Linking EU funding to compliance with the rule of law has marked a shift in how the European Union safeguards its values within its member states. Orbán’s electoral defeat has opened an unprecedented window of opportunity to enshrine rule of law conditionality in the next Multiannual Financial Framework (MFF) as is proposed by the Commission. Compared to the current rule of law conditionality toolkit, the Commission proposal would significantly broaden the scope of application and, crucially, also consolidate the Recovery and Resilience Facility model for rule of law conditionality. Both would be a very positive development. At the same time, some adjustment is needed to give the next MFF even greater bite in safeguarding the rule of law.
Introduction
When Viktor Orbán lost the Hungarian parliamentary elections on 12 April after 16 years in office, a sigh of relief swept across the European Union. After decades of dismantling the rule of law and democratic institutions, Hungary may now have a prime minister committed to restoring democracy and repairing the country’s relationship with Brussels. This is welcome news for the rule of law in the EU, a prerequisite for the Union’s functioning.
Yet the battle over the rule of law is far from over and might even worsen in future. The erosion of rule of law and democratic standards transcends the Hungarian case. Other political actors with a distaste for democratic standards are on the horizon – or already in power. From Robert Fico in Slovakia to Rassemblement National in France and Law and Justice (PiS) in Poland, the EU will likely have to continue defending its values not only externally, but increasingly from within the Union itself. It might well end up not with fewer countries violating its founding values, but more.
So far, the EU, despite its wide range of instruments, has been only marginally successful in safeguarding the rule of law in its member states. Over the past decade and a half, the EU has – alongside the Article 7 procedure provided for in the Treaties – created a toolkit ranging from preventative mechanisms, such as rule of law dialogues and reports, to corrective measures like the rule of law mechanism.
However, only the suspension of EU funds had an impact and created incentives for the governments of member states to adhere to rule of law principles. Unlike other instruments, it has an immediate and direct effect on national budgets. In Hungary, this has not only prompted attempts to make legal changes in the hope of unlocking funds, but the release of EU funds was a key ingredient in Péter Magyar’s eventually successful electoral campaign.
Against this backdrop, it is unsurprising that the European Commission now aims to strengthen rule of law conditionality by enshrining it in the next Multiannual Financial Framework (MFF) for 2028–2034. At the same time, without changes to the proposed decision-making procedure, the proposal for the upcoming MFF risks reproducing the same political constraints that have limited the EU’s ability to apply the rule of law mechanism in the past: the fact that the decision over whether to suspend funds is ultimately taken by the Council by qualified majority voting (QMV).
This already constitutes a constraining factor today and might potentially become even more so. Securing a qualified majority to act against a smaller member state such as Hungary is one thing; doing so when a larger member state is concerned, for example France, is another. With illiberal parties potentially gaining power in more and larger member states, the risk of political blockage by illiberal actors even under QMV becomes increasingly real. The MFF proposal should pre-empt this risk.
The existing rule of law conditionality toolkit: Lessons learned
While the idea of conditionality has long existed in EU economic governance, the rule of law conditionality toolkit is more recent. Faced with a decades-long erosion of rule of law standards in Poland and Hungary, the Commission first proposed linking the disbursement of EU funds to respect for the rule of law in 2018. However, it was only in late 2020, in the midst of the Covid-19 pandemic, that payment of EU funds was explicitly linked to rule of law principles. Three instruments for this purpose currently exist: the rule of law mechanism (officially, the “general regime of conditionality for the protection of the Union budget”); the horizontal enabling conditions in the Common Provisions Regulation (CPR), which is incorporated into the 2021–2027 MFF and which build on the 2014–2020 rules on ex ante conditionality; and the Recovery and Resilience Facility (RRF).
The European Commission is now proposing to enshrine rule of law conditionality in the next 2028–2034 MFF. To better understand the Commission proposal, it is useful to examine what has – and what has not – worked with the existing instruments. This allows us to draw lessons from their application to date, not least because the proposal largely mirrors the current toolkit, albeit with some modifications.
