The New Rule of Law Conditionality Mechanism clears its first hurdle –Analysis of AG Campos Sánchez-Bordona Opinions in Hungary v Parliament and Council (C-156/21) and Poland v Parliament and Council (C-157/21)

On 2 December 2021, Advocate General Manuel Campos Sánchez-Bordona delivered his Opinions on the actions of annulment brought by Hungary (see here) and Poland (see here) against the new Rule of  Law Conditionality Regulation (Regulation (EU, Euratom) 2020/2092). Few cases in front of the European Court of Justice (ECJ) have garnered as much attention in recent months as these two. Already the hearings in front of the Grand Chamber on 11 and 12 October 2021, where the Polish and Hungarian agents were cornered by critical questions from the Judges and a phalanx of vociferous rule of law defenders from the EU institutions and 11 Member States, drew far more media coverage than usually.

With the escalating rule of law crisis in Europe as a constant backdrop, these cases and the ‘success’ of the new conditionality mechanism have been cast as a defining moment for the European project as a whole. 

Background

The EU is in the middle of a serious rule of law crisis – with Hungary and Poland at its centre. The last couple of months saw not only several important ECJ decisions criticising violations of the rule of law in these countries (see inter alia C-824/18, A.B. and others; C-791/19, Commission v Poland (Disciplinary Chamber); C-564/19, IS), but also a consequential judgment of the Polish Constitutional Tribunal (Trybunał Konstytucyjny, K 3/21), openly undermining core principles of EU law.

In order to give the EU institutions another tool to tackle breaches of the rule of law, the Commission first proposed in 2018 to establish a financial conditionality mechanism. After intense political and legal wrangling for the better half of 2020, the EU and its Member States agreed upon the new Rule of Law Conditionality Regulation. This mechanism enables the European institutions to withhold funds from a Member State, should breaches of the rule of law in said Member State ‘sufficiently directly’ affect the EU’s budget or its financial interests (see Articles 4 to 6 of the Regulation).

As part of a (heavily criticised) compromise agreed upon at the European Council meeting in December 2020, no action under the Regulation was to be introduced by the Commission until the ECJ had ruled on its legality, thereby delaying the implementation of the first measures under the Regulation by nearly a year.  On 11 March 2021, both Hungary and Poland introduced their actions of annulment against the Regulation.

The Advocate General’s Opinions

Both the Hungarian and Polish case for annulment centre around four principal arguments, which will be considered in more detail below: (1) the Regulation lacks an adequate legal basis in the EU treaties; (2) the Regulation is incompatible with Article 7 TEU and Article 269 TFEU as well as (3) with Article 4(2) TEU. Lastly, (4) the parties raised objections concerning the legal certainty of provisions in the Regulation.

(1) Legal basis of the Regulation

The AG commences his analysis by focusing on the question of the legal basis for the Regulation (see C-156/21, paras. 117-201). The EU legislature had considered Article 322(1)(a) TFEU as an adequate legal basis for the Regulation. This provision gives the EU the competence to set financial rules establishing and implementing the budget of the Union. Hungary and Poland challenged this view, contending that the Regulation did not contain financial rules, but rather introduced a new sanction instrument for breaches of the rule of law, for which the European Union had no competence at all.

The Opinions of the AG, however, strongly refute this argument. Through a thorough analysis of the purpose and content of the Regulation, AG Campos Sánchez-Bordona maintains that the new Regulation establishes a specific conditionality mechanism for the protection of the Union’s budget from breaches of the rule of law in a member state (C-156/21, para. 131). In the eyes of the AG, the Regulation serves not as an additional rule of law sanction mechanism, but rather as a tool for the protection of the budget from the specific threat of rule of law breaches jeopardising the usage of EU funds (C-156/21, paras. 138-139). For this purpose, the Regulation establishes a conditionality mechanism, that links payments from the budget to the observance of rule of law principles. To underline the centrality of the protection of the budget, the AG then extensively highlights the role of the criterium of a ‘sufficiently direct’ link of breaches of the rule of law to the sound financial management of the Union’s budget for measures taken under the Regulation (C-156/21, paras. 149-169). This understanding is further supported by the strict requirement that measures under the Regulation are proportionate to the impact that breaches have on the budget (C-156/21, paras. 177-182).

The AG thus concludes that the Regulation acts as a financial rule for the implementation of the budget, with Article 322(1)(a) TFEU serving as an appropriate legal basis.

