On February 16, the Court of Justice of the European Union confirmed in its judgments in cases C-156/21 (Hungary v Parliament and Council) and C-157/21 (Poland v Parliament and Council) the validity of EU Regulation 2020/2092 on a general regime of conditionality for the protection of the Union budget. The so-called conditionality regulation, adopted in December 2020 in connection with the EU’s new Multiannual Financial Framework for 2021-2027, allows the European Commission and the Council to make access to EU funding for Member States dependent on their respect of the rule of law.

In particular, the mechanism allows the EU to take measures – for example, the suspension of payments or financial corrections – to protect the Union budget when the European Commission and Council find that breaches of the rule of law principles affect or risk affecting the EU financial interests. The conditionality regulation foresees that the European Commission d proposes appropriate and proportionate measures to restrict access to funding and protect the EU budget to the Council , which then takes a decision.
A few months after the introduction of the conditionality regulation, Hungary and Poland challenged it before the Court of Justice of the European Union and requested its annulment. In particular, Hungary and Poland based their action on the absence, in their view, of an appropriate legal basis of the regulation in the TEU and TFEU, on a seeming excess of the powers conferred by the Treaties and on a breach which they saw in the principle of legal certainty.

In its judgments, the Court addressed each of the points on which the action was based:

Firstly, it affirmed that the procedure laid down by the regulation can be initiated not only where there are reasonable grounds for considering there have been breaches of the principle of rule of law but, also, when those breaches affect or seriously risk affecting the financial management of the Union budget or the protection of the financial interests of the Union. Moreover, it noted that these measures relate exclusively to the implementation of the Union budget and that they are all such as to limit the financing from that budget, according to the impact –on the same budget– of such an effect or serious risk. As a result, the Court found, the regulation is intended to protect the Union budget from breaches of the principles of rule of law and not to penalise those breaches as such. Therefore, according to the Court, since the financial management of the Union budget and the financial interests of the Union may be seriously compromised by those breaches, a conditionality mechanism– which makes receipt of financing from the Union budget subject to the respect by a Member State for the principles of the rule of law– is considered to be falling within the power conferred to the European Union by the Treaties.

Secondly, and with regards to Article 7 TEU, the Court found that the procedure established by the regulation respects the limits of the power conferred on the European Union. In particular, it stressed that the purpose of Article 7 TEU is to allow the Council to penalise serious and persistent breaches of the common values on which the European Union is founded. On the opposite, as the Court affirmed, the conditionality regulation is intended to protect the Union budget and, as a consequence, applies only in the event of a breach of the principles of the rule of law which affects or seriously risk affecting the proper implementation of that budget. The Court concluded that the procedure under Article 7 TEU and the procedure established by the conditionality regulation pursue different aims and each that has a clearly distinct subject matter.

Thirdly, as regards the breach of the principle of legal certainty, the Court stated that the principles set out in the regulation, as constituent elements of that concept, have been developed extensively in its case-law and have their source in common values which are also recognised and applied by the Member States in their own legal systems and that they stem from a concept of ‘the rule of law’ which the Member States share and to which they adhere, as a value common to their constitutional traditions. Consequently, the Court affirmed that the Member States are in a position to determine with sufficient precision the essential content and the requirements flowing from each of those principles. Therefore, the European Court concluded that the principle of legal certainty is respected.

On this matter, CESI Secretary General Klaus Heeger said: “The conditionality regulation did not go as far as we would have liked; it was a compromise which tied the national respect of the rule of law only to the realm of access to EU funding. While the assurance that this compromise is legal soundproof is encouraging, I hope that the mechanism will be a real leverage for the EU to ensure the rule of law and independent judiciaries in all Member States at large..”