When the EU found the political will to act on rule of law

In EU jargon, the hard-fought, controversial, and much-awaited 'conditionality mechanism', a new tool which allows the linking of funds to rule of law, survived and proved effective in 2022 — not only in the EU's top court, but in the council of member states as well.

This victory might seem like a small, Brussels-nerdy nuance from the outside. But in fact, this is a definite political triumph for those who think that governments that deviate from the EU's set of rules should face financial sanctions.

The mechanism is also a victory over the hypocrisy that so often weaves through EU politics.

So what happened exactly?

Mid-December, in a dramatic episode in the EU's struggle to keep governments — notably Hungary's — in check over judicial independence and all other goods that make a democracy a democracy, member state governments sanctioned Viktor Orbán's government.

The clash was anti-climactic. Last-minute, Orbán backed down from a threat to veto two crucial EU policies — joining the global minimum corporate tax, and a joint EU aid package to war-torn Ukraine.

Before this, EU governments' patience had been running thin — a plan to circumvent Hungary in the joint aid and thus make Orbán's veto threat meaningless had previously been put forward. Simultaneously, the deep mire Hungary's economy is in diminished Orbán's leverage.

In the end, EU member states decided to suspend 55 percent of cohesions funds, worth €6.3bn, from the €22-23bn Hungary is set to receive between 2021-2027 in EU subsidies. The vote was unanimous. Not even Poland, a close ally, stood by Hungary's side.

On top of this, countries also approved Hungary's Covid-19 pandemic recovery fund. With one big caveat however, as Budapest will not see any money from the allocated €5.8bn before it fulfils 27 "super milestones" focusing on rule of law, corruption and judicial independence.

Why is this significant?

The EU has struggled to handle governments that challenged judicial independence and other parts of democratic checks and balances at home.

First of all, it took some time for the EU to take seriously the way Orbán's rule was chipping away the pillars of democracy.

At first, it seemed to many like an overly ambitious prime minister of a small, poor country on the periphery misunderstanding democracy, and that he would be towed back into line soon enough. Not Orbán though.

In 2012, then EU Commission president Jose Manul Barroso announced three legal probes into Hungarian legislation on an obscure corridor of the European Parliament's Strasbourg building. But his successor, Jean-Claude Juncker, still joked with Orbán about being a "dictator".

Painfully slowly, it became clear that Orbán's actions, such as curbing the freedom of media and the courts, were not one-offs, but rather part of a systematic dismantling of democratic institutions.

More alarmingly for Brussels, Orbán and the non-reaction of the EU inspired followers, most notably in Warsaw.

As one senior EU diplomat confessed years later: "we simply did not expect that a government in the EU would start to dismantle democracy". That thinking was reflected in the lack of tools the EU had to discipline its own members on such non-economic issues.

The woeful Article 7 could suspend voting rights for a member state breaching EU values, but there were never enough member states or political will to act on it.

As Orbán's supermajority adopted one controversial legislation after the other, the EU started rolling out several tools: rule of law framework in 2014, the rule of law scoreboard, the rule of law "peer review" among member states in 2019.

Peer-pressure, the EU's traditional soft power, did not work, however.

The EU gets real

The conditionality mechanism was long in the making, especially as media, and Olaf, the EU's anti-graft agency uncovered what seemed to be the model that cemented Orbán's power: syphoning EU money to allies and proxies.

In 2018, the EU Commission proposed the mechanism, and in 2020 it became the focal point of tough negotiations between the parliament and member states. Feeling the pressure, Poland and Hungary threatened to veto the entire Covid-19 recovery fund over the mechanism.

After a request by Poland and Hungary, the legislation was scrutinised by the European Court of Justice, which said it was fine. But the real test came later: whether the commission would invoke it, and if member states would approve it — a move that would guarantee its political survival.

In the process, both the European Parliament and national parliaments played a crucial role.

The EP became more united in its support for tools that could discipline governments over rule of law after the biggest party, the European People's Party (EPP) dumped Orbán, or vice versa — in such a tumultuous break-up, it's always hard to know for sure.

National parliaments, for instance in the Netherlands and Germany, kept the issue on the agenda, and the pressure up on the governments.

So now what?

Let's not forget, the mechanism is no silver bullet. It's linked to how governments handle EU money and whether the institutions — such as public prosecutors — tasked with ensuring the money is not misused, work independently.

Orbán's erosion of democratic checks and balances will not be overturned by the 27 super-milestones, but it could slow it down. Also, Hungary could still challenge the decision in the EU's top court.

Nonetheless, the significance here is that the EU has, to some extent, overcome its aversion to bringing internal, intra-governmental conflicts out in the open, and sanction one of its own over rule of law, and democratic concerns.

It has show that the tool can be used, and used again — in a warning to others.

Side note, it was against Orbán's Hungary that the EU in 2012 first proposed to suspend cohesion funds under strengthened budgetary rules after Budapest failed to step up efforts to end the country's excessive government deficit.

At the time, Hungary did not lose any subsidies, as Orbán toed the line. It remains to be seen if that would happen again.

However, the EU has found the political will to act. Which has the potential of changing the dynamic around the impunity of democratic erosion within the bloc.