(2) Compatibility with Articles 7 TEU and 269 TFEU

In light of the fact that the Regulation is hence a means to implement the budget, the AG also rejects the pleas for an infringement of Article 7 TEU and Article 269 TFEU (see C-156/21, paras. 202-256). The applicants had argued that the new Regulation introduced a more specific and more accessible rule of law sanction instrument, that would undermine the political sanction mechanism for systemic breaches of the values of the Union (Article 2 TEU) set out in Article 7 TEU. Similarly, the unrestricted review of the Regulation by the Court of Justice (CJEU) was held to undermine the strict limitation of its jurisdiction in case of an Article 7 procedure, as defined by Article 269 TFEU.

AG Campos Sánchez-Bardono’s understanding of the interplay of the new Regulation and the existing rule of law mechanism in Article 7 TEU is fundamentally different though. He first rejects the lex specialis argument that Article 7 TEU would be bypassed by the new conditionality mechanism, maintaining that the conditionality mechanism is substantially distinct both in its purpose, as well as in its implementation. Reiterating his analysis concerning the first plea of the applicants, the AG lays out that the new Regulation has the aim of protecting the Union’s budget from the consequences of rule of law breaches in the Member States. Article 7 TEU however, offers a political procedure, which is subject to different conditions and provides for more far-reaching consequences, including the suspension of certain membership rights (C-156/21, paras. 227-229).

Adding to that, the AG also clarifies the non-exclusivity of Article 7 TEU as an instrument for the protection of the rule of law. Only the introduction of an essentially similar mechanism for the protection of the rule of law, which carries weaker requirements for its implementation, would in fact undermine Article 7 TEU (C-156/21, para. 208). Since the AG considers the new Regulation and the Article 7 TEU procedure as markedly distinct, he finds no violation of Articles 7 TEU or 269 TFEU.

(3) Compatibility with Article 4(2) TEU

The Polish Government argued that the Regulation could not guarantee that the determinations of the Commission (under the Regulation) would live up to the standards of objectivity, impartiality and fairness. Poland accordingly feared that the Regulation would lead to discrimination against smaller Member States through the usage of the qualitative majority voting system (QMV). It accordingly argued that the Regulation would be incompatible with Article 4(2) TEU - the principle of equal treatment of Member States.  Without wasting much ink, the AG rejected this argument.

He points towards the several safeguards in the Regulation which force the Commission to make a “thorough assessment [of the situation in the Member State] that is objective, impartial and fair” (C-157/21, paras. 90-93). Concerning the usage of QMV, the AG briefly refers to Article 16(3) TEU, which makes QMV the regular voting procedure of the Council. Reiterating that the Regulation does not introduce a new sanction mechanism, the AG finds no convincing argument to depart from this default rule and thus also dismisses this assertion (C-157/21, paras. 94-98).

(4) Legal certainty objections

Lastly, Campos Sánchez-Bordona dismisses objections of the applicants concerning the precision and clarity of the Regulation in the light of the established principle of legal certainty (C-156/21, paras. 271-300).

The Hungarian government questioned whether the concept of the rule of law could be defined uniformly for the purpose of EU law. Instead, it argued that the rule of law should be specifically concretised for the legal system of each Member State. Further, it deemed the descriptions of a breach of the rule of law in Article 4(2) of the Regulation to be too open and abstract, thereby infringing the principle of legal certainty.

Once again, the advice of the AG offers little sympathy for these pleas. The AG clarifies, that “there is nothing to prevent the EU legislature from defining it [the rule of law] more precisely in a specific area of application” (C-156/21, para. 272). Leaving the definition of the concept of the rule of law to the Member States would in his opinion threaten its uniform application (C-156/21, para. 273).

While the AG concedes that the rule of law is a broad concept, he nonetheless finds that is can be sufficiently concretized for the purpose of the Regulation, (C-156/21, paras. 272-300). To this effect he refers to the Court’s case-law, which provides for many of these concretisations (C-156/21, para. 278).

He further holds, that the goal of the Regulation of protecting the EU’s budget from current and future breaches of the rule of law, by its very nature, requires a certain level of ‘abstraction’, that does not directly result in a breach of the requirement of legal uncertainty (C-156/21 paras. 279-285). Putting the final nail into the coffin of the argument brought by the applicants, the Opinions also illustrate how Hungary’s call for strict legal certainty would be next to impossible to fulfil for any legal rule which has a future risk or threat as a condition for its application (C-156/21, para. 291).

