Op-Ed: “The July 2020 Special European Council, the EU budget(s) and the rule of law: Reading the European Council Conclusions in their legal and policy context” by John Morijn
Cash meets rule of law
The European Council Special Meeting dealing with the Multiannual Financial Framework (MFF) and Next Generation EU (NGEU)/EU Recovery Fund-negotiations on 21 July 2020 unanimously agreed on rule of law protection and -conditionality language. A ‘no rule of law, no money’-logic had already been strongly advocated for by the Commission in a 2018 proposal that is currently still pending. Many observers had drawn attention to the necessity of rule of law conditionality in the key of MFF discussions specifically (see, ex multis, here, here and here); some, however, also cautioned against such an approach or strategy (see here and here). Yet, the ink of the texts had barely dried for them to be read and explained very differently (see here and here for very comprehensive analysis, and here for another early analysis). So very differently, in fact, that one could seriously wonder whether the same text was being discussed (see here for Poland and Hungary, here for Germany, here for the Netherlands, and here and here for the both responsible European Commissioners). So what is (all) the rule of law relevant text in the European Council Conclusions? And what does it mean in its legal and policy context?
Introducing rule of law conditionality through economic conditionality?
If we go through the text chronologically, the first relevant paragraphs are the following (most relevant bits highlighted):
“I. NEXT GENERATION EU
Recovery and Resilience Facility […]
A18. Member States shall prepare national recovery and resilience plans setting out the reform and investment agenda of the Member State concerned for the years 2021-23. The plans will be reviewed and adapted as necessary in 2022 to take account of the final allocation of funds for 2023.
A19. The recovery and resilience plans shall be assessed by the Commission within two months of the submission. The criteria of consistency with the country-specific recommendations, as well as strengthening the growth potential, job creation and economic and social resilience of the Member States shall need the highest score of the assessment […].
The assessment of the recovery and resilience plans shall be approved by the Council, by qualified majority on a Commission proposal, through an implementing act which the Council shall endeavour to adopt within 4 weeks of the proposal.
The positive assessment of payment requests will be subject to the satisfactory fulfilment of the relevant milestones and targets.
The Commission shall ask the opinion of the Economic and Financial Committee on the satisfactory fulfilment of the relevant milestones and targets. The Economic and Financial Committee shall strive to reach a consensus. If, exceptionally, one or more Member States consider that there are serious deviations from the satisfactory fulfilment of the relevant milestones and targets, they may request the President of the European Council to refer the matter to the next European Council.
The Commission shall adopt a decision on the assessment of the satisfactory fulfilment of the relevant milestones and targets and on the approval of payments in accordance with the examination procedure.
If the matter was referred to the European Council, no Commission decision concerning the satisfactory fulfilment of the milestones and targets and on the approval of payments will be taken until the next European Council has exhaustively discussed the matter. This process shall, as a rule, not take longer than three months after the Commission has asked the Economic and Financial Committee for its opinion. This process will be in line with Article 17 TEU and Article 317 TFEU.”
Some rule of law specialists will be rubbing their eyes and ask: is this a mistake? What does this have to do with our topic? In fact, this language is arguably of huge significance for rule of law protection. EU institutions, in their so-called country-specific recommendations, have for some time identified problems in Member States such as Hungary and Poland as a problematic obstacle for economic growth and safe investment. These problems are rule of law problems. Let us have a closer look.
The country-specific recommendations for Hungary for 2019-2020 included: “Reinforce the anti-corruption framework .. and strengthen judicial independence”. The recommendations for the same Member State for 2020-2021 stated: “Ensure that any emergency measures be strictly proportionate, limited in time, in line with European and international standards and should not interfere with business activities and the stability of the regulatory environment”. The country-specific recommendation for Poland for 2020-2021 recommended: “Enhance the investment climate, in particular by safeguarding judicial independence”. This may be relevant for other Member States too. To give one example, the recommendations for Malta for 2020-2021 included: “Complete reforms addressing current shortcomings in institutional capacity and governance to enhance judicial independence”.
