The EU Must Stand Up to Hungary and Poland on Rule of Law

(Bloomberg Opinion) -- It’s come to this. Two rogue states, Hungary and Poland, are now in effect holding the entire 27-nation European Union for ransom: Either the bloc drops a mechanism that would tie some of its funds to the rule of law, which Budapest and Warsaw are accused of dismantling, or the EU can say goodbye to its next seven-year budget and an associated stimulus program to overcome the coronavirus recession.

By threatening to veto that deal, Hungary and Poland are basically demanding that the EU strike a Faustian bargain so they can keep playing their populist politics at home. Their success in this ploy would doom the bloc to slowly forfeiting its democratic soul. That’s why the 25 other member states, currently led by Germany, which holds the EU’s rotating presidency, should stand together and stay firm when leaders hold a video conference to discuss the matter today.

The dilemma arises out of the inauspicious conflation of two of the EU’s many design flaws. One problem is that the bloc, unlike sovereign nations, can’t borrow and spend to stimulate the economy in times like a pandemic — it doesn’t have a proper “fiscal capacity.”

To begin to remedy that, a tentative deal was struck. It foresees passage not only of the next seven-year budget — controversial enough in itself — but also the issuance of joint debt to fund a stimulus package. In all, this bundle comes to 1.8 trillion euros ($2.1 trillion). Its supporters hope it will become the germ of an EU treasury and a common fiscal policy. Its opponents — mainly the so-called frugals in Scandinavia, the Netherlands and Austria — fear it for the same reason.

To get these skeptics on board — and also the European Parliament, which must sign off on everything — a vague clause was added that would tie money from Brussels to observance of the rule of law. That such a measure was thought necessary highlights another of the EU’s design flaws, which is that the bloc can’t police or punish members that violate basic principles such as judicial independence, press freedom or civil liberties.

The immediate targets of such a mechanism would of course be Hungary and Poland. Both have been turning increasingly “illiberal” — Hungary under Prime Minister Viktor Orban for a decade, Poland under the populist Law and Justice party for half as long. The EU has already initiated disciplinary proceedings against both, but everyone knows these are toothless.

The Hungarians and Poles, in turn, pounced on the proposed conditionality in their anti-Brussels propaganda. The new clause is just an excuse to stigmatize Hungary, says Budapest. Its vagueness could apply to anything, Warsaw agrees. The Poles are especially cantankerous right now because of a power struggle at home, in which the justice minister, who leads an even more extremist party, is trying to outflank Law and Justice on the right.

Strip away the politics, and the recalcitrance by Poland and Hungary seems preposterous. They’ve been the largest net beneficiaries of EU funds and would stand to receive an additional 180 billion euros in grants between them from the stimulus, according to Bloomberg estimates. And if they intend to observe the rule of law as they claim, they have nothing to fear from new clauses. But of course, that’s not how populism works.

Swift passage of the budget and stimulus is vital because to be economically effective, the money must be paid out soon, not whenever the pandemic is gone and a recovery already underway. And yet the EU cannot allow itself to be blackmailed by populists. It needs to uphold its most fundamental values, which include the rule of law. Even if that means another delay in signing a deal.

Editorials are written by the Bloomberg Opinion editorial board.

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