How the EU Plans to Punish Hungary and Poland

(Bloomberg Opinion) -- The governments of Poland and Hungary, accused of disrespecting the rule of law, have a powerful motive to wish populist parties a victory in this year’s European Parliament elections. Unless the next parliament rebels against the European Union's technocratic elite, the latter is likely to get effective tools to punish maverick nations financially.

The European Parliament voted on Thursday overwhelmingly to approve a report backing a European Commission proposal that the Commission, the EU’s executive arm, be allowed to withhold funding from countries found to be violating the rule of law. If adopted, the proposal breaks the current stalemate in relations between the EU and its rebellious member states which have moved toward illiberal and increasingly unaccountable government and increased the political control of the courts.

Under current rules, sanctions against such a country, including stripping it of its EU vote, require the unanimous approval of national leaders. It’s not hard (as long as there is more than one illiberal government) to find a friend willing to use their veto. Sanctions, then, are an empty threat at present.

The Commission proposal would allow the Commission itself to approve sanctions; national leaders would be able to reject them by a qualified majority (at least 55 percent of countries representing 65 percent of the EU’s population). Essentially, this would put the power to punish member states in the hands of the unelected technocracy in Brussels and the big EU countries; Germany, France and the Netherlands have backed the proposal.

The proposal’s logic isn’t ostensibly punitive: The idea is to protect the EU budget from being plundered by unaccountable, corrupt regimes. In Hungary, for example, the local branch of corruption watchdog Transparency International has argued that EU funds create high corruption risks but often fail to achieve desired results, an understatement given the evidence of EU funds abuse presented by Hungarian researchers and investigative reporters. Yet Hungary was the fourth biggest net recipient of EU funding in 2017, benefiting to the tune of 3.1 billion euros ($3.5 billion); Poland was the biggest beneficiary, receiving 8.6 billion euro net of its own contributions.

That, however, doesn’t stop allies of Hungarian Prime Minister Viktor Orban from insisting that the Commission and the core EU nations are merely trying to punish the countries of Central and Eastern Europe for their tough stance on immigration. That’s their bridge to anti-immigrant populists such as France’s Marine Le Pen, the Netherlands’ Geert Wilders, Italy’s Matteo Salvini and the leaders of the Alternative for Germany (AfD) party. These politicians’ interests aren’t always aligned with those of the eastern Europeans – Salvini, for example, has designs of his own on EU funding. But they welcome support from the east on immigration and they need all the help they can get in trying to rein in the EU establishment and grab back some national sovereignty. Giving the EU the power to assess whether a country adheres to the rule of law is unattractive to the nationalists, and many of their representatives in the European Parliament votes against the proposal on Thursday.

That’s important because the European Parliament election is in May, and the timing for adopting the Commission’s proposal is tight.

With Thursday’s vote, the European Parliament set up a negotiation on the measure with the member states’ relevant ministers. To put the Commission proposal into law, the member states must agree on its wording, including the parliament’s amendments giving legislators a role in considering whether the sanctions are necessary and in lifting them. Though unanimity among national leaders isn’t required and, theoretically, the big nations could act fast, the matter is linked to the EU’s next seven-year budget. That, by contrast, does require unanimity, and rushing through the punitive measures could disrupt the budget process.

In Poland and Hungary, I’ve heard officials say the EU’s contributions are just compensation for opening markets to highly competitive Western firms and investors, which has turned their countries into the de facto economic colonies of wealthier European countries. Limiting the flow of these funds, they argue, would cripple economic growth and undermine their efforts to catch up to western Europe’s living standards. To some extent, it would also punish the most pro-European parts of their societies – academia, students, businesses working on EU projects.

Even now, with the centrist, technocratic establishment firmly in charge of the EU itself and most of its bigger member states, the matter of punishing the eastern mavericks is politically delicate; it’s not clear whether it would lead to more or less EU cohesion. The latter would be my guess: The nationalist governments are relatively popular in their countries at this point, and any punitive measures against them would push them to strengthen their currently tenuous ties with nationalist forces in western Europe.

If these forces win big in the May election, though, and the Commission proposal isn’t approved by then, it likely will be off the table. A more populist European Parliament won’t push it – perhaps to the relief of many national leaders, including Western ones, who have to weigh their attachment to the rule of law against the considerable interests of national companies in eastern Europe.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

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