The so-called conditionality mechanism introduced by Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget (OJ 2020, LI 433/1, p. 1) (hereinafter referred to as the Regulation) raises a number of legal concerns.

These mainly include:

• Incorrect legal basis for the Regulation

The existing conditionality mechanisms in the European Union law have been established on the same substantive legal basis as that used for the adoption of the financial instrument supported by that particular conditionality mechanism.

The Regulation stipulates that it is applicable to the so-called Recovery Instrument. 

The establishment of the Recovery Instrument required the adoption of the third paragraph of Article 311 TFEU to amend the decision on own resource. On the other hand, amending the decision on own resource required, inter alia, a consensus in the Council of the European Union.
Poland’s disagreement in this regard would rule out the establishment of the Recovery Instrument. The Regulation was adopted on the basis of Article 322(1)(a) TFEU, requiring, inter alia, not a consensus but a qualified majority in the Council of the European Union.

As a result: should the legal basis for the regulation be deemed – in line with past practice – identical to that used to establish the Recovery Instrument, Poland could block the adoption of the so-called conditionality mechanism.
Adoption of the Regulation under Article 322(1)(a) TFEU ruled out this option.

• Defining the ‘state of law’ value from Article 2 of the Treaty on European Union (hereinafter referred to as: TEU) with the Community secondary law

Pursuant to Article 2 TEU, the Union is founded, inter alia, on the value of the state of law. This concept has not been defined in the Treaties. Any amendment to this requires the consent of all Member States. The so-called conditionality mechanism arising from the Regulation essentially defines the way in which the value of the state of law is understood.

As outlined above, the Regulation was adopted on the basis of Article 322(1)(a) TFEU and therefore in a procedure that does not require the consent of all Member States. Since the so-called conditionality mechanism can lead to the blocking of EU funds to which a Member State is entitled, the interpretation of the state of law value provided for in the Regulation is, in fact, applicable to all Member States. By clarifying the understanding of the state of law value, the Regulation has, in effect, amended the Treaties in this regard – without requiring the consent of all Member States to such an amendment.

• Infringement of Article 7 TUE

Protection of the values on which the Union is founded, and therefore also the state of law value, requires the mechanism provided for in Article 7 TEU. Imposition of any sanction on a Member State for infringement of these values requires, inter alia, the unanimous consent of the European Council. The objective scope of sanctions that can be imposed under Article 7 TEU is broad enough to cover all actions that can be adopted under the so-called conditionality mechanism.

This mechanism differs from the procedure under Article 7 TEU in that, under the Regulation, decisions on sanctions may be adopted by qualified majority. Since the Treaties have provided for a mechanism under Article 7 TEU for resolving problems with respect to the state of law value, the establishment of an alternative mechanism by a low-ranking act, such as a regulation, constitutes, in fact, a circumvention of the aforementioned Article 7. 

Since the same measures can be applied under the so-called conditionality mechanism as could have been adopted under Article 7 TEU, it must be assumed that the sole reason for adopting the Regulation was to avoid the consensus requirement of the Member States. This indicates an abuse of power by the European Parliament and the Council of the European Union.

• Infringement of the principle of conferral

The Treaties upon which the Union is founded imply a clear distinction between the competences conferred on the Union and those that remain at discretion of the Member States.

The so-called conditionality mechanism introduced by the Regulation violates this principle as it states that its application may be based on irregularities in any area which could have any impact on the declared objective of the mechanism, i.e., the protection of the EU budget. As a result, the competences conferred on the Union shall, in effect, cover most of the competences of the Member States.

For instance, according to the Regulation, the protection of the EU budget requires sound financial management. Sound financial management requires proper fraud prosecution. Proper prosecution of fraud requires a properly functioning investigation service. The proper functioning of these service requires appropriate staffing.

As a result: e.g., an insufficient number of full-time prosecutors may be considered as a violation which may lead to the imposition of the so-called conditionality mechanism. In essence, this puts the power of authority in this area in the hands of the EU Institutions – non-compliance with their recommendations in the exemplarily indicated matter shall be sanctioned by the imposition of measures which in reality are equivalent to financial penalties.

• Infringement of the principle of equal treatment between Member States

The Regulation implies that the Council of the European Union decides by qualified majority on the adoption of measures for the protection of the EU budget, and thus on the blocking of funds for each Member State.

The qualified majority is determined, inter alia, by the voting population of the Member States. The Member State against which the measures are to be imposed shall not be excluded from the vote. This leads to clear discrimination against small and medium-sized Member States. In other words, the so-called conditionality mechanism is much easier to apply to Poland than, for example, to Germany or France.