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European Court of Justice Rules Poland and Hungary Could Lose EU Money

The European Court of Justice (ECJ) has rejected Hungary and Poland’s challenge to the contingency mechanism for receiving funds from the institutions of the European Union.

The ECJ handed down the much-anticipated ruling on Wednesday, February 16th. Significantly, the pronouncement was broadcast live in Hungarian and Polish, indicating how ground-breaking the ruling is considered.

Linking compliance with European Union treaties and their democratic standards to receiving cash handouts from the EU’s budget was a hard-fought point finally included in the seven year, €1.8 trillion budget set at the end of 2020, which also included money for COVID-19 pandemic recovery funds. The mechanism allows payments to countries to be blocked if they are judged to have fallen afoul of the EU’s rule-of-law standards or its treaties. 

Even before the contingency mechanism was written into the block’s budget, Poland and Hungary had already been tussling with the EU over issues ranging from mining, to judicial independence and LGBT rights. Soon after the system entered into force in January 2021, Budapest and Warsaw brought action against the European Parliament and the EU Council, the bloc’s two co-legislators.

During the legal case, the European Commission, which had drafted the original proposal, as well as Belgium, Denmark, Germany, Ireland, Spain, France, Luxembourg, the Netherlands, Finland, and Sweden, supported the mechanism with interventions before the court. 

As the case proceeded and judges deliberated, the tension over rule of law and EU human rights standards only increased. In October 2021, the Polish Constitutional Court delivered a ruling that declared the primacy of Polish law over EU law, which many in EU institutions saw as a direct challenge. Hungary has also come under criticism for corruption and for its recent child protection laws, which progressives consider ‘anti-LGBTQ.’ Commission President Ursula von der Leyen decided to wait until after the ruling to employ the mechanism. It has yet to be used against any country. 

Poland and Hungary challenged the mechanism as incompatible with Article 7 of the EU treaty, an overreach of the EU’s powers, and as contrary to the principle of legal certainty. 

The ECJ rejected all of Poland and Hungary’s grievances. 

“That mechanism was adopted on an appropriate legal basis, is compatible with the procedure laid down in Article 7 TEU [Treaty on European Union] and respects in particular the limits of the powers conferred on the European Union and the principle of legal certainty,” the judgment starts off. 

Though Poland and Hungary have now run out of legal recourse in this case, as the ECJ’s ruling cannot be appealed, it will still be months before they could face repercussions. 

In the mechanism’s rules, the commission must build and present a case against a country as breaching EU law and endangering the bloc’s budget. Then the country must be given an opportunity to respond and correct itself. Only then can the European Commission formally issue a recommendation to freeze EU funds. That request and the case against the country then goes to member states, which have to approve it by a qualified majority (55% of EU countries representing at least 65% of the total EU population). 

Potential punishments include a suspension of payments, termination of legal commitments, request for early repayment of loans, or a prohibition to enter new financial agreements. The measures can be lifted if the disciplined country corrects the situation.

A caveat of the ruling, though, is that it reinforces the narrow scope of the mechanism, which is directly linked to breaches that affect the bloc’s management of budgetary funds: “Such a breach must concern a situation or conduct that is attributable to an authority of a Member State and relevant to the proper implementation of the Union budget,” the ECJ also underlined.

Roberta Metsola, EU parliament president, and Ursula von der Leyen, EU commission president, welcomed the ruling. Poland and Hungary have pledged to continue to challenge it through other legal routes. 

The fight over national sovereignty and rule of law has just now truly begun.

Bridget Ryder is Spain-based writer. She has written on politics, environment, and culture for American and international publications. She holds degrees in Spanish and Catholic Studies.

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