How Poland and Hungary Are Challenging European Law

(Bloomberg) -- The U.K. left the European Union to escape its jurisdiction. Germany’s Constitutional Court took it head-on. Now Poland and Hungary are challenging its supremacy. We’re talking about EU law, the legal order that covers all 27 member states. Although each country’s government has agreed to follow the code, their own national courts don’t always like what they see. EU Justice Commissioner Didier Reynders has warned that attempts to subvert the primacy of EU rules could tear the trading bloc apart.

1. What is EU law?

The law of what is now the European Union goes back to the Treaty of Rome, signed in 1957, that was intended to help European countries trade with each other and boost their economies in the aftermath of World War II. Setting out principles like the free movement of goods, capital and workers, the treaty and others that followed provide the legal underpinning for the resulting volumes of laws, regulations and directives. Once they are adopted at the EU level, each member state must implement the policy in its national legislation.

2. How is it made and what does it cover?

The Brussels-based European Commission, the EU’s executive arm, proposes new laws. Its members, one from each member state, are appointed and are supposed to represent the EU as a whole. Generally the European Parliament, which is directly elected, has to approve the proposals along with the Council of the European Union, made up of ministers or representatives from the 27 national governments. There are some legislative fields that countries have agreed to reserve for the EU level. These are the customs union, monetary policy for countries that share the euro, trade with countries outside the bloc, competition rules for the EU single market, and a common fisheries policy. But EU law also covers other areas, and has expanded over the years to include issues that affect daily life such as food safety or air pollution or data privacy. That sometimes forces changes in existing national laws.

3. Who enforces it?

If a member state violates the rules, the commission can take that country to an EU court. If a country fails to comply with an EU court ruling -- which by treaty is binding across the bloc -- it can ultimately be fined. The bloc’s judges don’t always agree with the commission. For example, the commission has ruled that some preferential tax deals handed out by individual members violate EU state-aid rules, and ordered several companies to pay additional tax. The EU’s General Court in 2020 ordered the annulment of a record 13 billion-euro ($14.8 billion) tax order against Apple Inc. In May 2021, the same court canceled a 250 million-euro order against Amazon.com Inc.

4. What are these courts?

The EU has two, both based in Luxembourg. The Court of Justice, or ECJ, is the top court and the General Court is the lower court. The General Court deals with the facts in cases before it, while the Court of Justice focuses only on points of law. The ECJ handles direct actions, normally filed by the commission, against an EU member and issues rulings for national courts seeking clarification on EU law.

5. What was Germany’s challenge about?

Germany’s Constitutional Court directly targeted the ECJ in a stinging ruling in 2020, accusing the EU judges of overstepping their powers when they backed the European Central Bank’s controversial quantitative easing policy. The German judges said the supremacy of the ECJ didn’t apply in cases where it failed in its duties. The challenge was soon defused by the German government, but a year later the commission kicked off legal action against Germany, saying the ruling had threatened the primacy of EU law.

6. And Poland’s?

After years of conflicts over whether Poland was drifting away from democratic values such as an independent judiciary, media freedom and LGBTQ rights, the country’s top court ruled in October 2021 that the constitution overrides some EU laws, intensifying a conflict that could challenge the country’s membership in the bloc. The tribunal ruled that Poland’s constitution can’t allow the EU to influence spheres where the country hasn’t deferred powers to the bloc, such as judicial matters. The standoff has raised fears about Poland’s ability to abide by EU rules and remain part of the bloc’s legal system, a key factor for investors.

7. What about Hungary’s?

In December Hungary’s top court ruled the country can enforce its constitution over European Union regulations in limited cases, giving Prime Minister Viktor Orban ammunition to defy an EU ruling that struck down his crackdown on refugees. The government, which has been deporting asylum seekers often without hearings, had filed a legal challenge, arguing that complying with the EU judgment would violate Hungary’s right to decide who to let into the country. 

8. What was the ECJ’s response?

The European Union won the right in February to deploy tough new powers that could deny Poland and Hungary EU funding from its 1.8 trillion-euro budget and stimulus package for allegedly violating the bloc’s democratic standards. The ECJ dismissed challenges by the two countries against the so-called conditionality mechanism, saying the legislation is fully in line with the bloc’s laws. The EU put in place the contested tool in 2021 after growing weary of challenges to independence of judges, an erosion of minority rights and challenges to the primacy of EU law.

9. How serious could the financial consequences be? 

The commission’s concerns convinced it to withhold approval of Poland’s and Hungary’s recovery plans, which is needed to unlock stimulus funds from the pandemic package. Poland ultimately stands to miss out on more than 130 billion euros from the bloc’s seven-year budget. Hungary could lose more than 40 billion euros.

10. What if a country refuses to comply?

The commission may refer the country back to the court and can ask it to impose fines. The disputes are in some ways an existential question for the EU. Reynders has said defending EU law and rights is essential to keeping the union on track as a bloc that allows free trade and shares common values. The ultimate choice for an unhappy member would be to leave, as the U.K. did in 2020.

The Reference Shelf

• A QuickTake on why the EU Court of Justice was a Brexit Battleground.
• Bloomberg stories on Poland rejecting EU law primacy, Hungary’s court ruling on asylum seekers and EU action in an LGBTQ rights case.
• A Bloomberg article on EU funding.
• Bloomberg Opinion’s Andreas Kluth argues that the EU should be able to expel a member, and Clara Ferreira Marques explores how European autocrats are weaponizing homophobia.
• The European Commission explains the “acquis” that new members have to sign up to.
• A 2019 lecture by former European Judge Ian Forrester on European law in the U.K. after Brexit.

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