Rule of law mechanism
The rule of law mechanism was adopted in 2021 as a tool for protecting the EU budget. Based on Article 322(1) TFEU, it allows the EU to take measures in cases of breaches of rule of law principles that affect, or seriously risk affecting, the sound financial management of the EU budget or the financial interests of the EU in a sufficiently direct way. This means it can only be used when there is a genuine link between the breach and the EU budget. A clear example would be the misuse of EU funds due to insufficient anti-corruption measures. The mechanism covers all EU funds, but this requirement significantly limits its scope of application.
Procedurally, the Commission first proposes the suspension of funds, but the Council retains final decision-making power. If the Commission has reasonable grounds to believe that the conditions for a suspension are met, it notifies the relevant member state and explains its concerns. The member state may propose remedial measures at this stage. Where the Commission remains unsatisfied, it can propose the suspension of funds by issuing a proposal for an implementing decision to the Council. The Council then has to adopt, by qualified majority voting (QMV), the decision to suspend funds. It can also amend the decision to change the amounts suspended.
The rule of law mechanism has so far been applied only once, against Hungary in 2022 in relation to 55 per cent (approximately €6.3 billion) of cohesion funding, and any legal commitment that would have to be entered into with any ‘public interest trust’. While this signalled that the EU has not only expanded its rule of law toolbox but is also willing to use these new instruments, the fact that this has been triggered only once also illustrates how cautious EU institutions have been in applying this measure. Moreover, the amount of funding frozen was reduced in the Council: the Commission had initially proposed a higher proportion of 65 per cent of cohesion funding that should be suspended.
The reluctance on the part of the Commission to trigger the mechanism, and of the Council to endorse more extensive financial sanctions, points to potential risks for the instrument’s effectiveness. If the threshold for application becomes too high due to the perceived political costs of sanctioning another member state by activating the mechanism, this could lead not only to rule of law breaches going unsanctioned but would also undermine the mechanism’s deterrent effect.
Common Provisions Regulation
The CPR lays down common financial rules for all EU cohesion policy funds1 and migration funds2. Unlike the rule of law mechanism and the RRF, it is not a newly introduced instrument but exists for all MFFs and replaced the previous 2013 CPR. The CPR applies to all expenditure incurred during the 2021–2027 programming period and includes the so-called ‘horizontal enabling conditions’. One such horizontal enabling condition is the requirement for member states to comply with the Charter of Fundamental Rights (the Charter) when implementing the funds.
Procedurally, the decision on whether to suspend EU funds is taken by the Commission alone. When preparing a programme, member states must assess whether they fulfil the enabling conditions. The Commission then reviews whether it agrees with the member state’s assessment. Where it deems that a member state has not fulfilled the enabling condition, the programme can still be adopted but further expenditure will not be reimbursed until the condition is met. In addition, the Commission has the power to suspend payments at any point during the implementation period if it finds evidence that the enabling condition is no longer being fulfilled.
In late 2022, the Commission used the CPR to suspend all cohesion policy funding available to Poland and Hungary. This amounted to €76.5 billion and €21.9 billion (out of which €6.3 billion had already been suspended through the rule of law mechanism), respectively. Unlike under the rule of law mechanism and the RRF, the decision to suspend EU funding under the CPR lies solely with the Commission, again making this a powerful tool the Commission can wield, albeit one with limited transparency.
The Commission has since been sued by the European Parliament for its decision to unlock funding in relation to Hungary under the CPR. The cohesion policy funding for Poland was unfrozen in early 2024 after the then new Polish government published an action plan on rule of law reforms. In the case of Hungary, the Commission unfroze €10.2 billion in cohesion policy funding in December 2023, with some voices whispering that this had been done in exchange for Orbán lifting his’s veto on opening accession negotiations with Ukraine at the European Council shortly after. The European Parliament sued the Commission for the latter’s decision to unfreeze these funds, and Advocate-General Ćapeta found the Commission’s ruling to be illegal. A decision by the European Court of Justice is pending.
