has missed the deadline for submitting its plan and asked for an extension of the time. The so-called rule of law conditionality mechanism is part of the post-Coronavirus crisis recovery package.

When adopting the regulation (2020/2092) establishing the mechanism, the European Council agreed on a compromise which will allow for the suspension or reduction of EU funding to member states with focus on financial irregularities. However, according to the Council decision further legal clarification by the European Court of Justice (ECJ) is required.

Only after its judgement, which has not yet been issued, will the Commission finalise guidelines on the application of the mechanism. Both Hungary and Poland have filed legal complaints to the court. In the meantime, the Commission is not proposing any measures under the mechanism but has assured that it already has started to look at possible cases.

Despite the delay, the Commission has assured that the mechanism can be applied retroactively and that no cases will be lost. When presenting its second annual rule of law report on Tuesday, while a different exercise than the rule of law conditionality mechanism, it stated that the findings in the report might serve as input to the assessment when applying the mechanism on suspending EU funding.

According to the assessment by the three law professors, the regulation itself does not require any guidelines and is already applicable by issuing a notification letter. The regulation explicitly demands the Commission to take a proactive, risk-based approach to protect the EU budget. This does not require the Commission to wait until specific instances of fraud or abuse of EU funds under the new budget can be documented.

Their report lists three conditions for triggering the conditionality mechanism: A) the lack of transparent management of EU funds, B) the lack of an effective national prosecution service to investigate and prosecute fraud, and C) the lack of guarantee of independent courts to ensure that EU law is reliably enforced, including measures affecting the Union’s budget and financial interest.

The European Parliament has its own research service (EPRS) which provides MEPs with analysis of policy issues related to the EU. MEP Daniel Freund (Greens/EFA) told The Brussels Times that he wanted independent, external experts to assess whether the situation in Hungary merits the activation of the rule of law conditionality mechanism.

“All pro-European groups in the EP also see the necessity of applying the rule of law mechanism against Hungary,” he said. They welcomed the report as a tool to increase pressure on the Commission to act in that regard. That's why the report was presented jointly by the mechanism's negotiators from the Greens, EPP, S&D and Renew.”

The report deals explicitly with the application of the rule of law mechanism as regards Hungary. How relevant is it for other member states and can the conclusions and the template for a notification letter be applied to other countries?

“Yes, the report deals explicitly with the application of the mechanism against Hungary,” he replied, “but it could nevertheless serve as a template for notification letters to other countries. The rule of law mechanism has never been activated before.”

“This notification letter can show for example which rule of law deficiencies can be covered under the mechanism, which sources the Commission can draw from, in how much detail they need to prove the link between rule of law deficiency and impact on EU budget.”

Does the proposed notification letter in the report differ from current infringement procedures in place?

“Yes,” he confirmed. “Infringement procedures are a tool for the Commission to ensure that member states comply with specific EU legislation. Even if the European Court of Justice determines that a country has violated EU law, it will not necessarily face any financial sanctions. The rule of law conditionality mechanism is in the first place a tool to protect the EU budget from fraud and corruption.”

“The Rule of Law Conditionality Regulation is not an infringement procedure and entails a totally different process,” said Professor Daniel Kelemen, one of the authors of the report.

“One key distinction is the language of the regulation demands that the Commission take a proactive, risk-based approach to protect the EU budget. The Commission need not wait until specific instances of fraud or abuse of EU funds under the new budget can be documented, but instead must act to address serious risk of such fraud or abuse created by existing breaches of rule of law principles.”

“Our report focused exclusively on Hungary. However, we provided a model of what the ‘notification’ required to trigger the first stage of the Rule of Law Conditionality Regulation could look like. We also provided a more general analysis of the regulation, highlighting the sorts of rule of law breaches that would justify triggering it. Certainly, our report can be used as a model for deploying the regulation against other member states as well, for instance Poland.”

“There is no time limit for how long the approval of the national recovery and resilience plans can be delayed,” Freund concluded. “Given that corruption is systematic and widespread in Hungary, I hope the Commission will not approve their plan unless it has very strong guarantees that the funds will not be misused.”

“It’s vital to cut off the flow of EU funds that fuels Orban's authoritarian regime as soon as possible, Kelemen underlined. “Orban's patronage network of oligarchs and kleptocrats feeds off EU money. Nothing else the EU does will matter much if it keeps subsidizing his regime as it hardens its authoritarian rule.”

The same is happening in Poland where the rule of law has ceased to exist in practice, according to Kelemen.

M. Apelblat

The Brussels Times

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