Tying EU Subsidies to Rule of Law?

Caspar David Friedrich: Sunset // Public domain

On September 30, 2020, the European Commission published its Rule of Law Report, which reported on the state of justice, corruption, media and other democratic institutions in EU countries. Michal Šimečka of the Renew Europe group called the report important but not sufficient: a mechanism that would enforce the rule of law was needed.

This issue had long been the subject of discussion in the European Parliament and now also in the Council of the European Union. MEPs from different political groups proposed a rule of law conditionality for EU subsidies: if an EU member state was found to be violating the rule of law, its subsidies would be cut or cancelled altogether.

Under the rule of law principles we understand freedom and pluralism of the media, independence of the judicial system, fight against corruption and separation of powers. Hungary and Poland received the weakest report card in the above-mentioned report. It was precisely these states that were at the same time the biggest opponents of the proposed measures.

Both states even threatened to block the European Corona relief programme, should the announced rule of law mechanism be introduced.

Who Benefits from EU Money in Hungary?

It is ironic that the Hungarian head of government, Orbán, of all people, should speak out so strongly against the EU. After all, Hungary is one of the main winners in terms of subsidies granted by the EU. Orbán himself usually manages to pass on EU money directly to his friends and family.

For example, Orbán’s son-in-law and entrepreneur István Tiborcz benefited from EU subsidies by securing over 35.5 million Euros in EU funds. While Orbán and his ruling party Fidesz exploit European solidarity, the lack of solidarity with the EU on Orbán’s part is clear.

Orbán’s behaviour does not come as a surprise. As a young student with a liberal worldview, he received scholarships from the foundation of the Hungarian-born US billionaire George Soros. Soros later became the scapegoat of the Hungarian government and the smear campaign waged by Fidesz against him in 2019 represents another example of the strained relationship between Hungary and the European Union.

The means used by the government in the campaign included posters featuring George Soros and former Commission President Jean-Claude Juncker and were explicitly directed against Brussels. The EU was accused of supporting the admission of refugees and weakening the sovereignty of member states. It is important to mention that the campaign was financed with taxpayers’ money.

The EU is More than just an Economic Union

European Union is not only an economic union, but also a union based on certain democratic values. Every state that wants to join the EU has to fulfil specific democratic principles. But what happens if the state is already a part of the EU and its government suddenly violates these values? Hungary is undoubtedly one of these cases.

The Commissioner for Values and Transparency, Věra Jourová, drew attention to this fact last autumn. She described the Hungarian political system as a “sick democracy” and the Hungarian media as hardly critical of the government.

Orbán responded to Jourová’s statement with a letter demanding the commissioner’s resignation because she “insulted Hungary and the Hungarian people.”

The President of the European Commission Ursula von der Leyen supported Jourová. Indeed, Jourová was right. At the end of July last year, thousands of Hungarians protested against government interference in the media, after a businessman with affiliation to the government bought into the business of the largest independent news portal, Index.hu.

The EU is supposed to be a guarantor of democracy and freedom. If a member state violates the rule of law, the EU is supposed to intervene. All EU member states are part of a community on which citizens must be able to rely if their rights are violated by the state. To preserve this ideal, it is important that the distribution of EU funds is linked to the compliance with the rule of law.

Safeguarding the Rule of Law in the EU

Currently, some instruments exist to ensure the upholding of citizens’ rights in the EU. The European Commission can initiate infringement proceedings against a state. In doing so, the European Court of Justice can impose monetary sanctions, take away some of the state’s membership rights or declare a statute to be in breach of EU law and repeal it.

However, this is an ex-post measure that has sometimes proved ineffective. For example, in early October 2020, the European Court of Justice ruled that the controversial Hungarian Higher Education Act, which forced the Central European University (CEU) to leave Budapest and move to Vienna, violated EU fundamental rights.

Now, the university is allowed to move back to Budapest, but this costs a lot of money and causes many logistical and other inconveniences.