Recovery and Resilience Facility
The Recovery and Resilience Facility is the main instrument of NextGenerationEU, through which the €800 billion EU pandemic recovery fund was channelled to member states. Based on Article 175 TFEU, it was adopted in early 2021 as a temporary instrument and will run out at the end of 2026. To access the funds, member states were required to submit national recovery and resilience plans (NRRPs) to the Commission, outlining a set of reforms and investments they intended to finance through RRF support. The NRRPs had to meet a number of general criteria, including addressing country-specific recommendations (CSRs) issued under the European Semester (the EU’s annual framework for coordinating fiscal, economic, employment and social policies across the bloc). Crucially, at the time, the CSRs for both Poland and for Hungary contained provisions relating to judicial independence, which is how the RRF could be used to enforce rule of law standards in those countries.
Procedurally, the Commission is responsible for assessing and approving the NRRPs, together with the Council. The approval of the plans is a precondition for the disbursement of funds. Where it assesses an NRRP positively, the Commission issues a proposal for an implementing decision to the Council, which approves the plan with QMV. Once the NRRP is approved, member states may request payments as soon as they have fulfilled the milestones and targets set out in the plan. The Commission then decides whether to disburse funds based on its assessment of the extent to which these milestones have been reached.
For Poland and Hungary, €59.8 billion and €10.4 billion in RRF funds were at stake. The Commission initially withheld approval of the NRRPs. Poland’s NRRP was eventually approved in June 2022, including two ‘super’ milestones relating to the judiciary. These are milestones that needed to be fulfilled before funds were paid out. Hungary’s NRRP was approved in December 2022, and contained 27 super milestones relating to, among others, the judiciary, public procurement, and anti-corruption. While Poland gained access to the RRF funds in 2024 following the change in government, the RRF funds for Hungary remain, as of mid-April 2026, blocked.
Unlike the rule of law mechanism, where EU funds are disbursed by default unless the Council suspends them by QMV, the RRF works the opposite way: No funds are disbursed unless the NRRPs are approved and their milestones and targets are met. In both cases, decisions are proposed or taken by the Commission, which means the Council’s role is limited to unlocking funds rather than suspending them. This design makes the RRF a particularly potent, albeit temporary, tool: it involves a substantial volume of funding, and the procedure makes it politically easier for the Commission to then respond to rule of law deficiencies in member states.
Lessons learned
The three instruments described above are founded on different legal bases and follow different rationalities in safeguarding the rule of law. While the objective of the rule of law mechanism is sound financial management, RRF conditionality is intended to enforce macro-economic policies in the member states. The CPR in turn is based on the idea of legality: the bloc’s funds cannot be spent in contravention to EU primary law – notably, the Charter of Fundamental Rights. In practice, this means that the same situation – for instance, the absence of anti-corruption measures – could in theory be captured by all three instruments simultaneously, though for different reasons. They also follow different procedural pathways for suspending funds.
Overall, in the cases of Hungary and Poland, the largest sums were suspended through the RRF and the CPR. The rule of law mechanism was never activated against Poland, and against Hungary only in relation to €6.3 billion out of the €32 billion of total funds suspended – less than a fifth. The reason for this was two-fold. First, the requirement in the rule of law mechanism that breaches must be directly linked to the EU budget made the Commission more hesitant about applying it to a broader range of infringements. Second, reluctance in the Council to sanction another member state for rule of law breaches made it more difficult for the Commission even to propose a suspension under the rule of law mechanism. Even when it did, the Council reduced the sum suspended with respect to Hungary in recognition of a few superficial legal changes. In contrast, the procedure and scope of application of the RRF and CPR made it easier for the Commission to freeze all of the RRF and cohesion policy funds respectively – even if it applied the latter measure only after the Council had given the go-ahead for the suspension under the rule of law mechanism, indicating the Commission’s reluctance to act without the backing (via QMV) of other member states.
Rule of law conditionality in the new MFF proposal: What’s in it?
