The EU’s Rule of Law Conditionality Mechanism: A Case for Suppression, Not Reform

Practical issues related to the conditionality mechanism in light of comments from the European Parliament Research Service

In the European Parliament, in the Committee on Budgets and the Committee on Budgetary Control, a discussion is underway on practical problems related to the application of the EU regulation governing the so-called conditionality mechanism.¹ At the request of both parliamentary committees, the European Parliament’sResearch Service (EPRS) has prepared an analysis of the practical problems associated with this mechanism and proposals for their resolution².

What is the rule-of-law conditionality mechanism?

Before discussing the key elements of the EPRS analysis, it is necessary to explain the concept of the EU’s conditionality mechanism.

The rule-of-law conditionality mechanism is—put simply—a procedure that enables the European Union to suspend the disbursement of funds owed to a member state whose judiciary or prosecution service is not functioning properly, for example because of excessive dependence on the government.

The mechanism in question was established in 2020 in response to disputes between Brussels and Hungary as well as Poland over changes to the judiciary. Until then, the EU lacked any effective mechanisms to compel a member state to roll back changes that were controversial in light of EU standards requiring adequate judicial independence from the government and parliament.

At the end of 2020, the European Parliament and the Council adopted a regulation on a general regime of conditionality for the protection of the budget, which granted the Union a powerful tool to exert pressure on Member States. Under this regulation, if a Member State “breaches of the principles of the rule of law” are such that they jeopardizes the “sound financial management of the Union budget” or “the protection of the Union’s financial interests”, the Council of the European Union, on a proposal from the European Commission, may freeze the disbursement of EU funds to which the said Member State is entitled. The phrase “rule-of-law mechanism” used in the media is therefore a shorthand—because not every violation of the rule of law authorizes the EU to withhold funds from a Member State, only those that result in irregularities in the management of EU funds—at least in theory. In practice, however, the Commission interprets very liberally the requirement that there be a link between a breach of the rule of law and EU finances, holding that even a potential impact on the management of EU funds is sufficient to suspend their disbursement.

Article 2(a) of the regulation defines the “rule of law” as a set of general principles comprising”the principles of legality implying a transparent, accountable, democratic and pluralistic law-making process; legal certainty; prohibition of arbitrariness of the executive powers; effective judicial protection, including access to justice, by independent and impartial courts, also as regards fundamental rights; separation of powers; and non-discrimination and equality before the law. The rule of law shall be understood having regard to the other Union values and principles enshrined in Article 2 TEU.” In turn, Article 2 of the Treaty on the European Union refers to the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities, as well as pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men.

As can be seen, the principles mentioned are very general, which makes them subject to various interpretations, depending on the political, social, and ethical views one holds. For example, the provisions of the regulation do not clarify what is meant by a “democratic law-making process”—all EU member states are democratic states, in which laws are enacted by parliaments elected by universal suffrage. The European Parliament and the Council of the European Union certainly know this, so they apparently interpret the concept of the democratic nature of the legislative process more broadly—though it is difficult to say exactly how. Equally vague is the notion of “ arbitrariness of the executive powers”, “effective” judicial protection, or the “separation of powers”—generally speaking, all Member States recognize that power should be divided into the legislative, executive, and judicial branches, that it should not be exercised arbitrarily, and that the courts should operate effectively. By contrast, the concept of “respect for human rights” seen by a person with left-wing beliefs will include the obligation to ensure every woman’s right to abortion on demand, whereas for a person with conservative beliefs this will be unacceptable. Therefore, depending on the views of European Commission officials, the protection of unborn life could hypothetically serve as grounds for withholding from a state the EU funds to which it is entitled, or not.

Thus, the crux of the problem lies in the difficulty of translating those general ideals into precise rules, the violation of which may result in EU funds being withdrawn from a Member State.

Article 3 of the regulation seeks to clarify the cited provision, stating that a breach of the principles of the rule of law may be indicated by:

“a) endangering the independence of the judiciary;

b) failing to prevent, correct or 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 interest;

c) limiting the availability and effectiveness of legal remedies, including through restrictive procedural rules and lack of implementation of judgments, or limiting the effective investigation, prosecution or sanctioning of breaches of law.”

These terms, however, are just as general as those set out in Article 2. In the legal systems of all EU Member States, it is recognized that courts must be independent, their judgments enforced, and public authorities should not act arbitrarily. However, the understanding of concepts such as “independence,” “arbitrariness,” and “the effectiveness of legal remedies” varies depending on national legal traditions.

