EU Court throws out Hungary, Poland challenge to rule of law regulation

The European Court of Justice has upheld the validity of the rule of law Conditionality Regulation, dismissing requests by Hungary and Poland to annul it.

The ruling confirmed the European Parliament’s long-standing position to protect the EU budgets from misuse by national governments that are in breach of the rule of law, by denying them funds.

“The European Parliament now expects the Commission to apply the conditionality mechanism swiftly. Conditionality of EU funds linked to respect of the rule of law is non-negotiable for the European Parliament,” European Parliament president Roberta Metsola said.

In 2021, the European Parliament also sued the European Commission in the Court of Justice for its failure to apply the Conditionality Regulation.

“The rule of law is the basis on which our Treaties are built. It is fundamental that all member states adhere to the Treaties they all signed up to when they joined the European Union. Values matter, and citizens have the right to know how common funds are used.”

The case started after the EP and the EU’s Council adopted the conditionality regime in Deceber 2020, that allows a suspension of payments from the EU budget for breaches of rule of law.

Hungary and Poland each brought an action before ECJ for the annulment of that regulation.

Belgium, Denmark, Germany, Ireland, Spain, France, Luxembourg, the Netherlands, Finland, Sweden and the Commission intervened in support of the Parliament and the Council.

The ECJ found that compliance by member states on the common values on which the EU is founded “define the very identity of the European Union as a legal order common to those States”,

“Since that compliance is a condition for the enjoyment of all the rights deriving from the application of the Treaties to a Member State, the European Union must be able to defend those values, within the limits of its powers,” the ECJ said.

“Compliance with those values cannot be reduced to an obligation which a candidate State must meet in order to accede to the European Union and which it may disregard after accession,” the Court said.

The ECJ also said the sound financial management of the EU could be seriously compromised by rule of law breaches in member states. So a “conditionality mechanism” on EU funds fell well within the powers of the EU to create rules on how its money is spent.

The ECJ added that member states were also capable to determine the essential requirements that flowed from the principles of ‘rule of law’ and what this means for each member state.

“The concept of ‘serious risk’ is clarified in the EU financial legislation and states that the protective measures that may be adopted must be strictly proportionate to the impact of the breach found on the Union budget. In particular, according to the Court, those measures may target actions and programmes other than those affected by such a breach only where that is strictly necessary to achieve the objective of protecting the Union budget as a whole,” the ECJ said.