November 23
2020
Anjum Shabbir
Anjum Shabbir
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5th November 2020
Human Rights Institutional law

Analysis: “Rule of law conditionality for the EU budget: agreement is there” by Aleksejs Dimitrovs

On 5 November, the European Parliament and the Council of the European Union reached a provisional agreement on the general regime of conditionality for the protection of the Union budget. The Commission’s proposal to address the deficiencies related to the rule of law was presented in May 2018, and the Parliament adopted its position in the first reading in April 2019. The Council, however, was able to agree on the mandate for interinstitutional negotiations only in September 2020 – following the conclusions on applicable decision-making modalities in the European Council.

Throughout the process, the Parliament was proposing expansion of the scope of the new regulation, while the Council was seeking a restriction thereof. One addition was agreed upon quite quickly – to cover also the resources allocated through the European Union Recovery Instrument and through loans and other instruments guaranteed by the Union budget. The agreement may be summarised as returning to the Commission proposal, with one important caveat – decision-making modalities are the ones agreed by the European Council.

Where the Commission will propose an implementing act with financial measures to address the rule of law breaches in a given Member State, the decision will be taken by the Council by qualified majority (no reverse qualified majority, as proposed by the Commission and supported by the Parliament). The decision shall be normally taken within one month. If a Member State believes that the Commission proposal violates the principles of objectivity, non-discrimination and equal treatment, it may exceptionally request to discuss the matter in the European Council. Then the deadline for the Council to take a decision is extended to three months. Additionally, it is indicated that the Commission shall use Article 237 TFEU, where it deems appropriate, to ensure that the point is on the Council agenda on time.

In order to launch the procedure, two preconditions should be met: there are breaches of the principle of the rule of law, and such breaches affect or seriously risk affecting the sound financial management of the EU budget or the protection of the financial interests of the Union in a sufficiently direct way. The reference to ‘sufficiently direct way’ is taken from the Council approach, while the element of ‘risk’ is reinstated under pressure from the Parliament. So, it is not necessary for the Commission to prove that the breaches have already had a budgetary impact; enough to demonstrate the potential impact.

As regards the scope, the mechanism covers breaches of the rule of law as such, and fundamental rights are taken into account only if judicial protection thereof or equal treatment is affected. The Parliament proposed to expand the scope, but nothing materialised to that effect. However, it is specified that the rule of law should be understood having regard to the other Union values and principles enshrined in Article 2 TEU. The non-exhaustive list of examples is reinstated after the deletion by the Council – in those cases the Commission won’t have to prove that the breaches are committed:

  • endangering the independence of judiciary;
  • failing to prevent, correct and sanction arbitrary or unlawful decisions by public authorities, including by law enforcement authorities, withholding financial and human resources affecting their proper functioning or failing to ensure the absence of conflicts of interests;
  • limiting the availability and effectiveness of legal remedies, including through restrictive procedural rules, lack of implementation of judgments, or limiting the effective investigation, prosecution or sanctioning of breaches of law.

The Parliament, in line with its suggestions on the comprehensive mechanism for the protection of democracy, the rule of law and fundamental rights, proposed a panel of independent experts to assist the Commission in identifying the breaches. Neither the Council, nor the Commission liked the idea. Instead, the agreement foresees that the Commission, apart from relying on existing sources, could proactively seek the opinion of the Venice Commission or the Agency for Fundamental Rights.

The agreement also maintains the obligation of the Member State concerned to respect the obligations towards final recipients or beneficiaries. If the measures adopted concern shared management funds, the Member State in question shall report regularly. There will be a special tool for final recipients or beneficiaries to complain. In cases of non-compliance, the Commission will apply fund-specific or financial rules.

It is envisaged that the regulation will be applicable from 1 January 2021. There will be a report on its application three years after it has entered into force. Now the Parliament and the Council (by qualified majority) have to approve the agreement. Some Member States have already mentioned that their position on the Multiannual Financial Framework or the decision on the system of own resources will depend on the agreement that is reached. It remains to be seen how serious these threats are.

Aleksejs Dimitrovs is legal advisor for the Greens/EFA Group in the European Parliament. The usual disclaimer applies.

 

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