Abstract

This paper aims at analyzing the Commission’s proposal – backed by the EP – on the possibility of linking EU funds to the compliance of Member States with the “rule of law”.

In light of the next European Elections to be held in 2019, the issue is of central importance and will be discussed by both popular and policy-makers’ side. After having presented the broad discussion by the EP in the Introduction, I shall analyze the text in chapter II by outlining the legal basis on which the proposal relies and the definition of rule of law given by the juridical framework. Within the conclusion in chapter 3, I shall instead briefly address the main political issues, notably the vote in the Council and the output of the proposal.

1. Introduction

On the 17^th of January 2019, the European Parliament (EP) held a vote in plenary session concerning a proposal by the European Commission (EC) (Commission Proposal 8961 – COM [2018] 324) on the possibility of linking use and reception of European Union (EU) funds to the respect of the rule of law by Member States. Specifically, under this proposal, the Union could suspend, reduce or restrict access to EU funding in a way proportionate to the nature, gravity and scope of the deficiencies; it would be invoked when a generalized deficiency as regards the rule of law in a Member State endangers the fundamental values upon which the EU is founded.

The issue concerning countries that do not uphold the rule of law aims at indirectly – and politically – targeting Eurosceptic Members, notably the ones from Visegrad group, with whom the Commission, as well as the pro-EU wing of the EP, constantly slips into the battleground.

Viktor Orban’s Hungary – overall – demonstrated to be unwilling to cooperate on some sensitive issues like migrants’ redistribution quotas and the retirement of the Supreme Court’s judges.

Thus, considering the prominence of the Commission’s proposal, the vote in the EP revealed some critical heterogeneities not only among political groups, but also within the groups themselves, consequently raising concerns among voters too. The EP backed the proposal with 397 votes in favor, 158 contrary and 69 abstentions. Table 1 below – showing the distribution of votes by Parliamentary group – highlights the major cleavages and the lack of cohesion in some of the parties. Within the EPP (European People’s Party), the pro-EU Christian democratic group of the EP, 24 MEPs voted against the proposal: Orban’s nationalist ruling party Fidezs holds 12 EPP MEPs, 10 of which voted against the proposal, while the remaining 2 were absent. Indeed, typical Eurosceptic groups like Europe of Freedom and Direct Democracy (EFDD) – counting MEPs from Nigel Farage’s UKIP and the Italian populists of Five Star Movement – and Europe of Nations and Freedom (ENF) voted quasi unanimously against the Commission’s proposal, to shelter their interests.  The allocation of votes comes up to be relevant particularly if forward looking to the next EP elections, during which debate on compliance with the rule of law is going to be of central importance.

2. The Proposal

The EC proposal raised popular concern over the fact that the regulation – which might come after the legislative process – could envisage itself a breach of the rule of law. Hence, the biggest fear is that the Parliament backed a de facto veto on the use of EU funds for Hungary and Visegrad alliance’s countries in general.

The main questions outstretched on the resolution adopted by the EP closely regards, at first, the legal background of this eventual regulation; is it possible to deny the reception of EU funds to member states?

Furthermore, but not of less importance: may this regulation affect the end beneficiaries of EU funding like Horizon2020 or Erasmus+, notably students, researchers and at large people?

2.1. Addressing a definition of “rule of law”

The first issue into which the legal expertise of EU institutions focuses is the juridical definition of “rule of law”. For this purpose, it is relevant to take into account the specific amendments discussed and apposed by the LIBE Committee of the EP on civil liberties, justice and home affairs.

As disciplined under article 2 of the Treaty on European Union (TEU), “the Union is founded on 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”, thus the rule of law is recognized as one of the essential values upon which the Union is founded; “…these values are common to the member states”. The characterization acquires even more weight if framed in the context that follows: “the rule of law requires that all public powers act within the constraints set out by law, in accordance with values of democracy and fundamental rights (1), and under the control of independent and impartial courts. It requires, in particular, that the principles of legality, legal certainty, prohibition of arbitrariness of the executive powers, separation of powers, and effective judicial protection by independent courts are respected (2)”.