As already mentioned, the mere breach of the principles of the rule of law does not formally authorize the suspension of the disbursement of EU funds. Such an infringement must also “affect or seriously risk affecting the sound financial management of the Union budget or the protection of the financial interests of the Union” (Article 4(1) of the Regulation). Such an impact may be evidenced, for example, by irregularities in the operation of the prosecution service in connection with the conduct of investigations into financial offenses relating to the implementation of the EU budget or the protection of the EU’s financial interests (Article 4(2)(c) of the Regulation), as well as by the lack of effective judicial review of the actions of the prosecution service in such cases (Article 4(2)(d) of the Regulation).

Before triggering the conditionality mechanism, the European Commission carries out the so-called complementarity test, under which it examines whether any other procedure would be more appropriate in the circumstances of the case, e.g., the procedure under the CPR (Common Provisions Regulation) Regulation³ or the procedure under the regulation establishing the Recovery and Resilience Facility⁴.

Under the rule-of-law conditionality mechanism, the Council of the European Union, on a proposal from the European Commission, adopts an implementing decision (Article 6(9)-(10)) establishing the measures for the protection of the Union budget, which may include, inter alia, a prohibition on entering into new legal commitments, the suspension of payments or of the performance of a legal commitment, the suspension of the disbursement of installments in whole or in part, or the early repayment of loans guaranteed by the Union budget (Article 5(1) of the Regulation). Under the mechanism, the European Parliament does not make any decisions—its role is limited to a monitoring function, i.e., the Commission must notify it when certain steps are taken in the procedure.

Practical challenges related to the operation of the conditionality mechanism

First, the EPRS analyzes what challenges have arisen over several years of applying the conditionality mechanism and how they can be addressed.

Tthere are doubts as to the level of the standard of proof that should be required of the European Commission when making a decision to activate the mechanism. The regulation does not specify which specific circumstances indicate a breach of the rule of law and their impact on the EU’s finances. According to the EPRS, two schools of thought are therefore possible: restrictive and flexible. Interpreting the regulation strictly, the Commission should gather hard evidence of violations by a Member State before deciding to initiate proceedings. Interpreted flexibly—even mere “presumptions of breaches” may be sufficient. For example, from the latter perspective, if, under applicable law, the judiciary is dependent on the legislative branch, there is no need to wait for a specific irregularity (e.g., issuing an arbitrary judgment in a financial crime case to the detriment of the EU) to conclude that the principles of the rule of law have been breached within the meaning of the regulation.

Second, the EPRS points out certain gaps in the regulation: it does not set time limits for the Commission to make decisions, nor does it specify what specific circumstances would trigger the conditionality mechanism. This is left to the discretion of the European Commission.

Third, the EPRS points to the illusory nature of the so-called safety brake provided for in the preamble to the regulation, i.e., the possibility for the interested Member State to request that the matter be referred to the European Council, which results in the procedure before the Commission being postponed by several months. According to the EPRS, that safety brake has no legal effect, because it was not laid down in the appropriate part of the regulation, but in the preamble, which at most can serve as interpretive guidance, not as an autonomous source of normative content.

Fourth, the EPRS also draws attention to the lack of sufficient democratic legitimacy and the lack of sufficient transparency of the conditionality mechanism. According to the EPRS, the role of the European Parliament is overly limited (restricted to monitoring) and there is excessively restricted public access to the correspondence exchanged between the Commission and the Member State concerned under this procedure.

Fifth, the EPRS notes that the regulation does not specify how the amount of EU funds subject to freezing is to be determined in the event that infringements by a Member State are identified. The European Commission and the Council of the European Union enjoy a very broad margin of discretion in this regard. The EPRS itself does not propose solutions to this problem, but cites expert opinions indicating the possibility of introducing a “flexible system of sanctions,” under which the European Commission would have to adjust the severity of restrictions to the gravity of violations of legal rules in a given case.

Sixth, the EPRS notes the views of some legal scholars indicating that disbursements of EU funds should be resumed once breaches of the rule of law no longer affect the EU’s finances. As noted, formally speaking, the basis for the suspension of payments is the cumulative satisfaction of two conditions (violations of the rule of law and an impact on the EU’s finances). Therefore, if the impact on the EU’s finances disappears, then even if the rule-of-law violations continue, there is no legal basis for maintaining the sanctions.

Permissibility of transferring EU funds while bypassing national governments

The second part of the analysis is devoted to the concept of “smart conditionality” , which makes it possible to redirect EU funds directly to the beneficiaries (e.g., farmers, entrepreneurs, local governments), bypassing the national government. In other words, it’s about the ability to separate Brussels’s dispute with a member state from its relationship with that state’s citizens who are applying for EU funds for specific investment projects.

