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30th Jun 2022

Poland, Hungary push back at EU budget 'conditionality'

Poland's EU affairs minister accused the European Commission of a "massive power grab" over the executive's plans to link some funds to respect for the rule of law - highlighting the concerns of those countries that feel targeted by the proposal.

EU affairs ministers on Monday (14 May) had their first chance to discuss the commission's proposal for the next seven-year EU budget, which for the first time involves the idea of tying the disbursement of EU funds to member states' record on upholding the rule of law.

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The debate revealed deep divisions, just as the EU gears up for an uncertain period with the US becoming an unpredictable partner, and China developing into a more assertive global player.

Poland, which is under scrutiny by the commission for breaking EU rules on the independence of the judiciary, and Hungary which has had its own run-in with the EU executive, both feel particularly targeted by the commission's proposal.

Poland's minister Konrad Szymanski pushed back hard on the proposal saying it is an attempt to override legally binding rulings from the European Court of Justice (ECJ).

"The proposal seems like a massive power grab with too high a discretion in the commission's hand," Szymanski told the other ministers.

"We are ready to support all the instruments to better control EU money, but we need something more intelligent and treaty-based," he added.

Hungary's ambassador for the EU, Oliver Varhelyi, filling in for the minister, backed up Poland's position.

"One would have to be very careful when introducing such an instrument, one has to follow the law verbatim here," he said, adding that there are serious concerns with the proposal's legal base and the criteria's for the measure are vague.

The so-called 'conditionality' instrument would be triggered if the commission detects "generalised deficiencies" in the functioning of a member states' judiciary that impacts on the the proper use of EU funds.

"Generalised deficiencies" could mean national authorities not following up damning reports by the EU's anti-fraud agency, Olaf, or that judges are systematically biased, or that judgement are not enforced in practice, EU officials say.

The commission would have the power to suspend EU funds if the member state does not address these problems, and the council - the body of member states - could only stop it with a qualified majority.

Several member states, including Belgium, Germany, France, Sweden, however expressed support for the new instrument.

"It is very reasonable to ask to respect the rule of law as a prerequisite for EU funds," Sweden's minister for EU affairs and trade Ann Linde said.

Old vs New

Several member states also pushed back on the commission's proposal to include new indicators when calculating the allocation of cohesion funds, other than the GDP-per-capita figure that has been the centre of the equation so far.

The commission plans to introduce migration, unemployment, climate and other figures to calculate who much countries and regions get. However, its detailed plans are only going to be unveiled at the end of May, making specific calculations for now very difficult.

Central and eastern European member states fear the new indicators will drive cohesion funds away from them, to southern European countries.

Some central and eastern states heavily criticised the commission's plans to cut the fund that they said could result in a 30-40 percent loss for some of the poorest regions. Poland fears the national cuts could be also as high as 30 percent.

"Should it stay as it proposed, politically we will not be able to explain or justify this approach that makes the least developed regions the losers [of the EU budget]," Ivan Korcok, Slovakia's state secretary for EU affairs said, arguing the cohesion cuts were too high.

Net payers, particularly the Netherlands, Austria, Sweden, Denmark and Finland that do not want to see an increase in the overall figure of the EU budget.

They argue that European investment should be turned away from 'traditional' areas such as cohesion and agriculture, and invested instead in innovation and climate, and used to address new challenges, such as defence and migration.

"More ambition and less tradition," Dutch foreign minister Stef Blok said.

Some ministers argued, however, that drastically cutting cohesion funds, a tool to help the economic converges of poor regions, could harm the overall competitiveness of the EU, and weaken the internal market.

Another major faultline is emerging among member states over the rebates, a complicated correction mechanism that was originally designed to keep the UK's budget contribution in some sort of equilibrium.

In a complex mechanism Germany, the Netherlands, Austria and Sweden also get rebates, which the commission plans to phase out in five years as Brexit scraps the rationale for the original rebate.

This is unacceptable to the Netherlands, as it fears its budget contribution will be disproportionate to its size. Yet France, for instance, is arguing that rebates should be cut fully, as with Brexit there is no reason any longer for their existence.

The key budget issues on EU leaders' table

As EU leaders gather on Friday to start discussing the future of the EU's spending after the UK leaves, major battle lines are already emerging among member states. Here is a look at the key issues.

Juncker seeks budget whip on unruly states

EU officials want discretionary powers to suspend funds from states that violate treaty values, in a bold power grab amid likely clashes with Hungary and Poland.

Rule-of-law row complicates budget talks

Disagreements are running deep between EU leaders over the overall size of the budget and recovery package, the criteria and mode of distribution and the conditions, with rule of law "another battle ground opening up".

Visegrad Four 'nothing to hide' on rule of law issue

Central European countries say they have "nothing to hide" on rule of law issues - while justice commissioner Vera Jourova said they should agree to the Commission's controversial budget plans on rule of law conditionality.

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