He further holds, that the Regulation’s aim and purpose – the protection of the Union’s budget from current and future breaches of the rule of law- by its very nature, requires a certain level of ‘abstraction’, that does not directly result in a breach of the principle of legal certainty (C-156/21, paras. 279-285). Lastly, AG Campos Sánchez-Bordona points out that Hungary’s call for absolute legal certainty would be next to impossible not only for the present Regulation but in fact for any legal rule which concerns a future risk or threat (C-156/21, para. 291).

Comment

For observers of the legal debate over the conditionality mechanisms and the hearings of the ECJ in this case (as analysed here), the Opinions offer few surprises. The full dismissal of the arguments of the applicants had already been anticipated after the hearings in October.

The advice of the AG nonetheless raises three noteworthy points of interest.

Firstly, the advice of the AG leaves no doubt anymore about the parallel application of the different rule of law instruments in the arsenal of the EU (see C-156/21, paras. 214-216). This view is also echoed in the recent case law of the Court (see all the cases cited in C-156/21, paras. 210-214). By convincingly denying the exclusivity of Article 7 TEU, the Opinions open the door to an even broader protection of the rule of law through the various legal channels offered by the Treaties.

Secondly, the AG’s advice concerning the interpretation of the Regulations’ requirements for initiating measures, and the proportionality of said measures, sheds light on the limitations of the conditionality mechanism as an instrument in the rule of law crisis. The mechanism does not function as a multitool swiss army knife of the Union to sanction all breaches of the rule of law, but rather as a scalpel for targeting specific breaches that have a direct impact on the Union’s budget. The AG’s reasoning accordingly goes to great lengths to highlight the importance of the requirement for the measures under the Regulation to have a clear link to the protection of the EU budget, indicating a more restrained scope of application for the Regulation.

This interpretation of the AG, however, fails to take account of the very nature of many rule of law breaches. Systemic deficiencies, such as a lack of an independent judiciary or a lack of certain procedural guarantees, might not always individually have a sufficiently direct impact on the Union’s budget, but will certainly jointly affect it. Considering that the aim of the Regulation is the overall protection of the Union’s budget from rule of law breaches, which are simultaneously serious violations of a fundamental value of the EU, a wider understanding of the ‘direct link’, that also encompasses systemic deficiencies, seems more convincing. Others have even argued (p. 45), to put less of an emphasis on this distinction between ‘systemic’ and ‘specifically affecting the budget’ rule of law breaches altogether, insisting that systemic deficiencies nearly always unavoidably effect the Union’s budget and its financial interests.

Thirdly, and lastly, looking at the broader implications of the AG’s advice, the Opinions also strongly undercut the controversial political declaration of the European Council. Not only do the Opinions affirm the legality of the Regulation, but they also declare the role of the European Council laid out in the declaration to have no legal consequences for the Regulation or its application (see C-156/21, para. 258). Insofar, the Opinions vindicate voices that had adamantly criticised the conclusions for delaying the implementation of the Regulation and add to the mounting pressure on the Commission to initiate action under the Regulation without awaiting the decision of the ECJ.

What comes next?

The Grand Chamber is expected to deliver its judgement by early 2022. Based on the hearings in early October and the Court’s strong record on rule of law cases (only this year C-824/18, A.B. and others; C-791/19, Commission v Poland (Disciplinary Chamber); C-748/19 to 754/19, WB and others; C-564/19, IS; for a more mixed perspective on the Court’s record see Pech/Wachowiec/Mazur), it appears likely that the ECJ will follow the advice of its AG.

A decision of the ECJ along the line of the Opinions would strengthen the position of the EU institutions in the ongoing rule of law crisis. Sensing the massive pressure from Member States, legal scholars and the European Parliament to initiate action under the Regulation, it appears very likely that the Commission would begin shortly after a judgement to initiate action under the Regulation. The first steps could still be taken ahead of the crucial parliamentary elections in Hungary in May 2022.

All in all, it seems nearly certain that the Regulation survives the annulment actions of Hungary and Poland. The question of the effectiveness of the Regulation in the rule of law crisis will however depend on the scope the Grand Chamber is going to give it – and whether the Commission will make broad use of its new tool.