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PODCAST: Will the EU Economic Recovery Plan Fail?

Poland and Hungary continue to oppose the rule of law mechanism linked to the European Union’s seven-year budget, which includes the 750-billion euro recovery fund to tackle the economic recession caused by the COVID-19 health crisis. As the EU stands at a deadlock, HEC Paris professor and expert on EU law, Alberto Alemanno, explains the rule of law mechanism and its importance in the governance of the European Union.  

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Please explain what exactly is the Rule of law and its importance in the governance of the EU ?

Alberto Alemanno: Any country that intends to join the European Union needs to comply with a set of requirements or preconditions which are often called Copenhagen criteria. Those boil down into the respect to the rule of law and also to have a market economy, and obviously to be located in the European geographic area. When it comes to the rule of law, this is an important foundational requirement. It basically requires each country to have an independent judiciary to allow the media to be free and not to be controlled, to have a clear separation of powers between the legislature and the judiciary.

The principle of the rule of law is absolutely inescapable for any democracy today as it is in the European Union. However, there are countries that once have joined the European Union, they have shown to actually comply with all those requirements, including the rule of law and been showing, over time, to actually have their own rule of law deteriorating over time. This might be the case because they there have been attempts at controlling the judiciary - this happened in Hungary before happening in Poland – but also attacking the media or deciding to prematurely retire certain judges who no longer accept to basically play by the executive rules. Those are all illustrations of what has occurred in this particular historical moment both in Poland and in Hungary and also in other European countries where the rule of law has been deteriorating, but certainly there is a qualitative and quantitative difference when it comes to Poland and Hungary vis-à-vis the other 25 members of the European Union.

Why are Poland and Hungary strongly opposed to the Rule of law ? What is the impact of this opposition ?

Over time, the European Union tries to create oversight mechanism to ensure that once a member joins the European Union, will actually continue to abide by the rule of law provisions, as well as market economy and other different requirements. When it comes to the rule of law, almost 20 years ago, a decision was made to introduce the so-called Article 7 procedure that allows the Commission to open an investigation on a country which is allegedly breaching the rule of law or other foundational values of the Union, and to inquire whether such a violation justifies a sanction. The sanction forseen is the suspension of the voting rights. So the Article 7 procedure has been opened against both Poland first and Hungary second. However, the actual end of the procedure has never been achieved and the reason for that is that all countries in the European Union but the country which is object of the procedure have to agree.

What happened in these particular circumstances is that Hungary has threatened to actually veto the Article 7 procedure vis-à-vis Poland and Poland did the same vis-à-vis Hungary, thus providing a protection to the other fellow government. This has rendered Article 7 absolutely useless, both legally and politically.

It is against this backdrop that it has been negotiated over the last few months the possibility to introduce a new rule of law mechanism making the disbursement of European funds conditional upon the respect of the rule of law. Over the years, both Hungary and Poland been receiving huge amount of European funds, despite violating the rule of law. There was no express mechanism that made conditional the disbursement of these funds to the rule of law. It is exactly what the new rule of law mechanism is trying to achieve. However, in order to adopt it, there is a need for a qualified majority vote. That basically means that Hungary and Poland cannot veto this mechanism. This mechanism is set to enter into force.

However, things are more complicated because the rule of law mechanism is part - together with the next generation EU - of the new European budget cycle, which is a seven-year cycle and it is relation to that where a unanimity is required.

That's where both Poland and Hungary in the last few days have been posing their veto, thus politically blocking the entry into force of the next generation - and therefore recovery fund – and the disbursement of those particular funds all across the European Union, which we all know consists of 750 billion euros, both in the forms of bonds and loans.

How will the EU move forward with this deadlock ?

The European Union, in particular its leaders, face a real dilemma these days. On the one hand, we have Angela Merkel, Germany, and a few other countries that are trying to find some forms of compromise with Poland and Hungary. They are of the intention to weaken the application of the rule of law mechanism, which has been actually tailored on Hungary and Poland and to guarantee that they won't be used or will be used only in exceptional circumstances. On the other hand, most of the European governments led by the Netherlands argue that this wouldn’t make any sense because this mechanism was created to actually sanction and to be used against Poland and Hungary. Should we water it down or suspend this application, its adoption would be absolutely useless.

In these circumstances, a few other options are on the table. One of the most promising ones is the possibility to adopt the rule of law mechanism - and in particular the next generation EU recovery fund - through an alternative process which is called enhanced cooperation, which allows nine European member states or more to actually advance in European integration by excluding some others who are not willing to opt in. This is a way to circumvent the actual veto by Hungary and Poland : by excluding them from the EU next generation.

There is a controversy at the moment on what are the best possible options and we don't know how this deadlock will be solved. But in the meantime, what we are witnessing is a reporting in time. There's a delay in the disbursements of the European funds because those have not been adopted, as well as of the European budget itself. So unless an agreement is reached by the end of the year, the budget will provisionally continue to exist for the orderly administration of the EU and existing programs, but the specific pot of money - 750 billion out of 1.8 trillion euros, which are composed of the new European budget - won't be able to be disbursed because they haven't been decided.