Five Polish government claims about the EU budget debunked

This article is published in cooperation with the ideaForum of the Batory Foundation.

By Szymon Ananicz and Piotr Buras

The Law and Justice (PiS) government is misleading the public over its dispute with Brussels over the EU budget and rule-of-law conditionality. In doing so, it is stirring up sentiment against the EU, Poland’s European partners and the western social model. We debunk five of the main myths pushed by PiS politicians.

The state of play

The European Council summit on 10-11 December will decide on the main EU budget, the so-called recovery plan for Europe to support economies damaged by the pandemic, and the regulation linking payment of funds to countries’ observance of the rule of law.

The first two decisions require unanimous approval from all member states. Poland and Hungary are threatening to use their veto because they oppose the third, rule-of-law conditionality, for which a qualified majority is sufficient.

Myth 1: the conditionality mechanism is against EU law

The Polish government argues that the conditionality mechanism in fact duplicates Article 7 of the Treaty on European Union, which allows the bloc to punish members for a “serious breach of the rule of law”. Introducing an alternative means of sanction, they say, contradicts logic and the treaty.

Yet Article 7 and the new mechanism approved by the EU concern two different things. The former designates the procedures to be followed when a member state seriously breaches the EU values set out in Article 2 of the treaty (concerning democracy, rule of law, respect for human rights etc.). One possible stage of the procedure is sanctions in the form of limiting some rights, including voting rights. This procedure is already in use for Poland and Hungary, but is yet to be voted on by the Council of the European Union.

The objectives of the conditionality mechanism are much narrower: it is simply about protecting the EU’s financial interests. This is also reflected in the mechanism’s legal basis – Article 322 of the Treaty on the Functioning of the European Union. Restrictions may be imposed when it is established that breaches of the rule of law affect management of the EU’s budget and its financial interests “in a sufficiently direct way”.

It is likely that violations of the systemic guarantees of judicial independence could persuade the European Commission to seek sanctions against the Polish government. After all, the possibilities of the government disciplining judges could have an impact on the impartiality of their judgements in cases of management of EU money.

But the difference to the Article 7 procedure is significant. In the current situation, a direct link between breaches and financial management must be demonstrated. Article 7, on the other hand, can be invoked for penalties for violations of human rights and democratic principles as fundamental values – regardless of the financial consequences.

PiS politicians are basing their argument on the opinion of legal services of the EU Council, which raises the issue of duplication of Article 7. It is true that such an opinion exists, but it referred to the original wording of the regulation, submitted by the European Commission in March 2018, which gave a broad definition of the criteria of rule-of-law violations that could trigger the mechanism. This was amended during negotiations, and the final version refers specifically to Article 322 of the Treaty on the Functioning of the European Union and protection of the budget.

Of course, the Polish government, like any other, has the right to continue to voice its objections to the contents of the regulation and to believe it to be contrary to the treaties. But the normal course of action would be to address its reservations to the Court of Justice of the EU, and not threaten to veto other acts of law. Poland followed this path recently regarding posting of workers – failure to do for the conditionality mechanism could suggest a lack of faith in the strength of its argument.

Myth 2: the provisional twelfths system is better for Poland

If there is no agreement on the budget for 2021–2027, the provisional twelfths system – whereby governments each month can spend a sum equal to one twelfth of the amount spent in the previous year – will apply. MEP Jacek Saryusz-Wolski and various other representatives of the ruling party have claimed that not only would Poland not suffer financially, but that this would even be a better situation. Since Poland received more from certain financial programmes than was planned for the coming years, they say, it would mean getting 23% more from the EU than in the non-veto scenario.

This claim is based on an incorrect interpretation of Article 312(4) of the Treaty on the Functioning of the European Union, which the representatives of the government are citing. This provision says that where no new regulation is passed on time, the previous one continues to apply. But it does not specify the amounts due to individual countries and is not a legal basis for payment of funds.

While the rule of twelfths is in operation, we know how much the EU can spend. But for the payments to take place, additional legal acts are necessary. These acts determine how much member states (including Poland) are to receive for cohesion policy, education or research. The funds cannot be triggered without these regulations, yet they will not exist if there is a veto, as those applying in the current budgetary perspective expire at the end of the year. The new ones that the institutions have been working on for months correspond to the values in the new budget – the one that Poland and Hungary are threatening to veto.

Moreover, in 2019 the European Commission decided against working on a “plan B” – preparing legal acts to smooth the way for continuation of the budgetary commitments at the 2020 level if there was no consensus for the next financial framework. The Commission wanted to avoid the existence of a “plan B” being exploited by certain member states for blackmail purposes if they knew it would suffice to protect their interests.

Blackmail, as it turns out, could not be avoided, but there is still no “plan B”. In the case of a veto, the EU will still have funds, but will not be able to use them. In other words, Poland will still have to pay, but will have increasingly limited access to funds.

There are important exceptions to this general rule. The regulation concerning common agriculture applies until 2023, for example – so subsidies for farmers are not threatened for the next two years. But the provisional twelfths system would make it impossible to get funding for new projects, including cohesion policy (infrastructure, road investments) as well as new EU initiatives. Joint purchases of COVID-19 vaccines are also unlikely to be possible if they are not contracted by the end of the year.

