Resumen de Budget and Recovery Funds, Rule of Law, and an Unfortunate Standoff
At the time of writing this Editorial, the Union is at an impasse: two Member States are threatening to veto the approval of the Union’s Multiannual Financial Framework and of the COVID-19 recovery fund, Next Generation EU. Poland and Hungary—the two Member States in question—are reacting against the earlier agreement between the European Parliament and the Council on a general conditionality framework for the EU budget that will make funding conditional on respecting the rule of law.
But let us backtrack here for a second, as the story is a convoluted one. Already in 2018, the Commission proposed a regulation to protect the EU budget against generalised rule of law deficiencies. This was part of the Commission’s broader attempt to counter rule of law backsliding in Hungary and Poland. According to the proposal, if a generalised rule of law deficiency were ascertained, the offending Member State would face the suspension of payments and commitments, and a prohibition on concluding further commitments. The implementing act would be proposed by the Commission, and the Council would decide by reverse qualified majority voting (i.e. a qualified majority would be necessary in order for the decision not to be adopted). This was an ambitious proposal and enforcement mechanism, and the European Council could not agree on the voting modality put forward by the Commission and supported by the European Parliament; as a result, the proposal languished.
Fast forward to 2020, in the middle of the COVID-19 pandemic: in July, the European Council reached a historical agreement to raise and distribute funds in an attempt to tackle the unparalleled consequences of the pandemic, through an updated long-term EU budget (the Multiannual Financial Framework) and a recovery fund, Next Generation EU. While the Commission had initially proposed to tie the recovery funds to rule of law compliance in a meaningful way, this got watered down in the Conclusions to the point where Poland and Hungary’s agreement could be secured, and they both boasted about these requirements having been dropped—though of course a more nuanced reading of the Conclusions was possible, as there were some vague commitments to rule of law compliance and a commitment to continue working towards the creation of a general rule of law conditionality mechanism in the future. In any case, the Conclusions, while historical, were only the first step, as they needed to be spelt out in further detail and the agreement of the European Parliament needed to be secured for the whole recovery package to be approved.
The European Parliament did not take long to voice its discontent and, while it welcomed the initial political agreement on a recovery package, it insisted on the need to adopt a general rule of law conditionality mechanism to protect the EU budget, along the lines of the Commission’s 2018 proposal, as a pre-condition.
The result was that the Commission’s 2018 proposal was back at the forefront, and it was updated and amended in order to include the new recovery fund. During negotiations, a compromise was reached on voting modalities: following the Commission’s proposal of an implementing act with financial measures to address a rule of law breach, the Council will decide to adopt the measure by qualified majority voting. The enforcement mechanism favoured by the Commission and the European Parliament (that a decision would be adopted unless a qualified majority was against it in Council) has therefore been watered down.
