Rule-of-law breaches can now be addressed more effectively since the EU’s legal framework was bolstered in January 2021 by the Conditionality Regulation. Together with other protective mechanisms under the Recovery and Resilience Facility and cohesion policy, the framework provides for the possibility of budgetary measures against such breaches in member states. However, the fundamental-values shield in place has weak points, and does not yet guarantee full protection of the EU’s financial interests, says a report published today by the European Court of Auditors.

Hungary and Poland are currently affected by several rule-of-law-related budgetary measures, with impacts estimated at around €22 billion and €134 billion, respectively. However, these amounts are not yet tangible, as they only represent the potential impact on future payments and commitments up to the end of the decade. In other words, the direct budgetary consequences are so far much lower than these figures might suggest. In the meantime, blocking EU funds may hamper the achievement of EU programmes and policy objectives, in cases where a government fails to fulfil its obligations. Citizens may then be the first to feel the negative effects, warn the auditors. For example, students may no longer be able to take part in the Erasmus+ exchange programme.

“The EU’s new rule-of-law safeguards are a commendable step forward”, said Annemie Turtelboom, the ECA member who led the audit. “But there are chinks in the armour: the rule of law is a fundamental value of the EU, which certainly merits a more watertight system.”

For the single case in which measures were taken under the Conditionality Regulation (Hungary, 2022), the proposal to block money was duly justified. However, for countries other than Hungary, the auditors could not always verify the reasons for using one tool rather than another. They therefore conclude that the European Commission cannot transparently demonstrate that the EU’s financial interests are properly protected across all member states.

In addition, the EU auditors have flagged several risks that could significantly undermine the long-term effectiveness of the budgetary and remedial measures. Firstly, rule-of-law issues may affect other parts of the budget beyond the measures taken. In the case of Hungary, the measures under the Conditionality Regulation focused on 55 % of three programmes considered most at risk. However, similar problems may affect the remaining 45 % of the programmes, or any other EU funds (such as the Common Agricultural Policy). Secondly, the application of the Conditionality Regulation may result in little more than a box-ticking exercise, with no real improvements on the ground. For instance, announcing the creation of an Integrity Authority does not automatically ensure that the fight against corruption will be effective. Lastly, EU auditors point to the risk of remedial action being reversed once budgetary measures are lifted.

These risks seem all the more significant as, although decisions not to block or to release EU funds should be based on technical and legal analysis, the EU auditors emphasise that political considerations may ultimately play a major role. Indeed, the auditors warned that lifting budgetary measures, which require a qualified majority in the Council, was likely to be discussed at the same time as other important decisions requiring unanimity between the 27 member states. This is what occurred in December 2023, a few weeks after the end of the audit, when rule-of-law decisions on Hungary had to be taken at the same time as voting on the Ukrainian accession talks to which Hungary initially objected.

Background information

The EU is founded on a set of fundamental shared values – including the rule of law – laid down in Article 2 of the Treaty on European Union. This requires law-making to be a transparent, accountable, democratic and pluralistic process. It also requires all public authorities to act within the constraints of the law, in line with the values of democracy and respect for fundamental rights. Breaches of the rule of law can negatively affect the EU budget and the EU’s financial interests. For example, they may affect the proper functioning of the authorities that implement the EU budget and carry out the related financial scrutiny, monitoring and audit. They may also undermine effective judicial review by independent courts, and the prevention and penalising of fraud and corruption. As the guardian of the EU treaties, the European Commission is responsible not only for identifying and addressing possible breaches of EU law, but also for protecting EU financial interests against them.

The audit covers action to protect the EU’s financial interests through the Conditionality Regulation, together with relevant provisions under the Recovery and Resilience Facility Regulation and the 2021-2027 Common Provisions Regulation covering cohesion policy funds. The audit sample included Bulgaria, Greece, Hungary, Italy, Poland and Romania.

Special report 03/2024, “The rule of law in the EU: an improved framework to protect the EU’s financial interests, but risks remain”, is available on the ECA website.

On 28 February, the ECA will also publish on its website a review of the European Commission’s annual rule-of-law report, which is the most important source of information used so far for applying the Conditionality Regulation.