(Bloomberg) -- Almost three years into Poland’s populist revolution, the European Union is fighting with its most populous eastern member on two fronts. The bloc is edging toward suing the country over a judicial revamp and has recommended launching an unprecedented disciplinary process that could lead to penalties against the Polish government for failing to respect democratic standards. At stake is the value of Polish assets, with the zloty usually weakening when conflicts with the EU escalate, and the cohesion of the union itself.
1. What triggered EU action?
A law passed by Poland’s parliament went into effect, forcing out about two-fifths of Supreme Court justices and giving politicians more sway over a council that decides on court appointments. The law seriously jeopardizes independence of “all parts of the Polish judiciary,” according to the Venice Commission, which advises the Council of Europe human-rights group on constitutional law.
2. What action has the EU taken?
The European Commission, the EU’s executive arm, took the first step toward a possible lawsuit over the judicial changes, sending the Polish government a “letter of formal notice” and giving it one month to reply. The next step would be a final warning followed by a lawsuit at the EU’s Court of Justice. Earlier, the Commission has proposed using Article 7 of the Treaty of the European Union, a measure not taken before. The article is designed to ensure that the bloc’s states show “respect for human dignity, freedom, democracy, equality, the rule of law and human rights.”
3. How did we get here?
The European Commission started investigating violations of the rule of law in Poland in January 2016. This was after the populist Law & Justice Party, the winner of 2015 elections, packed a different court, the Constitutional Tribunal, with party nominees, refused to appoint legally elected justices to the panel, and blocked publication of its rulings. In July 2016, the commission recommended remedial measures, which Poland’s government dismissed as interference in its affairs. A year later, the commission raised additional concerns about a law empowering the justice minister to remove and appoint the presidents of ordinary courts.
4. What are the possible penalties?
If four-fifths of EU members approve, Poland’s legal standards would be placed under monitoring by national governments in the Council of the EU. If the breach were to persist, fellow members could suspend certain rights that Poland enjoys as part the EU, including its voting rights in collective decisions. Such escalation, however, would require unanimous support from the bloc’s 27 other countries.
5. Does Poland have any allies?
Yes. It enjoys the support of Hungary, whose prime minister, Viktor Orban, has been steering his country on a similarly illiberal course. If it comes to a vote on sanctions, more nations may side with Poland in the spirit of supporting a fellow maverick state. Other former-communist nations such as the Czech Republic, Slovakia and Romania have strayed from the EU mainstream by rejecting refugees or moving to make it harder for officials to be prosecuted.
6. Does that mean sanctions are unlikely?
Through Article 7, yes. However, as the standoff escalates, the EU is separately considering limiting access to development funds in the post-2020 budget for countries that disrespect the bloc’s values. That could hit Poland hard since it’s the biggest net beneficiary of the EU’s budget, which may total 1.28 trillion euros ($1.5 trillion) in the 2021-2027 period. The money has helped power the Polish economy, contributing as much as a percentage point of growth to gross domestic product each year.
7. Are there precedents for a lawsuit?
Yes. The EU has referred Poland to the Court of Justice for other infringements of bloc policy. The Commission won a battle there against Poland in 2018 over logging in one of the continent’s last primeval forests. The previous year, it took Poland to the court, challenging the law on ordinary courts on the grounds that it gives the justice minister excessive powers to dismiss and appoint court presidents. In December 2017, the Commission took Poland, Hungary and the Czech Republic to the court for refusing to comply with EU decisions taken in 2015 to relocate or resettle immigrants who are part of the biggest influx of asylum seekers to Europe since World War II. The last two cases are pending.
8. How is Poland responding?
By insisting that the EU mind its own business. Ruling-party leader Jaroslaw Kaczynski said the threat to sue Poland "won’t break" the government’s determination to continue through the judicial overhaul. The administration has also needled Germany, the most powerful member of the bloc, which, Poland says, owes it war reparations. That has reopened an issue Germany has considered closed since the 1990s after Polish governments declared the end of the matter based on earlier treaties. Polish officials have also prepared new rules restricting foreign ownership of media, expressing concerns that Germans, especially, have become dominant in some segments of the industry.
9. What could this dispute mean for markets?
While Poland’s economic performance has been robust, the zloty has lagged behind most eastern European peers. The currency has proven vulnerable when the conflict has escalated, as shown during street protests in July 2017 or when concerns about Poland’s sovereign ratings have mounted amid the dispute. More criticism from the European Commission is likely to undermine Poland’s status as a safe investment bet.
The Reference Shelf
- A QuickTake explainer on Poland’s populist turn, and another on how Poland and Hungary rattle Europe’s liberal order.
- Poland invoked Vichy France to defend its judicial overhaul.
- A Polish politics blog by Aleks Szczerbiak, professor of politics and contemporary European studies at the University of Sussex.
- A Bloomberg data visualization on how the populist right is redrawing the map of Europe.
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