Myth 3: we don’t need the recovery fund

So a veto would mean that only farmers and investors who signed contracts for funding of projects on time would be able to count on funds. What about the recovery fund? This is worth €23 billion for Poland and around €40 billion in loans. Without agreement on the budget, either there will be no fund, or it will be formed without Poland and Hungary.

This is permitted by the principle of enhanced cooperation, provided for in the treaties. If the agreement of all members proves impossible, a minimum of nine countries may take action among themselves, as long as they do not endanger the operation of the common market. These conditions could easily be fulfilled. The countries would then take out loans together on financial markets for the needs of the plan and share both liability and funds.

Another, more difficult option would be to set up a fund outside the framework of the treaties, although this should not be necessary. There are already precedents: for example to get around the United Kingdom’s veto, the fiscal pact was adopted as an intergovernmental treaty (of which Poland is a signatory), and the European Stability Mechanism for the euro zone was created in a similar way.

Representatives of the government play down the significance of the recovery fund (and the negative consequences of a veto), claiming that it is mostly loans that Poland does not need, as it can borrow more cheaply in financial markets. But the €23 billion comprises non-refundable grants, not loans. Admittedly, this is less than half the total envisaged for Poland, but it amounts to almost ten annual health service budgets in Poland. And the government has already collected more than a thousand funding applications for money which will be unavailable without a budget agreement.

Furthermore, as Poland is outside the euro zone, it has higher debt servicing costs than the European Union and most member states. If it could really take out loans more cheaply than the EU, then it is hard to explain why the Polish government applied to the European Commission under the SURE programme developed in response to the first wave of COVID-19. In October Poland received its first tranche of €1 billion of a total €11 billion.

Myth 4: The mechanism is determined by a handful of Eurocrats

Representatives of the United Right government often oppose the supposed dictate of “Brussels bureaucrats”. This is also the case with the rule of law mechanism, which they claim is being applied at the whim of a few Eurocrats. This is misleading to the public.

The regulation agreed by the European Parliament and Council in November 2020 determines the procedure reducing the risk of arbitrary decisions being taken. First, if the European Commission decides that there are serious grounds to state that contravention of the rule of law in a given member state poses a direct threat to the EU budget and no other means provides better protection, it is obliged to inform that country of its reservation.

The member state then has three months to provide explanations, and can also propose its own solution. If the Commission is not satisfied with the response, it can propose proportionate financial sanctions to the Council, which must then has a month to make a decision by qualified majority (a minimum of 15 member states representing 65% of citizens). The country in question may present further proposals at any time, and the Commission must keep the European Parliament informed of developments.

So the procedure has a number of safeguards to protect member states from arbitrary decisions, with each of the main EU institutions involved. And even if a country considers the penalties against it unjustified, it has the right to take its complaint to the European Court of Justice.

The decision-making procedure within the conditionality mechanism was agreed upon by the leaders of the EU member states at the summit in July. Among the signatories were prime ministers Mateusz Morawiecki and Viktor Orbán.

Myth 5: there is no definition of the rule of law

“This rule of law is like the yeti – many people have heard of it, but nobody has physically seen it, let alone physically defining it,” said PiS spokesman Radosław Fogiel. The implication is that the content of the rule of law principle is arbitrarily formulated depending on the current political needs.

But the rule of law is in fact outlined in Article 2 of the Treaty on European Union as one of the fundamental values on which the European Union is built. Rule of law is not a mere unspecific political idea, but a constitutional legal principle, firmly established in the acquis of the EU and its member states. The precise definition of the rule of law was forged in successive rulings of the European Court of Justice and European Court of Human Rights (and the Council of Europe also developed norms and guidelines for upholding the rule of law).

In recent years, the European Commission has attempted to bring together key elements of the rule of law. It is defined as meaning that public authorities must act within limitations defined by the law, in keeping with the principles of democracy and fundamental rights and under the control of independent and impartial courts.

The rule of law encompasses such principles as that of legality, meaning a transparent, accountable, democratic and pluralistic law-making process; legal certainty; prohibition of arbitrariness in the actions of the executive; effective judicial protection by independent and impartial courts; effective judicial control, including respect for fundamental rights, separation of powers and equality before the law. This definition was accepted by the member states and European parliament in the regulation on the conditionality mechanism.

This does not change the fact that it is not general deficits of the rule of law that can be the basis for applying the conditionality mechanism. As mentioned above, a direct influence on the security of EU finances must be demonstrated. In fact, this important distinction is even criticised by proponents of a more ambitious mechanism. One country in favour of weakening it was Germany, which the Polish government is now – and this is yet another myth – accused of inspiring a dictate aimed at Poland and striving for hegemony under the pretext of defending the rule of law.

This article is an abridged version of the Polish original, which can be found here. Translated by Ben Koschalka.

Main image credit: Krystian Maj/KPRM/Flickr (under CC BY-NC-ND 2.0)

Szymon Ananicz is a senior expert and advocacy manager at the Batory Foundation.

Piotr Buras is a political analyst and head of the European Council on Foreign Relations Warsaw office.