EU’s New Weapon in Rule-of-Law Battle With Poland, Hungary: Money

The European Union has begun withholding funds from Poland and Hungary, escalating the battle over democratic standards that is deepening the East-West divide in the bloc.

The EU and most governments in its Western region are concerned about legal changes by Poland and Hungary that they think are eroding the rule of law, weakening judicial independence, and breaching human rights. They are particularly alarmed by an effort by Warsaw to assert the primacy of Polish law over EU law and court decisions.

The two nations, which are among the biggest net recipients of European money, say the pressure from Brussels represents an ideological attack on their values and an attempt by unelected officials to curtail the rights of member countries to shape their own political systems and laws.

The EU has had disputes for years with Poland and Hungary over issues such as gay rights, which are hot-button topics in many former communist countries. Conservative voters and politicians in the region have argued that since joining the bloc in 2004, Brussels has increasingly used its powers to impose Western European social values over local norms.

The European Commission’s fight with Poland over judicial independence is separate from these disputes. Brussels officials argue that Poland’s efforts to disregard EU court decisions and challenge legislation could set precedents that undermine bloc-wide rules—such as those governing the single market—and defang the supranational courts that police EU law.

Poland argues it is simply reforming a corrupt, postcommunist judicial system.

The commission’s decisions over the last 10 days to delay cash disbursements to Poland and Hungary mark the EU executive body’s most aggressive moves to date.

Brussels has worried that a confrontational approach could entrench East-West divisions or even push a member state to follow Britain out of the bloc. However, it is facing growing pressure from the EU’s biggest paymasters, the Netherlands, France and Germany, to draw some red lines.

“I think this is clearly something that has been coming for a long time,” said Fabian Zuleeg, chief executive of the Brussels-based European Policy Center think tank. “Member states are reacting much more strongly.”

In July, the commission extended until end-September a deadline for reviewing Hungary’s application for 7 billion euros, equivalent to around $8.3 billion, in Covid-19 recovery funds. And last weekend, the deadline for the commission to clear nearly €40 billion in aid to Poland expired, although talks regarding this are continuing.

Previously, Brussels had fought rule-of-law battles with Poland and Hungary with legal filings and threats of financial penalties and partial loss of EU voting rights—without success. However, the passage of last year’s €750 billion recovery plan, funded for the first time by joint EU debt issuance, gave Brussels new leverage. The money, whose first disbursements started in July, is formally tied to loose criteria aimed at ensuring it isn’t lost to corruption, but Brussels has wide de facto discretion over disbursing it. The commission must give a recommendation to member states on whether to approve a government’s program of projects and sign off incremental cash payments tied to policy milestones.

In recent months, the push for the commission to flex its financial powers has grown.

The passage of a Hungarian law banning the portrayal or promotion of homosexuality in schools sparked the worst spat to date between Prime MinisterViktor Orbán and his Western counterparts. At a summit in June, Dutch Prime Minister Mark Rutte said Hungary had “no business being in the European Union any more.”

The commission has started a legal case against Hungary, charging it is breaching basic guarantees of equal treatment in EU treaties. The Hungarian government says its law protects parents’ right to control their child’s sexual education.

Mr. Orbán, who says he will start carrying out the planned recovery projects despite the delay in funding, has found some allies in Western Europe in what he says is his fight against EU interference in national affairs.

“I believe that every state must be free to decide on its school and university programs and on its justice system,” Matteo Salvini, Italy’s former deputy prime minister and right-wing opposition leader told reporters the same day as Mr. Rutte’s broadside against the Hungarian leader. “So I honestly don’t understand these interferences.”

Poland, as part of its judiciary overhaul, has taken its battles with Brussels a step further. In July, Poland’s top court ruled that Warsaw should ignore an order by the European Court of Justice to disband a disciplinary judicial tribunal that critics say is used to intimidate independent judges. The ECJ is the EU’s highest court and its rulings supersede those of national courts. If Poland doesn’t implement the ruling by Aug. 16, the commission can propose fines for the ECJ to impose.

In a separate case, Poland’s Prime Minister Mateusz Morawiecki is asking local judges to decide whether they need to apply EU legislation if it clashes with Poland’s laws. The country says it is merely asserting the sovereignty of its judiciary, noting that Germany’s constitutional court contradicted ECJ rulings in a 2020 decision over the European Central Bank’s bond-buying program. The commission has started legal proceedings in that case too.

In joining the EU, Poland agreed to implement its laws and ratified legally binding bloc treaties. While EU officials have played down the link between recovery payments and a government’s rule-of-law decisions, privately, officials have made it clear that Poland’s recovery program won’t be approved unless it changes course.

The challenge represents a serious threat to EU authority, said Piotr Buras, head of the European Council on Foreign Relations’ Warsaw office, because it could be a first step to undermining the bloc’s legal order. One option for the commission, Mr. Buras said, would be to ask the ECJ to give Poland a massive fine—similar in scale to the multibillion-euro compensation ordered in big antitrust cases.

On Monday Mr. Morawiecki said his government will need to reach “some kind of accord” with the EU over the judicial standoff