All of these aspects have been widely studied and documented (see here for a recent analysis of judicial independence in Poland, and here for the problematic continuing state of emergency in Hungary). For the Commission to be able to decide on whether and when any NGEU monies can be disbursed to these Member States, these pertinent (and highly damning) analyses have now become central in an immediate and immediately actionable manner. Highly significantly, this is a matter for the business-as-usual part of the EU institutional mechanisms and procedures. As the wording pointing to Article 17(1) TEU (referring to the Commission’s power to execute the budget and manage programmes) and Article 317 TFEU (referring to the Commission’s task to implement the budget on its own responsibility) makes clear, the European Council has explicitly intended this. European Council involvement can only be exceptional, and in line with these procedures. It is notable that that wording was added at a late stage in the negotiations (compare here with an earlier version of the Conclusions, and see in that regard also this Council Legal Service Opinion).
The economic conditionality that was established on the insistence of the Frugal 4/5 to ensure that the Commission (more) forcefully and consistently acts on country-specific recommendations vis-à-vis Member States in the South may have significant rule of law protection spill-over vis-à-vis Member States in Article 7 TEU territory. The rule of law has been made a central concern to a central aspect of economic governance governed by the regular Community method. This is a veritable sea-change. It will require quick accumulation of rule of law related knowledge within parts of the EU institutions’ services dealing with the budget as well as bodies like the Economic and Financial Committee. Economic frugality and a values-based stance may have turned out to be compatible after all – even if unintentionally.
Deciphering the rule of law conditionality language
The paragraphs that have received more attention from the viewpoint of rule of law protection read as follows (again, my highlights):
“II. MFF 2021-2027 […]
A24. The Union’s financial interests shall be protected in accordance with the general principles embedded in the Union Treaties, in particular the values of Article 2 TEU.
The European Council underlines the importance of the protection of the Union’s financial interests. The European Council underlines the importance of the respect of the rule of law.
ANNEX
I. Horizontal […]
22. The Union’s financial interests shall be protected in accordance with the general principles embedded in the Union Treaties, in particular the values of Article 2 TEU.
The European Council underlines the importance of the protection of the Union’s financial interests. The European Council underlines the importance of the respect of the rule of law.
23. Based on this background, a regime of conditionality to protect the budget and Next Generation EU will be introduced. In this context, the Commission will propose measures in case of breaches for adoption by the Council by qualified majority.
The European Council will revert rapidly to the matter.
24. The Commission is invited to present further measures to protect the EU budget and Next Generation EU against fraud and irregularities. This will include measures to ensure the collection and comparability of information on the final beneficiaries of EU funding for the purposes of control and audit to be included in the relevant basic acts. Combatting fraud requires a strong involvement of the European Court of Auditors, OLAF, Eurojust, Europol and, where relevant, EPPO, as well as of the Member States’ competent authorities.”
These paragraphs have already been widely analysed (see the references provided above). The contribution here is intended to be complementary. The general impression is that this is watered-down and repetitive language, muddled in a way that potentially sidelines or otherwise weakens the previously mentioned and currently pending Commission proposal on budgetary rule of law conditionality, and gives the European Council an unclear role. Let us look at these aspects in turn.
First, has this been watered down? Evidence suggests it clearly has been in some aspects. A leaked version of the Conclusions from just a day before the final text had much more elaborate rule of law language (see para A24 and paragraphs 22-27 in the Annex). The way in which the Hungarian delegation reportedly wanted to rewrite that was also brought into the public arena, showing the intentions of this Member State to remove its teeth. The current text is therefore a compromise. But, arguably, definitely not a complete surrender to rule of law proponents. Interestingly, in some respects the slimmer version has even been strengthened as compared to the earlier version. What seems legally significant, for example, is that direct linkage between the Union’s financial interests and Article 2 TEU in general is mentioned. Twice! And, as it happens, Article 2 TEU is broader than just the rule of law, as it also contains values such as human rights and democracy. This may be something that the Commission and the European Parliament want to pick up on in taking further the budget/values conditionality proposal under discussion with the Council, because that proposal is now limited to only the rule of law. Moreover, it is relevant to note that this regime would cover both the MFF and NGEU, unlike the indirect rule of conditionality regime established for the NGEU as discussed earlier. Both these systems of conditionality would come to function in parallel. So that may also be something to take into account when further developing the general regime.
