Rule-of-law row complicates budget talks

While disagreements are already running deep over the overall size of the package, the distribution via grants or loans, the economic conditions, and the issue of rebates (compensation for some net payers ), the rule of law conditionality "is another battleground opening up", as an EU diplomat put it.

It remains to be seen, however, how much member states are willing to fight over it, if all other contested issues fall into place.

The EU Commission first proposed two years ago suspending EU funds in case of rule of law deficiencies, in response to criticism that the EU is unable to handle countries where the judiciary's independence is compromised, or there is misuse of EU funds.

The plan was that commission's actions could be only stopped by a qualified majority of member states, so-called "reversed qualified majority" in EU jargon.

Poland and Hungary, which are under EU scrutiny partly for attempts to put the judiciary under political control, have rejected the plans and threatened vetoing the budget.

In February, European Council president Charles Michel's compromise proposal suggested that a qualified majority of member states should approve sanctions proposed by the commission.

Some saw the move as watering down the original plan before leaders' negotiations even began. Others, for instance Poland, hailed the idea.

In May, in the revised budget proposal, the commission again put forward its original plan that allows for a more automatic sanctioning.

"It is indispensable to act quickly to protect the financial interest of the EU. That's why we have to set up a decision-making process that can be applied effectively," Reynders argued to MEPs in the civil liberties committee.

"Reverse qualified majority proposed for the council [of member states] has to be maintained, that is the only way to make sure the mechanism will be effective," he said.

"If 'qualified majority' is chosen instead, we can easily find ourselves in a dead end," Reynders said, asking the MEPs for their support, as the parliament will also need to vote on the budget deal.

Michel's Gordian knot

As EU Council president Charles Michel is steering negotiations between governments and prepares his new proposal for the summit, it is clear that some member states want a tough "rule of law conditionality" to a starting point, at least.

The Guardian reported on Monday that Danish prime minister Mette Frederiksen "lobbied" Michel to "toughen the conditions on funding". Dutch premier Mark Rutte also argued for a strong mechanism to the Belgian politician.

The Danes and the Dutch are part of the so-called 'Frugal Four' - along with Sweden and Austria - arguing for smaller spending, tougher, more targeted conditions, part of which would be an effective rule of law tool. But it is not only the 'frugals' who are in favour.

"The rule of law conditionality is almost a precondition to getting a deal," said an EU diplomat, arguing that for frugal governments to convince their voters to support the package, it needs to be vested in a strong rule of law mechanism.

The diplomat argued that the recent Polish presidential elections, where incumbent president Andrzej Duda called for LGBT-free zones, is one example why the conditionality is so necessary.

"It is important that we have mechanism that have some teeth," said another EU diplomat, acknowledging that "it is difficult to sharpen the teeth again" after the February proposal.

Others argue that Michel's February proposal should be the starting point.

"It was acceptable to Hungary and Poland, it wasn't the most critical issue during the February summit [of EU leaders], that's was not why Michel did not succeed then," said a third diplomat, arguing that there is not point in opening it up again.