5 ways the EU can resist Orbán and Kazcynski’s budget blackmail.

Hungary and Poland are threatening to hijack the entire Multiannual Financial Framework budget negotiation over democracy and the rule of law. While the regulation on Rule of Law budget conditionality has already passed by qualified majority vote, the Hungarian and Polish governments yesterday blocked the establishment of the EU's €750 billion coronavirus recovery fund due to their opposition to linking EU funds to respect for the rule of law.

It is not known yet whether the two backslider regimes will indeed formally veto the MFF and Covid funds in December. Hungarian Prime Minister Viktor Orbán made a big show of fighting prior to the July summit, but he eventually backed down, however insincerely “for the sake of Europe”. In contrast to that, Jaroslaw Kaczynski, who is a lot more ideology-driven and often more unpredictable than Viktor Orbán, does not seem to back down.

There is a huge discrepancy between the Hungarian government’s Eurosceptic rhetoric and the economic reality. While Orbán even claims that Brussels is plotting to colonize Hungary, EU funding accounts for 3-4 percent of Hungary’s GDP and is the primary source of funds for state corruption. Orbán wants to cement his corrupt clientelist ecosystem for the long run and to secure power in case the mismanagement of the COVID-19 pandemic would result in an election defeat in 2022. Without the EU money, he might be struggling to win the upcoming elections. Thus, he wants to water down the conditionality by narrowing its scope and implementing a deferral clause so that the Hungarian government tie up the regulation in litigation at the European Court of Justice. Because the litigation is likely to take years the regime would have still be able to use EU funds during the 2020 campaign.

Toothless lion

The worst-case scenario would be for the EU to make concessions to further weaken the conditionality mechanism, which could be best described as that of a most toothless lion. Nevertheless, even the mechanism already agreed is too weak.

Though the European Parliament has ensured that the rule of law mechanism is not as vague as it could have been, in a deeply legalized environment like the EU clear wording is also crucial from a practical point of view. Even now, in order to enforce this mechanism, the EU Commission would need to prove that a Member State is “seriously risk affecting the principles of sound financial management of the EU budget or the protection of the financial interests of the Union in a sufficiently direct way.”

Since “serious risk” and “sufficiently direct way” is vague, the burden of proof could water down the efficiency of the mechanism in practice. The systemic risk is that lacking clear indication, the procedure might result in another never-ending discussion and political stalemate, much like in the case of the Article 7 procedure.

But after a decade of authoritarian system-building, one of the lessons the EU should have learned that Viktor Orban has become a master at formally complying while substantially undermining democracy in an informal way. He is playing dirty in a deeply legalized environment where the EU institutions are based in transparency and accountability, cautiously avoiding harsh language against its own Member States.

Using COVID as a pretext once again, the Hungarian government now wants to amend the constitution for the 9th time to legalize political corruption. Fidesz submitted a constitutional amendment to narrow the definition of public funds, which might be a preventive strike regarding rule of law conditionality in the making. Through these foundations, the government will be able to channel public funds to its cronies by turning it into private funds.

While constitutional amendment seeks to protect the Hungarian state from doing so, the public funds amendment reduces the scope of what is allowed as public funds, and so gives them more freedom to spend those newly non-public funds as it likes. The government might hope that this tactical move will further reduce the financial accountability and transparency of public spending, which could have a negative impact on the efficiency of the conditionality.

The icing on the cake is that the mechanism does not even cover broader rule-of-law challenges, the curbing of fundamental rights, or the freedom of press.

Gloves Off

By blackmailing the EU in the middle of the pandemic Viktor Orban and Jaroslaw Kaczynski have given the EU the justification it needs to finally take the gloves off.

First, the other member states could step up and make an intergovernmental agreement on the badly needed Recovery and Resilience Facility (RRF) of 672.5 billion euro. The same method was used in 2012 with the Fiscal Compact (vetoed by David Cameron as an EU measure). While Orbán initially ruled out the idea of committing to the EU pact back then, he very swiftly made an about turn

Second, because instruments, like the Article 7 procedure and this rule of law conditionality typically target specific violations of EU law, they cannot grasp the accumulated effect of many small legislative changes, or Orbán’s use of informal power to drive democratic backsliding.

It’s time for the EU institutions finally use the currently existing rich toolkit at its disposal. Even if the new conditionality mechanism difficult to enforce a future against Hungary, the Common Provisions Regulation currently allows suspension of payments in case of systematic violation of the rule of law.

Furthermore, the Von der Leyen Commission has to enforce Hungary’s adherence to the core values of the EU pronounced in Article 2 of the Treaty on European Union. The Commission should employ more targeted legal arguments - like in the case of Polish judiciary overhaul - so that the EU Court of Justice will have more opportunities to interpret EU Treaties in an effective manner.

Finally the Commission should also bring more infringement actions, with applications for interim measures, related to the Article 7 procedure, given that violations of press freedom and media pluralism are among the major concerns listed under its scope. Despite the continuing deterioration of media plurality, the Commission is still assessing a complaint over state aid for Hungary’s broadcast sector submitted in 2016. Furthermore, the CJEU should prioritize these infringement actions to prevent further harm by governments before its rulings are issued.

Europe must not leave the Orbán-Kaczynksi blackmail unanswered. It is time for the EU institutions to stand up for the European people, who support tying EU funds to the rule of law, and not let anti-European autocrats further push the EU into a serious financial and political crisis.

Edit Zgut is a doctoral researcher at IFIS PAN, a Rethink.CEE fellow at the German Marshall Fund and a DemocraCE fellow at Visegrad Insight.