Second, is it muddled? Of course! Particularly paragraph 23. What is specifically unclear is whether the European Council’s intention was to replace the aforementioned Commission budgetary rule of law conditionality proposal altogether, or just give guidance as to its specific wording about the voting modalities in the Council. Even if some Member States have tried to frame things differently, both the Commission president and the Council Presidency (Germany) have already signalled that it is simply the latter. So that leaves a discussion about the much narrower issue of whether the Commission should be able to recommend blockage of funding based on rule of law deficiencies for the Council to require a QMV to block that recommendation (as per article 5, paragraph 7 of the Commission proposal), or whether there should be QMV in the Council to endorse the Commission recommendation (as per the European Council Conclusions language). A very large majority of the European Parliament – including, highly significantly, the European People’s Party (the home of Fidesz) –has already signalled it does not agree with that aspect, and that it wants Reverse QMV back. It will debate this on 23 July. So that is a battle still to be fought.
Which leads to the third and final point: what is the role of the European Council (or rather: what could it be, legally)? And, in that context, what could language to the tune of “reverting rapidly to ‘the matter’” mean? Rather than answering that question directly, what seems to “matter” first is what the European Council’s position can at all be with regard to – as we have just seen – giving impetus and political directions and prioritisation under Article 15(1), first sentence TEU, if it is crystal clear that it cannot itself exercise legislative functions (Article 15(1), second sentence TEU)? As we just saw, the European Council reminded itself of the inherent limitations of its own role in paragraph A19, where it clarified that anything instructed at European Council level should be in line with Article 17(1) TEU and 317 TFEU.
It is suggested that the very same logic would need to apply here. The legal base for the Commission’s budgetary rule of law conditionality proposal is Article 322 TFEU, which is directly connected to Article 317 TFEU (and is actually referred to in that article). In other words, the European Council can guide legislative procedures, write political conclusions about it, but it cannot overwrite the logic and principles of the Treaties, including the principles of conferral of powers and institutional balance (Article 13(2) TEU). It seems a fairly reasonable reading, therefore, that this was just a way for the European Council to say that the Commission should know it considers this “matter” of getting on with the Commission proposal on rule of law conditionality urgent and that it is expecting progress reports from the Union legislator (the Council of the EU and European Parliament) so that it can itself revert to it rapidly.
Rule of law Christmas in July (and how to implement it)
Looking at the Conclusions of the Special European Council from the perspective of rule of law protection, there is a lot more than meets the immediate eye. Quite remarkably, the Heads of State and Government introduced a potentially powerful indirect rule of law conditionality mechanism on the partial terrain of NGEU without this leading to any controversy from this perspective. Perhaps it was a lack of sleep which turned out to be highly beneficial. In any event, as per the explicit text of the European Council Conclusions the 750 billion euro in this fund can now only be disbursed to Member States that comply with country-specific recommendations, including those that directly relate to the rule of law. Rule of law has become a central economic governance concern – which it (also) is, of course. But this notion needs to sink in still, both with rule of law and economics specialists.
The language about Article 2 TEU conditionality with regard to both the MFF and NGEU is more muddled. But a reasonable interpretation based on the EU treaties shows the battle is effectively narrowly focused on whether the budgetary rule of law (or more broadly defined) conditionality, to be adopted in the Ordinary Legislative Procedure, should stick to the Commission’s proposal that its findings to block funding based on rule of law concerns can only be overturned by Reverse QMV or whether instead such a finding would need to be supported by a QMV in the Council – which apparently the European Council’s line now is. That is a battle that is yet to be fought. Like it did in paragraph A19 of the Conclusions, at a future occasion the European Council may have to reconfirm the evident point that its impetus, political direction and prioritisation (Article 15(1) TEU) cannot overwrite the procedures and responsibilities laid down in the Treaties. In that sense legal principles that have made the EU a community of law and values will direct how the EU can at all deal with rule of law problems at the Member State level.
Perhaps most importantly, these European Council Conclusions show that the large but thus far silent and mostly ineffective political majority in the EU favouring rule of law protection has finally upped its game, raised its voice and put its foot down at the highest political level – although, paradoxically, quite likely unwittingly. Member States in Article 7 TEU situations have now probably been isolated and (even if they will likely remain in a state of denial for a while) must have less easy access to – at least – NGEU funding with immediate effect. That is a big step forward, truly Christmas in July. It will now come down to implementation by the other EU institutions, particularly the Commission as Guardian of the Treaties. It is up to us to give it our full support. Because the rule of law deserves a guardian.
John Morijn is professor of law and politics in international relations at the University of Groningen