Why the European Parliament should reject the rule-of-law deal

Afraid of a Hungarian and Polish veto, the German presidency has watered down a previous Commission proposal to link the budget and the rule of law - in a way that makes it toothless. That proposal has now been approved as the negotiating position by the Council.

As widely discussed, the proposal reversed the voting arrangements by which a suspension of budget payments could be decided.

The council would now need a qualified majority vote of member states to actively approve such measures, while in the prior commission proposal they could only have vetoed them with that same majority. In short, it requires a stronger commitment from member states.

Yet, the member states are the weakest link in the defence of democracy in the EU. They have been sitting on the Article 7 procedure against the Polish government for almost three years.

But there is another less-discussed aspect in which the council proposal weakened the original. It now says that a suspension of the rule of law should be proportionate to the impact of the rule of law breaches on the EU's budgetary interests.

Translating from legalese, this means the EU will keep sending European funds to a member state even if it completely dismantled independent courts – as long as it avoided that a direct link could be drawn to mismanagement in spending EU funds.

Hungarian street lamps

To take a concrete example: the EU sponsored a programme to modernise street lamps in Hungarian cities. A company co-owned by Viktor Orbán's son-in-law won 35 contracts to build the lamps at a total cost of €40m. If public tenders are designed in a way that there is no serious competition, nobody will go to court to challenge funding decisions.

And if nobody goes to court, one cannot even start an assessing whether the lack of independent courts was a key element in the financial mismanagement.

Furthermore, if a breach of the rule of law could be substantiated in this particular case, the financial impact and consequent sanction would amount to no more than the value of these contracts - €40m. Such sums will not have any deterrent effect on governments that receive billions of euros from European taxpayers.

An extreme concentration of power in the government, which means a weakening of checks and balances, should be a concern in itself - even if it is not accompanied by flashing warning lights like the enrichment of people who are close to the prime minister, as in the case of Hungary.

The commission should not be obliged to dig into each and every case of mismanagement to identify a financial impact.

Indeed, that idea would bring it into overlap with the EU's anti-fraud office, OLAF. OLAF indeed raised serious concerns over the streetlamp contracts.

The Hungarian authorities did not launch significant investigations into this alleged fraud. Instead, the government quickly agreed to pay the streetlights from Hungarian taxpayers' money, thereby removing the whole embarrassing story from the EU's jurisdiction.

This illustrates a second problem of the German conditionality proposal: by honing in on possible impacts on the EU budget, it will only achieve that member states will be more diligent in avoiding corruption or wrongdoing when they spend EU money, making their shady deals with national funds instead.

It is already happening: judging by its aggressive rhetoric, you would expect that the Hungarian government fought tooth and nails to make sure Hungarians benefit from the European support as much as possible. Not so.

When OLAF found last year that Hungary had severely mismanaged EU funds, the government meekly agreed to lay the issue to rest for a penalty payment of more than €1.65bn.

OLAF's work has not stopped the drive to authoritarianism. And more commission attention to similar problems will not do so either. The problem remains the overall systemic deficiency resulting from authoritarianism, whatever the budgetary impact may be.

Massive damage can be done to EU obligations with no measurable financial impact.

How do you determine the financial impact when minorities are openly and officially discriminated against in Polish towns and regions? What is the financial impact for the EU when publicly-funded state media in Poland and Hungary have become propaganda channels of their governments and no independent court available to correct the abuse?

OSCE election observers have found that Hungarian elections are no longer fair. They do not conform to what Hungary obliged itself to do in the OSCE. What is the financial impact? What is the price of democracy?

The German position was endorsed in the council against the votes of the Polish and the Hungarian government. The governments of Finland, Sweden, Denmark, the Netherlands, Belgium, Austria and Luxembourg are currently opposing the proposal because they think it is too weak. They want a stronger mechanism.

They are right. The European Parliament should stand firm in demanding a stronger mechanism.

The realpolitik case of avoiding a budgetary slowdown when Europe needs a fiscal injection against the Covid-19 recession is clear. But the damage to the EU will be much bigger if it does not find effective ways to ensure that all its member states return to becoming functioning, rule of law-based democracies.

Authoritarian governments, which are also overwhelmingly nationalistic, will throw ever more spanners into the EU's policy processes.

And the EU will lose its most important constituency: Europeans who believe in democracy and support European integration.