The essence of the new system is that payments of EU funds could be withheld in the case of Member States that interfere with or violate the rule of law in their countries. As EU institutions can only act in accordance with the Treaties, the mechanism would initially only sanction wrongdoing that “affect or seriously risk affecting the sound financial management of the EU budget or the protection of the financial interests of the EU”. However, it is an obvious intention of several old Member States to extend the scope of the mechanism to other fields as well, such as broadly understood human rights violations. Because of a lack of a solid, commonly agreed baseline as to what the desirable quality of rule of law is, and the absence of a sound legal basis in the Treaties to justify the mechanism, those EU actors that are pushing for the full implementation of the system are on shaky ground.
Stipulated in December 2020[i] in the wake of the agreement on the EU’s record Covid-induced budget, payments to an EU Member State may be cut or frozen if that country breaches principles of the rule of law. To ensure that the mechanism would not completely fail because of the veto of Poland and Hungary, the main targets of the new scheme, the European Council agreed on a compromise: Hungary and Poland accepted an “interpretative declaration” laid down in the European Council summit conclusions.[i] Among other things, it was agreed that no measures were be taken on the basis of the regulation until the Commission has finalised guidelines on the way the conditionality mechanism will be applied. Furthermore, the Member States can first ask the Court of Justice of the European Union (CJEU) to clarify whether the regulation is in line with EU law, and the Commission is obliged to incorporate any elements stemming from a potential CJEU judgment..