Brussels, Hungary and Poland have been in a tense stalemate over the rule of law for many years. The war in Ukraine changed the course of the stalemate between Brussels and Warsaw and temporarily transformed Poland`s image from a constitutional troublemaker to a constructive partner. This is a change that many say prompted the Commission to endorse Poland`s roadmap for its reconstruction funds, which came from Warsaw despite little concrete progress on the rule of law. WJP: How do you think this decision will have practical and political implications? Scheppele: The Commission has always said that it will take into account all breaches of the regulation dating back to its entry into force on 1 January 2021. As far as we can see from outside the system, the Commission seems to have prepared letters of dismissal in order to initiate the procedure provided for in the regulation, at least against Hungary and perhaps against Poland. They have also sometimes indicated that they will inform more countries that there are problems with the rule of law that they need to address. The enforcement procedure begins with a « dialogue » in which there is a back and forth between the offending State and the Commission to see whether the offending State itself will take action to remedy the problems identified before the Commission recommends to the Council to reduce funds. Then, the Council must approve the recommendations by qualified majority before the funds stop flowing. Although the process has different short deadlines throughout the process, it will take at least another four months for the process to begin before the funds are agreed – and this, if all the steps are completed on time and the Council accepts what the Commission proposes. It will probably take longer. Orbán has prepared the Hungarian people for the cuts in such a way that he has already finished his story.
According to Orbán, the EU wants to withdraw money from Hungary because the EU is culturally left-wing and tries to impose its views on Hungary, while Hungary defends Christian conservatism. The new President of the Hungarian Supreme Court described the EU as a totalitarian regime imposed on Hungarian sovereignty. Orbán and other members of the Hungarian government have compared the EU to the USSR. Orbán will therefore try to make it appear that the budget cuts are due to the fact that the rest of the EU is trying to impose its foreign values on Hungary. Expect a huge culture war to follow when the Commission starts to apply the regulation. WJP: Who comes out the strongest and the weakest? And what about the rule of law itself? Scheppele: In the legislative process for the cross-compliance regulation, the rule of law has rather been lost. Instead, the regulation turned out to be a kind of anti-corruption measure to prevent EU funds from being misspent, rather than a regulation to restore the rule of law. However, so much has gone wrong in Hungary and Poland that rule of law issues (such as the independence of the judiciary, arbitrary legislation and reducing the separation of powers) ultimately increase the likelihood of corruption, making it possible to resolve some crucial rule of law issues with the settlement. But the Commission has lost control of the regulation and is no longer doing what it should have done. And the Commission has given in to the delays of the European Council.
It should have been a more general instrument against the rule of law that could have been used immediately. Who emerges strongest and who is weakest? If Orbán loses the funds, he will be in a difficult situation because he has already spent a large part of the money and the state budget should make up the deficit. If the opposition wins the elections, it will be burdened with debt if the EU does not give in. So no matter who is in power after April 3, Hungary will ultimately lose. But if the EU had acted more quickly years ago to begin the process of cutting funds, the condemnation of Orbán by the European institutions could have made a difference in the current elections. Hungary – and Poland too – are very pro-EU, so it is important that the EU sanctions them. But while a funding cut is in the starting blocks, it will come too late to influence the election. Orbán could therefore be in power for another four years before the accounts come. The EU seems to have done something against the autocrats within it, but it is too little, too late.
That is, it is better to do something than nothing. WJP: How does this conflict reflect global trends and what lessons are most relevant elsewhere? Scheppele: In discussing democratic setbacks, we mainly focused on constitutional aspects – the destruction of the separation of powers, the loss of legal protection, the damage to independent institutions such as the courts, human rights defenders, the electoral commission and more. All of these things are important. But in the end, declining democracies collapse economically in practice, because economies cannot be managed as personal piggy banks. Investors will not invest. Foreign lenders will not lend. This is a terrible result for the people of these countries, as we can see in Venezuela today. But these cases tell us that we should not forget the economics of democratic collapse. Reducing funding to rogue states may be a difficult solution, but it accelerates democratic accountability at home. That is, it can cause so much pain that it should only be used as a last resort. WJP: What do you think it takes to reverse the authoritarian trend? Scheppele: Twelve years after the Orbán regime and seven years after the Kaczynski regime, many people have been injured, institutions damaged, the judicial system corrupt and it will take a long time to rebuild democracy. But if international donors to these collapsing democracies withhold their funding, it could accelerate national calculations.
And then international donors can restore funding when a new legitimate democratic regime comes to power. « Follow the money » is how journalists brought Richard Nixon down in the Watergate scandal. And « cutting the money » is perhaps the most effective way to bring down budding autocrats now. But it would have been so much better to act sooner if solving the problem had been much easier because these regimes were less entrenched. On the other hand, Hungary argued that violations of the rule of law had nothing to do with the budget, as the achievement of the rule of law could not be an objective of the budget itself. Instead, Hungary argued that Article 7 of the Treaty on European Union was the appropriate legal basis to address rule of law issues and that, therefore, EU values could only be applied through a procedure requiring the unanimous vote of all Member States, with the exception of the one criticized. Of course, this argument would lead to the non-application of the rule of law, as Hungary and Poland could now veto sanctions, since there are two rogue states in the EU. The « extraordinary geopolitical context » of the war in Ukraine, she added, is « another reminder that fundamental rights and the rule of law are pillars of democracy. » « The sound financial management of the Union and the financial interests of the Union can be seriously compromised by breaches of the principles of the rule of law in a Member State, » he said. At that time, the Commission decided to withhold billions of funds from both countries to recover from the pandemic until they proved that the funds were being spent properly and that the courts were working impartially. The Commission has taken even more serious action against Hungary, threatening to suspend regular EU payments if it does not resolve its rule of law problems.
From this common perspective, it is now possible to assess whether breaches of the rule of law affect the use of EU funds so strongly and directly that these funds can now be withheld for this reason. The definition of the rule of law in Article 2(1) of the conditionality regulation itself is quite broad: « This is not about the rule of law, » said Polish Justice Minister Zbigniew Ziobro, who is also the country`s attorney general and the man behind the overhaul of Poland`s courts, which the EU says it has opened up to political interference. The European Commission withheld billions of dollars of financial support from Hungary after the pandemic, calling it insufficient safeguards against corruption, and developed a mechanism to sanction member states that do not respect EU rule of law standards. The ECJ ruled on Wednesday that the « mechanism had been adopted on an appropriate legal basis » and rejected the complaints of Poland and Hungary « in their entirety ». « On the one hand, there is the whole question of what you read in the rule of law report, » said Didier Reynders, EU Justice Commissioner, who presented the report at a press conference with EU Commissioner for Values and Transparency Věra Jourová. In this case, the Commission had based its regulatory power on the section of the Treaties giving it responsibility for budgetary control and the proper use of EU funds. The Commission had argued that breaches of the rule of law could affect the sound management of EU funds and were therefore no different from other criteria used by the Commission in other Financial Regulations to assess the regularity of EU expenditure, all of which had been adopted under the ordinary legislative procedure. In an important step in the fight for the rule of law in the EU, the EU`s highest court has dismissed the lawsuits brought by Hungary and Poland « in their entirety » and confirmed that countries can be deprived of EU funds if they do not respect democratic standards.