The Commission’s proposal on rule of law conditionality in the next MFF builds on the experiences of existing tools. Under the proposal, a new European Fund for Economic, Territorial, Social, Cohesion, Agriculture and Rural, Fisheries and Maritime Prosperity and Security (‘the Fund’) is to be established. The Fund Regulation sets out the rules governing 14 different EU programmes, including the cohesion funds, three agricultural funds, three funds dedicated to migration and border management, and the Social Climate Fund. It introduces three types of instrument through which funding may be suspended on the basis of rule of law breaches: the Charter horizontal condition; the rule of law horizontal condition; and the approval of National and Regional Partnership Plans.
Charter horizontal condition
The proposed Charter horizontal condition (Article 8 of the Fund Regulation) mirrors the current horizontal enabling condition under the CPR. It requires member states to put in place effective mechanisms to ensure that their national and regional partnership (NRP) plans and programmes supported by the Fund, as well as their implementation, comply with the Charter of Fundamental Rights. Where the Commission considers that a member state is not fulfilling the Charter horizontal condition, it will inform the member state concerned, which will have two months to present remedial measures. If the Commission then still deems the Charter horizontal condition not to be fulfilled, it will adopt an implementing decision identifying the specific measures of the NRP plan affected by the non-fulfilment. For these measures, the Commission will suspend payments until the condition is fulfilled. Where the breach also constitutes a breach of the rule of law horizontal condition, the latter will apply with priority.
One key difference between the new Charter horizontal condition and the current CPR is that the former would also extend to agricultural policy. This is not the case for the horizontal enabling condition under the CPR. The scope of application for the requirement to comply with the Charter will thus be extended to a significant additional share of EU expenditure. Under the current 2021-2027 MFF, about a third of the overall budget is allocated to the EU’s Common Agricultural Policy (CAP) and therefore falls outside the scope of the existing Charter horizontal condition. Under the proposed next MFF, the share for CAP is expected to be smaller but still significant: expenditure on cohesion policy and CAP combined would account for 44 per cent of the overall budget, down from 62 per cent.
Rule of law horizontal condition
The proposed rule of law horizontal condition (Article 9 of the Fund Regulation) resembles the rule of law mechanism. It requires member states to respect rule of law principles, as laid down in the latter regulation, when implementing the Fund. Similar to the existing rule of law mechanism, the Commission will not have the power to adopt the decision on the non-fulfilment of the rule of law horizontal condition by itself. Instead, in the event that the Commission deems a member state to not fulfil the condition, it will inform that member state, which then has two months to present remedial measures. Where the Commission concludes that the rule of law horizontal condition is still not fulfilled, it will propose an implementing decision to the Council laying out the reasons for non-fulfilment. The Council will then have four weeks to adopt, amend or reject the decision.
The key difference between the new rule of law horizontal condition and the rule of law mechanism lies in the former’s scope of application. The rule of law horizontal condition does not stipulate that a rule of law breach must be directly linked to the EU budget. This means that the Commission will be able to apply this measure in a broader way than it currently does, because it will no longer be obliged to identify evidence of any actual risks to the EU budget posed by a breach.
Approval of the National Regional Partnership Plans
The procedure for assessing and adopting the National and Regional Partnership Plans (NRPS) is modelled upon the RRF. The NRPs form the basis of how member states would be expected to spend money. They must outline investment projects that contribute to the Fund’s overarching policy objectives. Procedurally, the adoption of the NRPs follow the same pathway as the RRF: the Commission will assess whether the plans submitted by the member states comply with the requirements of the Fund Regulation and issue a proposal for an implementing decision to the Council. As with the RRF, this will include the requirement for the NRPs to effectively address all, or a significant subset, of the challenges identified in the country-specific recommendations of the European Semester (Article 23 of the Fund Regulation).
Where CSRs contain clauses relating to the rule of law in a particular member state, this will give the Commission two levers in the new MFF. First, it will be able to withhold the approval of a plan until the NRP includes the necessary reforms related to the rule of law. Second, money earmarked for implementing rule of law reforms would not be disbursed until such reforms are implemented.
