Germany Dilutes EU Rule-of-Law Plans With Virus Aid at Risk

Germany proposed watering-down the conditions tying European Union funding to respect for the rule of law in what’s widely seen as a bid to reach a compromise to unlock the bloc’s landmark 750 billion-euro ($875 million) coronavirus recovery fund.

Germany, which holds the rotating presidency of the EU, proposed a mechanism that could suspend payments to member states that are in breach of democratic values while making it harder to trigger the procedure, according to a draft seen by Bloomberg.

Crucially, the revised plan would require a weighted majority of countries to approve any European Commission proposal for funding cuts. The EU’s executive arm had earlier proposed that a weighted majority of countries be needed to block -- rather than approve -- its recommendation for the suspension of payments.

“This can be sold as progress for linking the rule of law to EU funding but it’s far from ideal,” said Daniel Hegedus, a Budapest-based fellow at the German Marshall Fund. “The chances that a member state’s funding will be suspended is now a lot slimmer.”

At stake is whether the EU can swiftly deliver hundreds of billions in much-needed funds to combat the steepest recession on record, while making sure the money isn’t misappropriated by countries where democratic checks and balances are weak.

The proposal, which EU diplomats will discuss on Tuesday and Wednesday, follows an agreement by EU leaders in July to establish a rule-of-law mechanism for disbursements from both the region’s recovery fund and the EU’s seven-year budget -- a pot totaling some 1.8 trillion euros ($2.1 trillion). It seeks to balance demands of rich northern countries pushing for a strict link between financial aid and democratic standards and eastern countries that are resisting any such conditionality.

Parsing Words

The German draft removed earlier references to “generalized deficiencies” in rule of law, which included “endangering the independence of judiciary,” in favor of “breaches of the principle of the rule of law.”

Even in this shape, it’s far from certain that the proposal will get the support of Hungary and Poland, the only two EU countries that are currently the subject of formal rule-of-law probes. Both have threatened to derail the coronavirus fund unless member states drop their demand to link money to democratic standards.

“We don’t agree to arbitrary threats because someone doesn’t like our government,” Polish Prime Minister Mateusz Morawiecki told reporters in Warsaw, adding that an EU investigation into his country was “political blackmail.”

In Hungary, Foreign Minister Peter Szijjarto told journalists that his country was used as a “punching bag” in the EU and also likened rule-of-law demands to “blackmail.”

The difficulty in finding a solution that can satisfy the concerns of both sides highlights the fragility of the EU recovery deal, which already saw several member states set aside longstanding red lines on joint debt.

A Finnish government spokesman said that Helsinki will insist on a strong link between the disbursement of funds and compliance with the rule of law, without commenting on the specifics of the German proposal.

An agreement on the mechanism is necessary for the fund to become operational next year. But an overly lenient rule-of-law proposal could prompt the European Parliament not to ratify the plan.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.