Another means by which the EU can protect the rule of law is OLAF (European Anti-Fraud Office). For example, OLAF handed the previously mentioned case of Orbán’s son-in-law back to the Hungarian prosecution, but the prosecution released the son-in-law. In this case, the EU itself could not guarantee the rule of law because Hungary had the final say.

Therefore, the EU needs a mechanism that automatically and preventively guarantees the rule of law. EU funds must not be used to undermine democracy, freedom of expression or the independence of the judiciary and politics.

This approach should also be expected from the European People’s Party (EPP) in the European Parliament, when debating the affiliation of Fidesz to its group. Thanks to the EPP’s agreement, Fidesz gains legitimacy for its governance in Hungary. It seems as though the EPP does not want to openly clash with Fidesz in order to remain the largest group in the European Parliament.

This scenario could also play out at the EU level. As long as the EU pretends that there is no conflict between the EU and Hungary, the Hungarian government will continue to violate the principles of the rule of law without hindrance.

The proposed mechanism provides another means of ensuring that EU values are respected in Hungary. This is not only in the interest of the EU, but also of Hungarian citizens.

Budget Dispute Compromise: A Win-Win Situation?

On 10 December 2020, the long-term EU budget and thus also Corona aid package was approved together with the mechanism.

Previously, Poland and Hungary had vetoed the budget. Both states wanted to enforce the EU’s renunciation of the rule of law mechanism. Only weeks of discussions among EU heads of government led to a compromise: the rule-of-law mechanism will not be implemented until the European Court of Justice (ECJ) rules on its legality. In doing so, the ECJ has two years to issue a ruling.

Both sides of the conflict declared victory. Thanks to the enforcement of the rule of law mechanism, the EU has preserved its identity, avoided the provisional budget and approved the otherwise missing billions in Corona aid for all states.

Meanwhile, Hungary and Poland have gained the confidence of a court case at the ECJ that would overturn the cut in EU funds for them.

But is this Compromise Really a Win-Win Situation?

It depends on who you are talking about. From the perspective of Polish and Hungarian citizens, it can be considered more of a loss.

For example, Katarina Barley, MEP and Vice-President of the European Parliament, thinks that Orbán has bought some time with the compromise, to continue using EU funds for his own benefit until the next Hungarian parliamentary elections (2022). He could, therefore, use the EU subsidies to secure himself another term in office.

The subsidies can thus continue to be used freely for the discriminatory political activities of the Polish and Hungarian governments.

The EU Commissioner for Values and Transparency, Věra Jourová, sees the situation rather positively. She believes that the ECJ proceedings will yield a result within a few months. Parliament itself can ask the ECJ to speed up the whole process.

The “victory” of both states has also damaged their image. According to the leader of the largest Polish opposition party “Platforma Obywatelska” Borys Budka, the result has only increased resentment towards Poland in Europe.

From the perspective of government supporters in Hungary and Poland, the compromise represents a victory in the ideological battle.

As a next step, the governments of Poland and Hungary want to appeal against the EU Treaty to the ECJ. Polish Prime Minister Mateusz Morawiecki – and alsoa lawyer – justifies this action by claiming that the mechanism seeks to circumvent Article 7 and thus violates EU law. Together with Hungarian Prime Minister Orbán, he describes Article 7 as sufficient to punish potential violations of the rule of law.

Article 7 can go as far as depriving a member state of some of its rights. This is the case where the state violates fundamental EU values – such as freedom, democracy, the rule of law, minority rights, etc. – to a serious and permanent extent.

For example, the state may lose voting rights in the European Council, where the main representatives of the member states meet, for a certain period of time.

What will be the grounds of the complaint? Will the arguments be relevant? Does the approved mechanism really conflict with Article 7 of the EU Treaty? Indeed, such a lawsuit could raise difficult legal questions.  The EU will not be able to avoid the issue of upholding the rule of law to be a rather permanent point on the agenda.

The article was originally published at: https://www.freiheit.org/central-europe-and-baltic-states/tying-eu-subsidies-rule-law

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Daniela Matousova
Friedrich Naumann Foundation for Freedom