Linking Money to Values: The New Rule of Law Conditionality Regulation and Its Constitutional Challenges

Abstract

In December 2020, the EU institutions finally approved the new Rule of Law Conditionality Regulation after a controversial legislative process. The new Regulation allows the Commission and the Council to suspend EU funds in case of breaches to the rule of law that have negative effects on the EU budget and financial interests. This article analyses the new Regulation against the background of the rise of conditionality as a tool of EU governance. It argues, in contrast to some of the first analyses of the new Regulation, that the amendments adopted during the legislative process cannot simply be seen as a watered-down compromise, but were crucial to ensure the legality of the new instrument. At the same time, the EU’s growing reliance on conditionality continues to raise profound constitutional questions that still needs to be adequately addressed in the institutional and academic debate.

Fundamental Change Beneath the Surface: The Supranationalisation of Rule of Law Protection in the European Union

“…In May 2018, the Commission, in tandem with its proposal for the next Multiannual Financial Framework, presented its proposal to link the disbursement of EU funds to respect for the rule of law. Initially, the proposal was a nonstarter: Whereas the EP endorsed the proposal as early as April 2019, the Council was more hesitant, mainly due to its Legal Service's opinion, which questioned the compatibility of such a mechanism with EU law (Baraggia and Bonelli, 2022, p. 135).…”

The Covid-19 pandemic and the reordering of EU fiscal governance

“…In terms of governance, Michel's proposal envisaged switching to ordinary QMV in the Council in lieu of the reversed qualified majority voting (RQMV) mechanism originally put forward by the Commission. Despite contravening the European Parliament's demands, Michel's draft compromise was necessary to win political resistance from those member states concerned with the extensive decision-making powers the Commission would have to enforce protection of the rule of law under a RQMV system (Baraggia and Bonelli 2022). The Commission's legislative proposal for the establishment of the GRC and Michel's revised plan were the object of heated discussions among the top political leaders at the European Council meeting of July 2020.…”

“…Indeed, while most EU member states favoured the introduction of a GRC for protecting the EU budget, including an extension to the new financial instruments being negotiated within NGEU, the Visegràd members unsurprisingly feared this could undermine the activation of funding for their recovery programmes, hence voiced opposition. Thanks to the diplomatic efforts by German Chancellor Angela Merkel and to an intense preparatory work by the German Presidency at the General Secretariat of the Council ahead of the meeting (Baraggia and Bonelli 2022), the heads of State and government were able to find a provisional agreement whereby a 'regime of conditionality to protect the budget and Next Generation EU will be introduced' (European Council 2020f, 16). As per Michel's draft compromise on the governance of the instrument, the European Council also formalised that 'the Commission will propose measures in case of breaches [of the rule of law] for adoption by the Council by qualified majority' (European Council 2020f, 16), thus subverting the original Commission's scheme.…”

Fundamental rights and the federal equilibrium: Comparing the doctrines of incorporation in the USA and the EU

“…142 The Regulation stated the possibility for the Commission, upon approval of the Council of the EU, to suspend the influx of EU funds whenever violations of the rule of law were established which hampered or seriously risked hampering in a sufficiently direct way the sound management of the EU's budget or of its financial interests. 143 In December 2022 came the first application of the suspension mechanism against Hungary. 144 At the same time, the Commission also proposed another Regulation, adopted in 2021 and usually named the 'Common Provisions Regulation', establishing an enabling clause which requested compliance with the Charter in the implementation of the wide array of funds covered by the Regulation (social, territorial, cohesion, asylum funds, to name a few).…”