In the Conclusions of the European Council, the heads of state and government of the 27 Member States declare that the  Multiannual Financial Framework 2021-2027 (MFF) and the recovery fund “Next Generation EU”, which combined amount to more than 1.8 billion euro, must be protected against “any kind of fraud, corruption and conflict of interest“.

The respective Rule of Law conditionality, which the representatives of Council and European Parliament had agreed on 5 November 2020, remains unchanged. Therefore, funds may not be allocated to Member States if they violate fundamental values. However, the Commission has to initiate a procedure first to establish whether these values have been violated. If they should arrive at this conclusion, a qualified majority – at least 15 of the 27 Member States – on behalf of the Council would be sufficient to confirm the violations of fundamental values and to interrupt the flow of funds.

In order to reach unanimity at the European Council, which is required to adopt both the MFF and this conditionality, meaning also the approval by Poland and Hungary, the Heads of State and Government also instructed the Commission to draw up principles to apply the Rule of Law Mechanism in the form of guidelines to ensure that this Rule of Law mechanism is “objective, fair, impartial and fact-based”. Apart from that, the Conclusions explicitly mention calling on the European Court of Justice as an option to review the legality of this Mechanism. Should this be the case, relevant elements of the judgment would have to be incorporated in the Commission’s guidelines.

Poland and Hungary are the two countries which for a long time had been threatening to veto the Rule of Law Mechanism and thereby the entire budget. The present compromise means that above all both countries have gained time, as it is a well-known fact that proceedings at the European Court of Justice can take years. This means that both countries, which are regularly making negative headlines due to their concept of democracy whilst at the same time receiving the most funds from the EU budget, will continue to receive EU budget funds until it is possible to enforce the Rule of Law Mechanism against them in practice.

Commission President Ursula von der Leyen defended the compromise at the European Parliament on 16 December 2020 and assured that all violations of the Rule of Law taking place from 1 January 2021, would be punished. Hence, both the MFF and the Recovery Fund, including the Rule of Law Mechanism, were confirmed in the plenary of the European Parliament with a clear majority of 548 yes to 81 no-votes and 66 abstentions. In addition, the Parliament voted in favour of a supplementary resolution, in which it clarifies that the application of the regulations on the Rule of Law could not depend on the adoption of Guidelines by the Commission and that no implementing instruments would be necessary, as the compromise would bring sufficient clarity. Thus, according to the Parliament, the Mechanism shall be unreservedly applied as of 1 January 2021. However, it is likely that Poland and/or Hungary will initiate a review of the Rule of Law Mechanism by the European Court of Justice.

Further information:

AK EUROPA: EU budget and Recovery plan: EU institutions announce agreement

AK EUROPA Position Paper: The EU budget powering the recovery plan for Europe

European Council: Meeting Conclusions, 10-11 December 2020

European Parliament: Resolution on the MFF 2021-2027, the Interinstitutional Agreement, the EU Recovery Instrument and the Rule of Law Regulation