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EU power to slash funds will face fresh fights after court verdict

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The EU on Wednesday will finally — after months of waiting — get the court ruling long touted as the final sign-off it needs to slash funding to members like Hungary and Poland for flouting democratic standards. 

That doesn’t mean Brussels will immediately pounce.

Already, there are indications of possible political delays and new legal challenges after the ruling from the EU’s top court. Further complicating matters, Budapest and Warsaw are also seeding the ground to challenge the court’s legitimacy.

For years, the EU has struggled to address democratic backsliding across the Continent, as existing powers proved either ineffective or difficult to use. In response, European officials pushed through a new power they hoped would help reverse the trend: targeting countries’ wallets. 

The mechanism, adopted in late 2020, allows the EU to reduce funding to countries where rule-of-law problems negatively affect European taxpayers’ money. It was a significant win for Western EU governments and MEPs fighting for more accountability.

But, thus far, it’s never been used.

The European Commission agreed to hold off until the bloc’s top court, the Court of Justice of the EU, ruled on a legal challenge to the authority from Hungary and Poland. Now the wait is almost over.

But the highly anticipated judgment could simply spark yet another political fight. And the EU will likely also have to grapple with a fresh challenge: Hungary’s government has now joined Poland in openly questioning the role of the top court. 

That means the EU’s years-long battle to police the rule of law may just morph into an even larger clash over the EU’s entire legal order — a difficult development for a bloc trying to prove its ability to promote and protect democracy.

“Member states must not accept a situation in which political decisions are taken by the European Court of Justice, instead of the peoples and governments of the member states,” Hungarian Prime Minister Viktor Orbán said last month. “Wake up, Europe.”  

Uncertain timeline 

After the top court rules Wednesday, Commission President Ursula von der Leyen will face pressure from the European Parliament, whose lawmakers have called for quick action to slash funding to rule-of-law laggards.

There are also voices within von der Leyen’s Commission pushing for action. Some officials said they are hoping the dual pressure will get the Berlaymont to move.

But officials also acknowledged that even in the fastest scenario, the Commission would need at least several weeks to analyze the ruling and integrate the court’s views into guidelines for implementing the mechanism. And, they stressed, the Commission’s first case must be carefully crafted. 

At the same time, there are concerns von der Leyen may not be in a hurry.

“I fear that there will be reasonably little that will actually happen,” said German Green MEP Daniel Freund, noting that von der Leyen has stalled on the mechanism in the past.

“Something needs to happen to change her mind,” said Freund. “That something, I think, is pressure from Paris and Berlin.”

One EU official said the French Council of the EU presidency, which runs until July, could get in the way. Von der Leyen, the official said, “wants to please” French President Emmanuel Macron, who “doesn’t want his presidency messed up” over a rule-of-law squabble.

Officially, the French presidency has vowed to “ensure the swift and proper implementation of the mechanism.” And when asked about any possible hesitation from Macron, a spokesperson for the French permanent representation to the EU said: “These rumors are without foundation.” 

The decision could also come down to whether the Commission’s leadership — which generally works to avoid the appearance of interference in domestic politics — opts to take into account Hungary’s April 3 election, when Orbán will be up for reelection. 

“If Hungary meets the criteria for triggering, we will trigger,” said one European Commission official. “The only political question is whether to do it before elections or not.” 

A spokesperson for the Commission insisted it will protect EU funds.

“The Commission will always act to defend the EU budget,” the Commission spokesperson said. “As guardian of the [EU] treaties, it will do so on the basis of a sound legal procedure.”

The Berlaymont will trigger the mechanism “when everything is legally sound and cases are mature,” the spokesperson said, refuting the notion that the Hungarian election could play a role in the timing. “Legal procedures are legal procedures. We doubt that a political calendar will be among the criteria set out by the [court] … in its upcoming judgment.”

Eyes on the Council

While much of the attention in recent months has focused on the Berlaymont’s role — the European Parliament even sued the Commission, arguing there was no reason to delay triggering the mechanism — it is ultimately up to EU countries’ governments to determine whether funding should be cut.

The Commission will thus seek to avoid an embarrassing situation where it opts to use its new power but fails to garner the required qualified majority in the Council — a minimum of 55 percent of EU countries representing at least 65 percent of the EU population.

“If the Commission moves forward, they will make sure they have the necessary majority” among countries, said one EU diplomat.

Tytti Tuppurainen, Finland’s minister for European affairs and a vocal rule-of-law advocate, urged Brussels to move ahead. 

“It is up to the Commission to decide to trigger the mechanism, and Finland encourages the Commission to use all rule-of-law instruments at its disposal,” she said, adding she believed there would be a “sufficient majority” to slash funds “as the ultimate step.”

Renewed battle 

Warsaw and Budapest have argued the mechanism does not provide legal certainty and violates the EU treaties. 

The Commission, on the other hand, has already sent Poland and Hungary informal letters setting out the questions that would form the basis of a case against them. The letter to Budapest focused primarily on systemic problems with fraud or corruption. The letter to Warsaw centered on judicial independence concerns. 

Both countries have dismissed the Commission’s fears, and officials expect yet another legal battle if the EU moves to slash funds.

If the Council approves a funding reduction, Hungary and Poland “will most likely” go to court again to try to annul the decision, said the EU diplomat, cautioning that “with the first cases, you have to be careful, you have to be safe and you have to be sure to win your case in court.”  

But the dispute is already adding fuel to a broader clash over the EU’s structure and legal system. 

Zbigniew Ziobro, Poland’s hardline justice minister, has asked the country’s Constitutional Tribunal — itself considered not independent by European institutions — to assess whether the bloc’s treaties provide grounds for the mechanism.  

Hungary’s leadership, meanwhile, has upped its criticism of the top court. 

“The judgment on 16 February will reveal that the Court of Justice sees a federal Europe as being desirable,” Orbán said.

Legal specialists, however, said the EU has a solid case against both Poland and Hungary. 

While the arguments to cut funding for Warsaw and Budapest cover “different subject matter,” in both cases “they meet the test to activate the regulation,” said Laurent Pech, a professor of European law at Middlesex University London. 

But Pech — who is fighting to have a prior legal opinion on the mechanism made public — also said the Commission could start with Hungary, before turning to Poland later. His reason: Polish authorities are currently involved in a plethora of cases at the Court of Justice and the European Court of Human Rights.

“If I were the Commission, I would try to make sure that my first case under the regulation is 200 percent bulletproof,” he said. 

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