As a rule, when EU funds are frozen by the Council of the EU, a member state’s government should still disburse the money owed to beneficiaries under EU law. Since EU funds are frozen in this situation, the national government should disburse them from other sources, e.g., the national budget (cf. Article 5(2) of the regulation). If the national government fails to do so, the beneficiary concerned may lodge a complaint with the European Commission (Article 5(4) of the Regulation). If this does not help, the EPRS analysis considers the possibility of the EU directly disbursing EU funds to the parties concerned under the so-called smart conditionality principle.

The EPRS mentions two potential avenues that the Commission may use:

1) TheEuropean Commission could itself take over the management of the frozen funds through its headquarters in Brussels or its national representations;

2) The Commission could delegate the management of these funds to an “independent organization” that would replace the national government in allocating them among eligible beneficiaries. Such an “independent organization” could be the European Investment Bank, one of the EU agencies, or some other “politically independent organization.”

The relationship between the conditionality mechanism and the Commission’s annual reports on the rule of law

In the third part of the analysis, the EPRS calls for a closer linkage between the conditionality mechanism provided for in the regulation and another mechanism, namely the cyclical, annual reports of the European Commission on the rule of law in individual Member States (ARoLR – Annual Rule of Law Report). While the reporting mechanism serves a preventive function, as it is meant to provide advance warning of threats to the rule of law and to raise public awareness of such problems, the conditionality mechanism serves a sanctioning function, responding after the fact to violations that have already occurred.

According to the EPRS, the ARoLR reports provide a “diagnostic tool” for identifying the strengths and weaknesses of the rule of law in each Member State. Therefore, in line with the recommendations of the European Parliament, the reports should include a separate section with information on violations of the rule of law in the country concerned that may result in the activation of the conditionality mechanism. Member States should also be held accountable for implementing the European Commission’s recommendations contained in the ARoLR reports by threatening to trigger the rule-of-law conditionality mechanism.

What the EPRS proposes

In the conclusions of the analysis, EPRS highlights in particular the need to:

1) have more precise and clear explanations of the reasons for decisions taken in the course of the rule-of-law conditionality procedure;

2) increase the transparency of the procedure by creating and publishing clear guidelines that will guide the Commission in the decision-making process, as well as establishing deadlines for making individual decisions;

3) establish objective, clear and predictable criteria for the imposition of financial sanctions;

4) establish precise conditions for lifting sanctions;

5) find alternative methods of allocating EU funds that enable bypassing a national government that violates the rule of law, so that frozen EU funds are not irretrievably lost but can reach eligible beneficiaries;

6) strengthen the role of the European Parliament in the procedure.

Commentary by the Ordo Iuris Institute’s Center for International Law

The EPRS analysis accurately identifies the shortcomings of the EU’s conditionality mechanism, but its conclusions are inadequate. The crux of the problem lies elsewhere. First, the 2020 regulation circumvents Article 7 of the Treaty on European Union, because it allows the suspension of Member States’ rights arising from the Treaties through a procedure not provided for in the Treaties, by majority vote rather than unanimously. Secondly, attempts to refine the criteria for assessing the rule of law in the Member States are doomed to failure from the outset. General political and legal concepts such as the rule of law, the principle of judicial independence, the principle of the independence of the courts, or the principle of the separation of powers simply cannot be defined precisely. It is no coincidence that no national constitution defines these concepts. In turn, the definitions of these concepts found in the doctrine of constitutional and international law are very general and express only certain ideals to which every European country aspires, but each does so in a slightly different way. In practice, these concepts are interpreted through the prism of the political views of European Commission officials and those of the representatives of national governments sitting in the Council of the European Union. This means that the entire mechanism is not so much a guarantee of ensuring an appropriate” level of rule of law across the European Union as an instrument of political pressure on Member States under the pretext of protecting the rule of law.

The rule-of-law conditionality mechanism therefore does not need to be adjusted, but abolished.

See also:

• When Defending the Rule of Law Serves Politics: The European Commission’s Report on Poland
• How the New EU Budget Is Set to Become a Powerful Tool for Exerting Influence on Member States
• The New SAFE Mechanism to Finance Defense in the EU: Another Tool for Exerting Influence on Member States?

1 Regulation of the European Parliament and of the Council No 2020/2092 of 16 December 2020 on a general regime of conditionality for the protection of the Union budget (OJ L 433I, 22.12.2020, pp. 1–10 (B)).

2 EPRS (M-A.Huemer, I. Ioannides, M. Monda), Rule of Law Conditionality Regulation. European Implementation Assessment, Brussels 2025.

3 Regulation (EU) 2021/1060 of the European Parliament and of the Council of 24 June 2021 laying down common provisions on the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund, the Just Transition Fund and the European Maritime, Fisheries and Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the Internal Security Fund and the Instrument for Financial Support for Border Management and Visa Policy

4 Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 057, 18.2.2021, p. 17).