Felicitas Benziger, Dipl.-Jur., LLM, MPhil/PhD candidate at Middlesex University

The 16th November 2020, Hungary and Poland have released their warning that they would veto the adoption of the EU’s budget for the next seven years. The reason for the veto was their dissatisfaction with the introduction of a new rule of law mechanism, which would link the financial management of EU funds to compliance with the rule of law. In need of a unanimous vote for the adoption of the seven-year budget plan, the EU is steering into its next significant crisis – and it is one touching upon the very core values upon which the EU is founded.

The proposed seven-year budget plan included a mechanism, according to which the payment of member states from the EU budget would become conditional upon their compliance with the rule of law laid down in Article 2 Treaty on European Union (TEU). While there was broad agreement among the majority of the member states, Hungary and Poland objected to this new mechanism. Hungary called it an “ideological blackmail tool”, while the other Member States and institutions of the EU defend the new mechanism as a means to protect the EU’s values. The 11th December, Hungary and Poland agreed to a deal brokered by the German government. According to this deal, a member state will be able to challenge the entire agreement should it disagree with the new terms linking EU funding to the rule of law mechanism. In that case, the ECJ could postpone the whole procedure under the rule of law mechanism, possibly for years.

What is the rule of law mechanism?

The rule of law mechanism is anchored in Art. 7 TEU. The norm provides that sanctions can be launched against a member state, if it is found to breach the fundamental values set out in Art. 2 TEU. The Article was introduced in 1999, when it was adopted through the Amsterdam Treaty.

Why then, do Poland and Hungary attach such importance to this provision now? Together with the seven-year budget plan, the member states also would have waved through a crucial extension of the original rule of law mechanism: until now possible sanctions under Art. 7 (2) TEU affected a member state’s voting rights. Under the new rule of law mechanism, sanctions could have direct effects on the payment of member states from the EU budget. While already before the most recent proposal Art. 7 TEU was considered a “nuclear” option (indeed, it has never been triggered), for Hungary and Poland, being countries that receive more from the EU budget than they pay in, financial sanctions are significant. The more so, if one considers the policy followed by the two countries in the past five years. Both states have been accused of systemic violations of the rule of law. This resulted in an ECJ finding and the induction of an Art. 7 (1) TEU procedure against both countries (2017 and 2018 respectively), which marked the first time the provision was triggered at all.

How does the mechanism work?

The proposal’s underlying idea is to protect the EU’s financial interests in accordance with the values set out in Art. 2 TEU. While it is emphasised, that there is no hierarchy among the values, much importance is placed on respect for the rule of law. The proposal lists some of the the fundamental principles of the rule of law: legality (including a transparent, democratic and accountable process of law enactment), legal certainty, the prohibition of arbitrariness of the executive, the separation of powers, access to justice and effective judicial protection before independent and impartial courts. It starts from the assumption that respect for the rule of law is a necessary requirement for compliance with Art. 317 of the Treaty on the Functioning of the European Union (TFEU), which includes the principles of sound financial management. Thus, sound financial management and respect for the rule of law are seen to be intrinsically connected.

Before any measures can be issued under the rule of law mechanism, the Commission needs to inform the Member State concerned that it is considered to have breached the rule of law and why. “Without delay”, the Parliament and the Council must be notified about such notice. Furthermore, the Member State concerned must be allowed to submit its observations before any measure can be decided upon. The Commission must consider these observations. Should it nevertheless decide to issue measures under the rule of law mechanism, the Commission submits a proposal for appropriate measures to the Council, which is bound to decide within one month (under exceptional circumstances up to two additional months). Even after measures have been issued by the Council, the Commission remains under the obligation to examine, if the situation giving rise to the adoption of measures still exists. Eventually, should the respective Member State believe that the measures taken breach the principles of objectivity, non-discrimination, equal treatment of Member States, or of a non-partisan and evidence-based approach, it can request the President of the European Council for a referral of the matter to the next European Council.

The new rule of law mechanism: Ideological blackmail tool or legitimate means to protect the EU’s values?

For the budget plan to be adopted a unanimous vote is required. The only way out of the dilemma are therefore negotiations. In acknowledging this importance, the question arises: should the EU negotiate on the condition of compliance with its fundamental values? For a supranational association like the EU, the signal of presenting itself open to negotiate on its very foundations, could be fatal. Hence, caution needs to be exercised in conducting the doubtlessly necessary negotiations with Hungary and Poland.

To put it simply: Hungary and Poland knew what they signed up for when they joined the EU in 2004. The core values set out in Art. 2 TEU have remained unchanged throughout all this time. Thus, their hostile reactions to the new rule of law mechanism, which is designed to strengthen the protection of the EU’s values, are, to some extent, astonishing. From a broader perspective, the general idea that states violating the very fundamental values of the organisation they are a member of should enjoy the privilege of receiving funds for breaching a core provision appears extraordinary.

While critical arguments concerning the more existential effects on financial sanctions concerning already economically fragile states could be raised, the already mentioned fact that the values of Art. 2 have remained the same, speaks in favour of the new rule of law mechanism. Against this background, it is hard to understand, why it should be too much to ask even the economically weaker member states to fulfil their obligations to respect the core values set out in the provision. Their capacity to do so has been subject to analysis prior to their accession.

Also, a potential argument that the new rule of law mechanism might represent a new tool for the net contributors to expand their influence within the EU system does not stand up to scrutiny. The principle of solidarity among Member States is among the core values on which the EU is founded (Art. 3 TEU). Moreover, the proposal addresses these concerns by emphasising the principle of proportionality in applying the new mechanism: paragraph (14a) explicitly sets out that “the legitimate interests of final recipients and beneficiaries” should be “properly safeguarded when measures are adopted in the event of breaches”. It continues to describe in detail, how the Commission could be involved to ensure that any measures taken under the new mechanism will not be abused to the detriment of the respective state. Furthermore, the proposal explicitly states that the new mechanism is considered subsidiary to other, already existing procedures applicable for the protection of the EU’s financial interests, and the identification of breaches of the rule of law to trigger the mechanism requires a thorough qualitative assessment, including objective, impartial and fair reports by various organs, institutions and international organisations.

The new mechanism reflects a development familiar to most democratic systems: they developed mechanisms to protect the very order they establish. Given that Art. 7 TEU has almost never been applied, because depriving a Member State of its voting rights was considered the “nuclear option”, the link to financial measures offers a real alternative, increasing the new mechanism’s applicability. As a result, the new rule of law mechanism envisioned in the budget plan is nothing but the next logical step to equip the original mechanism with teeth, and to fortify the democratic order established through the treaties.


Summarising, the tenor is this: Looking at the situation from the outside raises the question, who is blackmailing who, and can one even speak of blackmailing regarding compliance with the law, given that Hungary spoke of “ideological blackmailing”. It is readily accepted, that financial aids paid out to private persons are conditional upon the receivers’ compliance with conditions set out by the state. So why should different rules apply to states that decided to commit themselves to a particular legal order?

This crisis offers the EU an opportunity to recommit itself to its very nature and purposes. The EU is no mere financial aid organisation, but a supranational association of a sui generis nature, which was established out of the ashes of a horrible war, and this organisation is based on a certain code of conduct. That code of conduct is set out in the treaty, which both countries ratified.