EU Takes Aim at Hungary and Poland With New Rule-of-Law Powers

The European Union may start punishing rule-of-law offenders this year with a new sanctions tool that could see countries lose out on billions of euros, a timetable far quicker than earlier expectations.

Vera Jourova, the European Commission vice president in charge of values, is helping draft guidelines for how the EU will implement new powers to penalize countries that don’t uphold the bloc’s democratic standards. One option will be to freeze funds from the EU’s 1.8 trillion-euro ($2.2 trillion) stimulus package before they’ve been disbursed.

EU Takes Aim at Hungary and Poland With New Rule-of-Law Powers

“I will promote the system that we can sanction potential money, not the money already spent,” Jourova said in an interview with Bloomberg on Thursday. “This is a big difference because then we can do something concrete already this year.”

This new rule-of-law mechanism that went into effect Jan. 1 represents a sea change for the EU, giving the commission, the bloc’s executive arm, power to withhold payments to member states over democratic backsliding for the first time. That’s a worry for Hungarian Prime Minister Viktor Orban and his Polish counterpart Mateusz Morawiecki, who have flouted EU demands to roll back their power consolidation.

Since the EU’s massive coronavirus recovery fund is part of the budget, Orban’s government could miss out on as much as 7.2 billion euros of grants from the EU. What’s more, the timeline described by Jourova means that the new powers would be operational before Hungarian elections early next year. Orban’s party is trailing in the polls against a united opposition and financial penalties could hurt his chances of turning that situation around

German Compromise

After years of acrimony, Orban’s party on Thursday withdrew from the EU’s biggest political group, cementing his break from the political mainstream in Europe. The Hungarian premier told state radio on Friday that he’s planning to meet with Morawiecki and Italy’s Matteo Salvini to discuss setting up a new nationalist party in the bloc.

Until this point, the two main offenders have been able to shield each other from punitive measures because some of the bloc’s sanctions require the assent of 26 of the 27 members. Poland, where the next general election is scheduled for 2023, could lose out on as much as 23.9 billion euros of grants from the new recovery plan.

EU leaders agreed on the new mechanism during a contentious summit in December, when Germany brokered a compromise that saw Hungary and Poland drop vetos in exchange for a delay in the rollout of the new tool.

As part of that deal, the mechanism still needs to undergo a review by the European Court of Justice. But Jourova said that a decision could be made as early as the summer. After that, she said she’ll push for the commission to finalize its guidance for how the mechanism will be used within two months.

Orban’s ‘Victory’

After the political agreement was reached in December, Hungary and Poland told their voters it would be essentially impossible to cut their funding because the criteria were so narrow. Orban went so far as to claim “victory,” telling lawmakers that the veto threat by his country and Poland forced the EU to drop a plan to tie aid to “political conditions.”

But Jourova said she would try to implement the rule in a general way that could be applied to a variety of situations.

The commission will look at whether a member state is able to protect the money it’s set to receive from the EU, said Jourova. Specifically, if it has a “well-functioning judiciary, a well-functioning procurement system and a well-functioning prosecution,” she said. That’s likely to trigger red flags in the cases of both Hungary and Poland.

She added that the commission can and should freeze money “when we see that there is no independent judge who will decide on the cases of corruption and fraud of EU money and that impartially and independently, whoever might be the perpetrator, however strong the ties might be with the government.”

Jourova said the situation in Hungary and Poland has changed “for the worse,” despite the EU pulling out all available tools, from repeated court cases to targeting the two nations with a procedure that could lead to the suspension of their voting rights.

Even though the commission is seeking to implement the tool faster than expected, they also want to make sure it’s impervious to legal challenges.

“This is a heavyweight tool,” Jourova said. “Having this waterproof from the beginning means that we will have a better position later.”

©2021 Bloomberg L.P.

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