EU seeks accord to end impasse on rule of law and budget

EU seeks accord to end impasse on rule of law and budget

Polish deputy PM says agreement within reach but draft needs signing off by member states and parliament

EU member states are seeking to finalise a compromise aimed at ending a damaging stand-off over its €1.8tn budget and recovery fund after Polish officials signalled Warsaw could drop its opposition to a new mechanism linking payments to rule of law principles. 

Poland’s deputy prime minister Jaroslaw Gowin, one of the government’s main moderates, told reporters on Wednesday that an accord was within reach between the German EU presidency, his own country and Hungary, which has also refused to accept the new rules.

However, the draft deal still needs to be signed off by the other member states and accepted by the European Parliament. Tensions also remain within Poland’s ruling coalition, with one of Law and Justice’s smaller coalition partners still opposed to the deal.

The possible compromise was discussed by EU ambassadors on Wednesday afternoon, in an exchange that one diplomat said was “positive” while yielding “a number of constructive questions”. The final decision on whether it provides a way ahead will fall to the European Council, which is meeting in Brussels on Thursday.

The earlier refusal by Poland and Hungary to accept the new rule of law mechanism has stalled attempts to finalise the EU’s upcoming seven-year budget and €750bn recovery fund, in a serious setback to the bloc’s plans to bounce back from the effects of the Covid pandemic. The roadblock prompted the European Commission to start work on ways of circumventing the two capitals entirely — forcing through the recovery fund as a deal among just 25 member states.

However diplomats now hope that the EU can coalesce around a compromise text at Thursday’s summit, once all the capitals have had a chance to examine the draft wording. At the centre of the deal is a declaration, to be made by the commission, that provides reassurances over the rule of law mechanism while stopping short of changing the terms of the legal agreement struck by MEPs and governments. 

According to a draft text seen by the Financial Times, the declaration will make clear that the EU will treat member states equally in applying the rule of law mechanism, and not discriminate against any individual country. The new rules would apply only to the next EU budget from 2021, and not existing funds — something that has been a longstanding demand of Hungarian prime minister Viktor Orban.

More controversially, it also says that the commission will finalise guidelines it needs to enact the new rules only after any legal action challenging the rules at the European Court of Justice is over. This could entail a significant delay before the new measures come into force. Poland and Hungary have claimed that the mechanism breaches the EU treaty — a contention dismissed by the commission and other member states. 

The declaration would also attempt to reassure the two capitals that the mere finding of a breach of the rule of law would not trigger the mechanism in itself — it would only apply if there were a sufficiently direct link to protecting the EU’s financial interests. And it reaffirms that a single country can trigger a so-called emergency brake over the sanctions process, meaning the dispute would be taken up by EU leaders, who would “strive” to reach a common position on the matter. That should not, however, hand that nation a veto right over the action.

After Mr Gowin spoke on Wednesday, Poland’s deputy foreign minister, Pawel Jablonski, told the FT that a deal was “close, but close does not mean that there are not still problems to be worked out”.

“In general we are happy with this perspective, but it might still require some tweaks,” he said, adding that it was also not clear whether other countries, such as the Netherlands, would accept it. “I believe it is rather a proposal to be accepted by others, than something that was agreed in the Council and now for Poland and Hungary to accept.”

Both Warsaw and Budapest have been refusing to sign off on the EU’s upcoming seven-year multiannual financial framework and the recovery fund because of their objections to the new mechanism linking payments of EU money to adherence to the bloc’s key legal principles. They argue the rule of law provisions unfairly target their nations. 

However signs of movement emerged on Tuesday night after Mr Orban flew to Warsaw for talks with the leader of the ruling Law and Justice party and Poland’s de facto leader, Jaroslaw Kaczynski, as well as prime minister Mateusz Morawiecki, and the leaders of Law and Justice’s two junior coalition partners, Mr Gowin and Zbigniew Ziobro.

The Hungarian premier said afterwards that the two sides were “a centimetre” from a deal. On Wednesday, Hungarian foreign minister Peter Szijjarto said Hungary could “declare victory”.

“It is still not possible to link the drawdown of EU funds to Hungary to political or ideological conditions,” he wrote on Facebook.

A delay to the activation of the rule of law mechanism pending any court challenge could be particularly important to Mr Orban ahead of parliamentary elections due in 2022. Critics say the authoritarian premier is keen to fend off any potential impact from the new EU system until after those polls. 

Yet amid the hope of a deal, there were also renewed signs of tensions within Poland’s ruling coalition.

Mr Ziobro’s rightwing United Poland party has repeatedly insisted that accepting any rule of law mechanism would be a betrayal of Poland’s national interest.

He said last month that failure to veto this would result in a complete loss of confidence in Mr Morawiecki, prompting speculation that United Poland could leave the government if Poland dropped its veto. This would deprive the ruling coalition of its majority.

Mr Ziobro reiterated his scepticism on Wednesday night. “If the regulation linking the budget with ideology comes into force, this will be a significant limitation of Poland’s sovereignty, and a breach of the European treaties,” he wrote on Twitter. “We do not agree to this!!!”

James Shotter in Vilnius and Sam Fleming, Mehreen Khan and Michael Peel in Brussels