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28th Nov 2020

Deal in reach on linking EU funds to rule of law

Negotiators are closing in on a compromise on linking EU funds to respect for the rule of law, which could unblock parallel talks on the seven-year EU budget and coronavirus recovery package.

MEPs and diplomats from the German EU presidency, representing member states, meet for the fourth time on Thursday (29 October) morning, with a deal now "in the realm of the very possible", as one EU source put it.

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  • MEP Daniel Freund said he was not sure how "Orban won" on the number of member states that decide on sanctions (Photo: European Parliament)

Linking the disbursement of EU funds to the rule of law has been highly sensitive, with Hungary and Poland - already under EU scrutiny - having threatened to block the recovery package over the issue.

The idea, which was first put forward by the European Commission in 2018, was also a major sticking point at EU leaders' marathon budget negotiations in July.

"There is good will from all sides to come to an agreement swiftly," a spokesperson for the German presidency said ahead of talks with MEPs.

Much still depends on whether the German EU presidency is willing to sign up to a strict time limit in the new rule-of-law procedure, something the liberal Renew and Green groups in the European Parliament are pushing for.

"What we are asking is that there should be a time limit to the council's decision-making," German Green MEP Daniel Freund, a member of the parliament's negotiating team, told EUobserver.

Member states should have three months to decide on freezing funds, dating from an EU commission proposal for action, in order to avoid a repetition of the Article 7 debacle, Freund argued.

Under the Article 7 sanctions procedure, which has been ongoing against Poland and Hungary for years, EU governments dragged out the process out indefinitely by not taking a decision.

The issue is seen as a key guarantee that the new mechanism will actually work in practice.

Scope

MEPs have also pushed for a link between democracy and fundamental rights and the suspension of funds.

But those who oppose the rule-of-law conditionality want it to have only a narrow focus on fraud and corruption.

Freund said any breach - which could trigger the procedure - would have to fulfil two requirements: breaches of the rule of law and European values based on the EU treaty, and that the violation affects or "risks" affecting the sound financial management of the EU budget.

Triggering the procedure in case of a "risk" would be a win for the parliament's negotiating team, which had argued that the mechanism should be able to prevent rule-of-law breaches and misuse of funds.

Who decides?

MEPs have also hoped to return to the commission's original proposal, which said sanctions could only be stopped by a qualified majority of countries (called "reversed qualified majority" in EU jargon).

The idea had been thrown out in February by European Council president Charles Michel in budget talks, who suggested that, instead, a qualified majority of member states should be needed to initiate rather than stop sanctions.

It was seen as weakening the effectiveness of the new tool, as it would make it easier for Poland and Hungary, or other countries where such deficiencies occured, to muster a blocking minority.

"I fought very hard for the reversed qualified majority, and I am still not sure how, when the commission, the parliament and Germany all want reversed qualified majority, Orban wins this one," Freund said, referring to the Hungarian prime minister, whose government has been repeatedly scolded by the bloc for breaking EU rules.

The so-called "emergency brake" - when the member state under scrutiny thinks the procedure is partisan and not evidence-based, it can request the European Council president to take up the issue at the next summit of EU leaders - is expected to stay in the final deal.

The brake, pushed for by Orban and disliked by the parliament, proved to be a red line for the council of member states.

Fine line

Adding to the drama of EU deal-making, the agreement on the rule of law only requires the backing of a qualified majority of member states.

But as the rule-of-law issue is politically linked to parallel talks on the budget and recovery package - which did not see a breakthrough in talks on Wednesday night - the German EU presidency has to make sure all 27 EU governments are happy with the compromise that could emerge on Thursday.

It is forced to walk a fine line between those rejecting the new tool and those who advocate for a strong mechanism, such as the Netherlands, Denmark, Sweden and Finland.

EU countries stuck on rule of law-budget link

Divisions among EU governments remain between those who want to suspend EU funds if rule of law is not respected, and those who want to narrow down conditionality.

EU leaders face major clash on rule of law budget link

One major issue dividing member states in the ongoing budget negotiations is inserting a direct link between EU subsidies and the rule of law. While the biggest battle will be over figures, the rule of law conditionality also creates tension.

Deal reached on linking EU funds to rule of law

The deal means MEPs and the German EU presidency unblocked a major political hurdle to agreeing on the €1.8 trillion long-term EU budget and coronavirus recovery package.

Budget deal struck, with Hungary threat still hanging

Ultimately, the European Parliament managed to squeeze an extra €16bn in total - which will be financed with competition fines the EU Commission hands out over the next seven years, plus reallocations within the budget.

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