1. The core of this first part of the definition stressed out by the Commission in the proposal is the framing of the “rule of law” into the doctrine of fundamental rights. According to EU jurisprudence, fundamental rights – as well as human rights – are part of the General Principles of European Union Law, thus to be considered secondary sources of EU law, right after the institutive Treaties. The acknowledgement of the aforementioned legal framework is furthermore validated in the Amendment 1a issued by the human rights expertise of the Parliament’s LIBE Committee, addressing that “Democracy, rule of law and fundamental rights are in a triangular relationship, reinforcing each other and together safeguarding the constitutional core of the Union and its Member States”.
2. Second relevant facet in the definition is the independence and separation of powers, declined in all the arrangements following the formula “it requires that…”.  The doctrine still discusses on judicial enforceability and its collocation in the range of definition of “rule of law”, given the implication of it to neutralize the political sphere instead. The interpretation given by the EU institutions in this case underpins the idea of overcoming the supranational level of jurisdiction – notably concerning the role of the European Court of Justice – instead focusing on the national one. By this side, MSs are asked to always guarantee a third part independent body to enforce and check-and-balance legislative power, in order to avoid conflicts of interests in law-making.

2.2. The legal framework

Thus, the overall legal framework underpinning the proposal of linking funding conditionality to the respect of the rule of law is given by:

1. Article 2 of the Treaty establishing the European Union (TEU), as discussed in paragraph  2.1;
2. The general discipline under Article 7 TEU, according to which the Union shall ensure consistency between its policies and activities, taking all of its objectives into account and in accordance with the principle of conferral of powers;
3. Article 121 of the Treaty on the Functioning of the European Union (TFEU) assessing that: (1) MSs shall regard their economic policies as a matter of common concern and shall coordinate the policy with the Council; (2) the Council shall monitor economic developments in each of the MSs on the basis of reports submitted by the Commission; (4) The Council, on a recommendation from the Commission, may address the necessary recommendations to the MS who’s economic policies are not consistent with the broad guidelines of the EU;
4. Article 317 TFEU (ex art. 274 TEC): The Commission shall implement the budget in cooperation with the Member States, in accordance with the provisions of the regulations made pursuant to Article 322 TFEU (see point below), on its own responsibility and within the limits of the appropriations, having regard to the principles of sound financial management. Member States shall cooperate with the Commission to ensure that the appropriations are used in accordance with the principles of sound financial management. The regulations shall lay down the control and audit obligations of the Member States in the implementation of the budget and the resulting responsibilities. They shall also lay down the responsibilities and detailed rules for each institution concerning its part in effecting its own expenditure. Within the budget, as regards the limits and conditions laid down in the regulations made pursuant to Article 322 TFEU, the Commission may transfer appropriations from one chapter to another or from one subdivision to another;
5. Article 322[1] TFEU (ex art. 279 TEC), instituting that the European Parliament and the Council – acting in conformity with the ordinary legislative procedure and after consulting the Court of Auditors – shall adopt by means of regulation the financial rules which determine the procedure for establishing and implementing the budget. It is also both the Council and the EP’s competence to establish the procedure to present and audit accounts rules, providing for checks on the responsibility of financial actors.

Beside the specific treaty-based framework, the Commission and the Parliament furthermore outline the adherence of the proposal with the fundamental principles of subsidiarity (article 5[2] TUE) and proportionality (article 5[4] TUE): the former is ensured in the sound financial governance guidelines of the EU, according to which rules governing the EU budget could not be adopted at the level of the member states.

The topic concerning the respect of proportionality seems to be trickier, because it brings along the issue of seriousness of the breach (thus of determining an adequate sanction to be adopted). As discussed in paragraph I, the violation itself is classified as a “generalized deficiency” as regards the rule of law and fundamental rights. Thus, any situation where a systemic threat may be established, or where the rule of law and fundamental rights are directly or indirectly undermined in a systemic way have to be sanctioned by the EU. Amendment 17(b) of the LIBE Committee to the Commission’s proposed text specifies that “generalized deficiencies” are to be recognized in:

1. Combined impact of practices, omissions, measures or inactions by public authorities or by widespread or recurrent practices;
2. Where this situation affects or risks affecting the proper implementation of the Union’s budget, in particular the management and control activities.

