EU leaders unblock budget in deal with Hungary and Poland

The hold-up threatened to derail the next seven-year budget and the recovery fund, aimed at mitigating the economic consequences of the pandemic.

EU leaders meeting in Brussels agreed in the conclusions of the summit that the rule-of-law conditionality will only be used for the seven-year budget starting next year and the recovery fund, not for payments made from the current budget.

The use of the new tool will likely be delayed as leaders also agreed that any sanctions process could only be triggered by the EU Commission once the European Court of Justice (ECJ) rules on the new mechanism.

And the ECJ ruling is likely to come into play, when the new model is challenged in court by Hungary and Poland.

The compromise needed the approval of countries that strongly supported the rule of law conditionality, such as the Netherlands.

Dutch prime minister Mark Rutte, earlier on Thursday, asked for clarifications on whether the compromise would change the scope of issues that can come under scrutiny and if rule-of-law breaches could be punished retroactively as of January.

During the first hours of the summit, consultations went on with the council's legal services, and an EU source said eventually "Rutte got all clarifications".

MEPs stressed that the leaders' political declarations would not change the legal text of the conditionality which, for the first time in the EU's history, allows the suspension of EU funds if breaches of the rule of law linked to those subsidies occur.

"The European Council conclusions are a political statement, they are not legally binding, The text on the table is [binding]", the German leader of the centre-right group in the EU parliament, Manfred Weber, said.

"We expect the commission to fully implement the mechanism from the first day from when it becomes legally binding," he told reporters on Thursday, adding that the parliament plans to adopt its own political statement next week.

"This is an important win for the rule of law and the EU. The Parliament or the Council did not give in to threats. The agreement on the rule-of-law conditionality will not be reopened, and the regulation shall apply from 1.1.2021," Finnish centre-right MEP Pari Sarvamaa, who was the top parliament negotiator on the issue, also tweeted.

Better equipped

The EU has struggled for years to rein in countries like Hungary and Poland that backslide on democratic principles, and the new rule-of-law mechanism - originally proposed in 2018 - is seen as a key step in making the bloc better equipped to handle wayward members.

The Warsaw and Budapest governments, however, had been keen to avoid any link between EU funds and core values.

Hungary's prime minister Viktor Orbán in a Facebook post on Thursday evening said that "common sense has won".

"We protected the European constitution, we averted the danger of using budgetary measures to force Hungarians into taking decisions we don't want, and we protected the Hungarians' money," he added.

The new rule-of-law conditionality will likely not be effective for at least several months, even years, as the EU's top court weighs in, and the Commission comes up with guidelines on how to use the conditionality, which was also part of the compromise.

Meanwhile, Hungary and Poland made it clear in the last weeks they could make it politically painful for other member states if the rule-of-law tool was applied in a way that they disliked.