The Court of Justice of the European Union on Wednesday 16 February dismissed in their entirety the appeals by Hungary and Poland against the conditionality regime for the protection of the EU budget in case of violation of the principles of the Rule of law (cases C-156 & 157/2021).
Adopted at the end of 2020 as part of the negotiations on the 2021-2027 Multiannual Financial Framework (see EUROPE 12620/1), the regulation (2020/2092) allows the Council of the EU, on a proposal from the European Commission, to adopt, by a qualified majority of Member States, measures to protect the EU budget or to suspend the approval of programmes chargeable to that budget in the event of damage (or a serious risk of damage) to the sound financial management of the Union due to conduct attributable to an authority of a Member State.
The Hungarian and Polish governments consider that the regulation lacks an appropriate legal basis, circumvents the so-called ‘Article 7’ procedures on the respect of the Rule of law, exceeds the competences granted to the EU, and violates the principle of legal certainty.
In both cases, Belgium, Denmark, Germany, Ireland, Spain, France, Luxembourg, the Netherlands, Finland, Sweden and the European Commission intervened in support of the European Parliament and the EU Council.
Based on the Opinion of the Advocate General (see EUROPE 12845/1), the Court validates the ‘Rule of law conditionality’ regulation.
With regard to the legal basis of the Regulation, the European Court is of the opinion that the Regulation is primarily intended to protect the EU budget against damage arising in a sufficiently direct manner from violations of the principles of the Rule of law and not to sanction such violations.
In this regard, the Court recalls that respect by the Member States for the common principles and values on which the Union is founded, including the Rule of law and solidarity, justifies mutual trust between those States. Since this respect is a condition for the enjoyment of all the rights deriving from the application of the Treaties to a Member State, the Union must be able, within the limits of its powers, to defend these values.
The Court has made it clear that respect for these values cannot be reduced to an obligation which an applicant State is bound to fulfil in order to join the Union and from which it may be exempted after its accession. And it stresses that the Union’s budget is one of the main instruments for achieving solidarity between Member States and that, to do so, Member States must be able to trust other Member States to ensure that the Union’s budget is used responsibly.
Therefore, according to the European Court, a horizontal conditionality mechanism which makes the receipt of funding from the EU budget conditional on a Member State’s compliance with the principles of the Rule of law may fall within the competence conferred on the Union by the Treaties to lay down ‘financial rules’ relating to the implementation of the Union budget.
Furthermore, the Court considers that the so-called ‘Article 7 procedure’ of the European Treaty and the ‘Rule of law conditionality’ regulation have different purposes and aims. The ‘Article 7’ procedure makes it possible to sanction serious and persistent breaches of the common values on which the Union is founded, while the regulation aims to protect the EU budget against breaches of the Rule of law.
Since the Regulation only allows the European Commission and the EU Council to examine situations or conduct attributable to the authorities of a Member State which appear to be relevant to the proper implementation of the Union budget, the powers conferred on these institutions by this Regulation do not exceed the limits of the competences attributed to the Union.
As for the alleged breach of legal certainty which would result from the fact that the regulation does not define the concept of the Rule of law, the Court points out that the principles set out in the regulation as constitutive elements of the Rule of law (principles of legality, legal certainty, prohibition of arbitrary action by the executive, effective judicial protection, separation of powers, non-discrimination, and equality before the law) are amply developed in European case-law and have their source in the legal orders of the Member States.
Therefore, Member States are able to determine with sufficient precision the essential content and requirements of each of these principles.
Finally, the Court clarifies that the regulation requires, for the adoption of protective measures for the EU budget, that a real link be established between a breach of the Rule of law and an impairment (or a ‘serious risk’ of impairment as specified in the EU’s financial rules) of the sound financial management of the Union. Such an infringement must concern conduct attributable to an authority of a Member State and be relevant to the proper implementation of the Union budget.
The protective measures that may be adopted must be strictly proportionate to the impact of the infringement on the Union budget. In particular, according to the Court, they may target actions and programmes other than those affected by such a violation only if strictly necessary. Noting that the European Commission must comply, under the control of the Court of Justice of the Union, with strict procedural requirements which involve, inter alia, several consultations with the Member State concerned, the Court concludes that the regulation meets the requirements of the principle of legal certainty.
See the Court’s judgment for Hungary: https://aeur.eu/f/d8
And the one for Poland: https://aeur.eu/f/d9 (Original version in French by Mathieu Bion)