For what concerns enforcement, instead, in Amendments 23 and 24 2a-2b, the Committee also required that, within the process of identification of a generalized deficiency, the Commission shall be assisted by an independent board of experts (“The Rule of Law and Fundamental Rights Expert Panel”), assessing the situation in all Member States on a qualitative and quantitative criteria-basis.

The drivers set out by the policy-makers in the proposal in order to size the magnitude of the breach are the following:

1. conduct by the MS;
2. duration of the breach;
3. recurrence of the breach;
4. intention in breaching;
5. effects of deficiencies on EU funds;
6. willing of the MS to end the violation.

Of those listed above, only point 5 is strictly related to the impact of the rule of law on EU budget, hence it shall be framed in Article 325 TFEU – according to which MSs shall ensure protection of EU finances from frauds and illegal activities (as recalled by the European Court of Justice in the sentence following the Taricco case in 2015). Point 6 instead lends itself to numerous interpretations: it is potentially the legal escape for the MS who has the possibility to demonstrate its extraneity to facts.

With this regard, it is relevant to cite the recent case over Malta: PM Joseph Muscat issued an official statement in December 2018 pledging constitutional adjustment for his country, following concerns by the Venice Commission[1] on the state of the rule of law in Malta. The reference is to the case of suspicious death of the investigative journalist Daphne Caruana Galizia, with regard to which the Council’s Commission recommended stronger powers to the actors around the Prime Minister in order to address a more efficient check and balance. The Member State, in this circumstance, is likely to fit the discipline under point VI hence determining a lighter sanction.

3. Conclusion

The Commission’s proposal, although controverted, gained a majority of consensus in the Parliament. As discussed in chapter II, the drafted regulation is solidly enclosed into the legal framework given by both the fundamental Treaties of the EU.

Following a political point of view, the proposal aims at counteracting Euroscepticism by directly targeting the most sensitive output of EU policies, notably funding. The decision of picking this strategy reflects the political need to polarize and merge pro-EU votes as much as possible, ahead of the 2019 European elections.

Facing its nature of a multi-level policy, however, some points remain ambiguous, hence more sensible to case-by-case juridical interpretation. Overall, there’s no legal certainty of the outcome of such measure on the final beneficiaries; the European Commission on the “Proposal for the Multiannual Financial Framework for 2021-2027” – drafted in May 2018 –  addressed the issue as following: “The proposed mechanism would not affect the individual beneficiaries of EU funding under the budget, since they cannot be held responsible for generalized deficiencies in the rule of law system. MSs might be obliged to implement the affected programs and make payments to Erasmus students, researchers civil society or any other recipients of beneficiaries”. While no specific mention on the topic is given in the draft legislation. This is probably the most sensitive aspect of the legislation: the procedure of EU policy-making shows that it is likely to address issues later in the process, thus readers shall expect more detailed features on the regulation’s outcome in the future.

As for the ordinary legislative procedure (Articles 289, 294 TFEU), the draft does now need the approval of the Council to being effectively converted in law.

The greatest obstacle to the proposal in being lawful is thus represented by the Qualified Majority Vote (QMV) through which the Council is called to approve a draft. The distribution of votes in the EP by Member State (Table 2) also frames a gross picture of the possible voting scenarios in the Council, given the uncertainty on the conceivable outcomes of Brexit.

Federico Dante De Falco

For further information:

European Commission, “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in the Member States”, Brussels, 2.5.2018 COM(2018) 324 final 2018/0136 (COD)

European Parliament, “I REPORT, on the proposal for a regulation of the European Parliament and of the Council on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in the Member States”, [ COM(2018)0324 – C8-0178/2018 – 2018/0136(COD]

European Parliamentary Research Service (EPRS), “Linking funding conditionality to the rule of law” in “Unlocking the potential of the EU Treaties. An article-by-article analysis of the scope of action.”, PE 630.353 – January 2019, pp. 36-37

[1] The Venice Commission is an advisory body of the Council of Europe, composed of independent experts in the field of constitutional law.