Documents considered by the Committee on 4 July 2018 Contents

7Rule of law: suspension of payments from the EU budget

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested

Document details

Proposal for a Regulation of the European Parliament and of the Council on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in the Member States

Legal base

Article 322(1)(a) TFEU and Article 106a TAEC; ordinary legislative procedure; QMV

Department

Treasury

Document Number

(39685), 8356/18, COM(18) 324

Summary and Committee’s conclusions

7.1In recent years, concerns have grown about respect for the rule of law and the independence of the judiciary in several EU Member States. Romania and Bulgaria, which joined the EU in 2007, remain subject to increased EU oversight of their judicial and political systems under the Cooperation and Verification Mechanism because of concerns over judicial and political corruption in those countries.

7.2More recently, a dispute between the European Commission and the Polish Government about the latter’s controversial judicial reforms188 culminated in a decision by the Commission, in December 2017, to activate the EU Treaty’s Article 7 process for the first time. This procedure can, ultimately, lead to the suspension of a Member State’s voting rights in the Council if the other Member States believe there is a “serious and persistent breach” of the “values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights”. In addition, the European Parliament’s Civil Liberties Committee is considering a resolution calling on the Commission to initiate a second Article 7 process against Hungary in light of controversial electoral and political reforms there.189 This resolution is expected to be considered by the Parliament’s Plenary, which has the power to start the process independently of the European Commission, in September 2018.

7.3These Member States all have in common that the EU is a major source of funding used for their public investment programmes, especially through the European Structural and Investment Funds that provide financial support for the Union’s lower-income regions. For example, in 2015, Poland was the largest net beneficiary of EU funding with net receipts of €9.6 billion (£8.4 billion).190 Moreover, in Poland, Hungary, Romania and Bulgaria the share of public investment accounted for by funding from the EU budget exceeds 40 per cent.

7.4In light of concerns about the rule of law as described above, the European Commission—as part of its wider package of proposals on the EU’s 2021–27 Multiannual Financial Framework (MFF)—in May 2018 proposed a Regulation on “on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in the Member States”. In essence, where the Commission believes that there is a threat to the rule of law in an EU country which poses a risk to the “sound financial management or the protection of the financial interests of the Union”, it would be able to suspend or even terminate an agreement for EU funding where a ‘government entity’ in the Member State in question is the recipient. Risks to the EU budget could, for example, relate to fraudulent use of EU money; improper public procurement exercises; or a lack of effective and independent judicial oversight of the government entities that manage EU budgetary allocations.

7.5The procedure for establishing a “generalised deficiency” which could lead to a suspension of payments from the EU budget, as proposed by the Commission, would be as follows:

7.6Under the terms of the draft Regulation therefore, suspension of payments would be largely at the Commission’s discretion. A change to, or veto of, its proposed measures could be only be taken by a large majority of Member States; if no sufficient majority exists, the Commission’s Implementing Act suspending payments would automatically take effect. However, the procedures and safeguards as described above will now be subject to discussions among the Member States and in the European Parliament, which must jointly adopt the Regulation under the ordinary legislative procedure.

7.7Within the Council in particular, the proposal is likely to elicit strong opposition (in particular from those Member States who feel they could become subject to the measures proposed by the Commission). The effect of any suspension of payments from the EU would be commensurately larger in Member States which are net recipients of funding from the EU budget (as all four of the countries mentioned above are). However, the Regulation can be adopted with the support of only a qualified majority of Member States.

7.8The Chief Secretary to the Treasury (Elizabeth Truss) submitted an Explanatory Memorandum on the proposal with some delay on 18 June. It does not attempt any assessment of the merits, or lack thereof, of the proposed Regulation.

7.9The proposal for a Regulation on the rule of law and the EU budget should be seen against the wider political canvass of concerns of deteriorating judicial independence and civil society in some EU Member States. As a result, there is likely to be significant opposition to the Commission proposal from some quarters of the Council and the European Parliament. The position of the UK remains unclear, although in any event it is unlikely the Regulation would be subject to a vote in the Council before the Government is due to lose its institutional representation within the EU on 29 March 2019.

7.10The implications for the UK are likely to be minimal given its exit from the EU192 and the independence of its judiciary. However, given the unprecedented nature of what the Commission has proposed, we ask the Minister to keep us informed of developments on the negotiations on this proposal (including the possibility that it may be subject to a blocking minority within the Council), and in the mean time we retain the Regulation under scrutiny.

Full details of the documents

Proposal for a Regulation of the European Parliament and of the Council on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in the Member States: (39685), 8356/18, COM(18) 324.

Previous Committee Reports

None.


188 Following the 2015 General Election, the new Polish Government introduced legislation regarding the composition and procedures of Poland’s Constitutional Tribunal which judges whether legislation complies with the Polish Constitution. In Spring 2017 the Polish Government proposed further legislation aimed at judicial reform: to change the selection process for membership of the Polish judicial appointments body, the National Judicial Council; to give the Justice Minister the ability to dismiss Court Presidents who have the task of supervising judges’ work, allocating cases and organising courts; and to terminate the tenure of all Supreme Court judges, unless decided by the Justice Minister that they could stay in office.

189 There have also been press reports about the use of EU funding for projects from which friends and family of Hungarian Government politicians stand to benefit.

190 €1 = £0.88605 or £1 = €1.12860 as at 29 June 2018.

191 If the Council opts for amending the Commission proposal, the legal act would take the form of a Council Decision, not an Implementing Act. There is no formal role for the European Parliament in this procedure.

192 Under Part Four of the draft UK Withdrawal Agreement the transitional period is due to end on 31 December 2020. However, the Government has stated that the new UK-EU customs and regulatory arrangements will not be ready by that date, and the Government’s official position remains that the transition should last “around two years” after the end of the Article 50 period on 29 March 2019.




Published: 10 July 2018