In an important and welcome ruling yesterday the Court of Justice of the European Union has upheld a key element of the legal armoury of EU budget authorities in their defence of EU taxpayers' funds against fraud in member states.
The court, backed by the European Commission and a number of member states including Ireland, has found against Poland and Hungary that EU funding may be withheld by Brussels "where there are reasonable grounds for considering not only that there have been breaches of the principles of the rule of law in a member state, but… that those breaches affect or seriously risk affecting … the protection of the financial interests of the Union in a sufficiently direct way".
The 2020 regulation, introducing what is known as “conditionality” to budget payments, was a controversial attempt to find a way of pressurising states in persistent breach of EU standards of the rule of law to mend their ways. Attempts to use the treaty’s cumbersome Article 7 procedure to discipline them through the Council of Ministers have proved ineffective largely because it can be stymied by only one member-state ally of the “offender”.
The regulation had only been agreed when the power to withhold funding was strictly limited to cases where the specific funding was itself put at risk by rule-of-law breaches, and could not be wielded against the whole system as some member states would have wished. The court reiterated the restricted nature of the power yesterday: “The regulation is intended to protect the Union budget from effects resulting, in a sufficiently direct way, from breaches of the principles of the rule of law and not to penalise those breaches as such”.
Even that was too much for Hungary and Poland, and the ruling, however limited, may yet allow important clawback of funds which in the former case are allegedly flowing to allies of prime minister, Viktor Orbán. In Poland the erosion of courts’ independence has raised real fears for the stewardship of public money.