Rule of law conditionality in the next MFF: Two fixes to give it more bite
Enshrining rule of law conditionality in the next MFF should be a priority in the negotiations. The Commission’s proposal builds on the existing toolkit and, compared to current instruments, offers the advantage of a much broader scope of application for the two horizontal conditions. In particular, the absence of a requirement to demonstrate a direct link to the EU budget could be a game changer for the application of the rule of law horizontal condition. Crucially, it also cements the RRF model in the next MFF, thereby putting rule of law conditionality under the RRF on a permanent basis.
At the same time, some adjustment is needed to give the next MFF greater bite in safeguarding the rule of law. The proposal reproduces a key procedural constraint of the existing rule of law mechanism, namely, that the final decision on suspending funds is taken by the Council acting by QMV. This has limited its effective application, in particular in comparison with the RRF and CPR where the Commission could act more autonomously. Moreover, by requiring Article 9 to be applied with priority over Article 8 in cases where a breach constitutes both a rule of law breach and a violation of the Charter at the same time, the proposal cements this constraint: it essentially requires Council involvement in cases where a different procedure could also be applied. Two changes could fix this.
First, the procedure under Article 9 should be changed from qualified majority voting (QMV) to reverse qualified majority voting (RQMV). Under RQMV, a proposal by the Commission is automatically adopted unless a qualified majority in the Council votes against it. Such a change would thus allow the Commission to decide on the breach of the rule of law horizontal condition and suspend funds unless the suspension was rejected by the Council. While the use of RQMV had already been considered – and ultimately discarded – for the existing rule of law mechanism, experience has now shown how difficult it can be to trigger the mechanism in practice. RQMV therefore merits reconsideration in the context of the new MFF. This is particularly relevant in light of upcoming national elections across the EU: securing a qualified majority to act against a smaller member state such as Hungary is one thing; finding such a majority where a larger member state is concerned – for example France – is another. As more governments may emerge with a weaker commitment to the rule of law, the likelihood of reaching the necessary majority will only become smaller. Moving to RQMV would help mitigate this risk.
Second, prioritising the rule of law horizontal condition over the Charter horizontal condition should be reconsidered. Under the proposal, where both conditions are breached, the Commission must first proceed under Article 9 (as the rule of law condition takes priority) – which entails Council involvement – rather than under Article 8 which does not. As an overlap between the scope of the two procedures is highly probable, member state involvement becomes a matter of course. This risks weakening the effectiveness of the Charter horizontal condition, which has proven itself to be a powerful tool under the current CPR framework. There is no clear reason why the Charter horizontal condition, which ensures compliance with EU primary law, should be subordinate to another condition.
Conclusion
Linking EU funding to compliance with rule of law standards has marked a shift in how the Union safeguards its values within its member states. The Union cannot function without the rule of law. There can be no single market without an effective and independent judiciary in all member states, no common EU budget without mutual confidence that each member state has effective mechanisms to prevent corruption, and no solidarity (financial or social), unless all member states act on the basis of shared values. Enshrining rule of law conditionality in the next MFF to protect the principle is therefore a logical next step. Putting the RRF’s procedural model on a permanent basis for rule of law considerations might become a game changer, as does broadening the rule of law conditionality’s scope of application.
Orbán’s electoral demise has opened up an unprecedented window of opportunity to enshrine rule of law conditionality in the next MFF. At the same time, it cannot be taken for granted that a qualified majority in the Council will remain attainable for activating the horizontal condition. With national elections on the horizon in several of the larger member states, including France and Poland, there is a real risk that illiberal governments could in the future command a blocking minority when it comes to sanctioning rule of law breaches. This risk should be pre-empted now.
1 The Regional Development Fund (ERDF), the European Social Fund Plus (ESF+), the Cohesion Fund (CF), the Just Transition Fund (JTF) and the European Maritime, Fisheries and Aquaculture Fund (EMFAF).
2 The Asylum, Migration and Integration Fund (AMIF), the Internal Security Fund (ISF), and the Instrument for Financial Support for Border Management and Visa Policy (BMVI).
Photo: CC Christian Lue on Unsplash