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EU wins court fight with Poland, Hungary over budget weapon

EU wins court fight with Poland, Hungary over budget weapon

2 min. 16.02.2022 From our online archive
Deploying EU’s budgetary weapon is risky tactic as bloc seeks to retain geopolitical unity with its eastern-most nations
The golden ECJ towers in the Kirchberg area of Luxembourg
The golden ECJ towers in the Kirchberg area of Luxembourg
Photo credit: LW archive

The European Union won the right to use tough new powers to deny Poland and Hungary billions of euros of EU funding for allegedly failing to abide by the bloc’s democratic standards.

The EU Court of Justice on Wednesday dismissed challenges by Hungary and Poland 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 last year after growing weary of challenges to independence of judges, an erosion of minority rights and challenges to the primacy of EU law - a key premise of the bloc’s founding treaty.

Deploying the EU’s budgetary weapon is a risky tactic as the bloc seeks to retain geopolitical unity with its eastern-most nations. Heightened tensions between the West and Russia over Ukraine have added to strained alliances within the EU. Officials in Moscow have repeatedly denied an incursion is planned.

But the continued defiance from Warsaw and Budapest over rule-of-law issues has triggered impatience for the European Commission, the EU’s executive, to start using it. 

‘Rule-of-law jihad’

Hungary Prime Minister Viktor Orban predicted defeat in Wednesday’s ruling and last weekend took an undiplomatic swipe at the EU’s campaign to rein in his government.

“They’re fighting a holy war, a rule-of-law jihad” he said in his annual State of the Nation speech on 12 February. Orban is facing general elections on 3 April.

Poland, on the other hand, has been more conciliatory of late. Lawmakers from its ruling Law & Justice party last week filed a new bill meant to reshape the nation’s judiciary along lines demanded by the EU.

The commission could trigger the conditionality mechanism within weeks of Wednesday’s decision, people familiar have said, after the EU backtracked last year on plans to formally start wielding its new powers sooner. 

The EU’s executive authority took an informal first step last year by sending letters to Poland and Hungary to address accusations that funds provided by the bloc could have been subjected to corruption or fraud, or that the EU’s financial interests are at risk. Poland and Hungary sent their answers last month. 

The two states filed their EU court challenges to the mechanism in March last year, three months after the bloc’s leaders passed a historic €1.8 trillion budget and stimulus package. 

It included a provision that would penalise member states that fail to adhere to democratic standards. While Poland and Hungary opposed the move, they eventually signed on to the deal and then took their fight to the EU court.

The commission’s concerns over the situation in the two nations 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 from the bloc’s seven-year budget. Hungary could lose more than €40 billion.

Wednesday’s ruling is in line with the opinion of a court adviser who in December said the bloc acted lawfully by awarding itself the new powers.

©2022 Bloomberg L.P.

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