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The standoff threatened the implementation of the EU's next seven-year budget, beginning in January, which would have meant cuts in payments to member countries just as their economies are being hit hard by the coronavirus crisis. It also put at risk the recovery fund, to be financed by an unprecedented amount of joint debt and meant to fuel the revival from the pandemic.
“Now we can start with the implementation and build back our economies,” European Council President Charles Michel tweeted after agreement was reached at a summit in Brussels. “Our landmark recovery package will drive forward our green & digital transitions.”
The clash over the rule-of-law scheme also revealed deepening divisions within the EU over its fundamental values, which threaten to widen in the months and years ahead. Under the scheme, the EU would be able to cut off payments to a country if it judged that certain rule-of-law criteria related to the budget were not being met.
The governments of Hungary and Poland, which both face charges from EU institutions that they are backsliding on the rule of law and other democratic fundamentals, opposed the measure. The European Commission and a number of Western European countries, on the other hand, insisted it was high time to link EU values more closely to EU money.
In the end, all sides agreed to a compromise negotiated by Germany, the current holder of the presidency of the Council of the EU. Under the deal, the text of the new measure remains unchanged but will not be used until Hungary and Poland have the chance to challenge its legality in the EU's top court and get a verdict.
Some leaders, notably Dutch Prime Minister Mark Rutte, sought additional legal and political assurances about the compromise but declared themselves satisfied on Thursday evening.
Slovenian Prime Minister Janez Janša described the deal to POLITICO as "not good, not bad. As good as possible."
"Typical EU compromise," he said.
Time pressure played a major role in bringing all member countries on board, as capitals feared the economic impact of relying on an emergency EU budget and delaying the disbursement of recovery money.
“It was time to move forward,” said one EU diplomat.
While the European Parliament still needs to greenlight the long-term budget and national parliaments have to provide consent in order for the €750 billion recovery fund to become operational, Thursday’s deal was likely the last major political hurdle at EU level to the implementation of the package.
The compromise allowed all sides to claim victory. “Common sense has prevailed,” Hungarian Prime Minister Viktor Orbán declared in a Facebook video, while French President Emmanuel Macron tweeted that “we just adopted a robust agreement on the mechanism to put in place, to respect the rule of law. Europe goes forward, united, and carrying its values.”
In the text of their summit conclusions, leaders asked the European Commission to refrain from implementing the rule-of-law mechanism pending any challenge in the Court of Justice of the European Union. Poland and Hungary confirmed on Thursday they would mount such a challenge.
In practice, this concession to Budapest and Warsaw means that the implementation of the mechanism will be delayed — at least by months, possibly longer.
The text also stipulates that the mechanism only applies to the 2021-2027 EU budget and recovery fund, and that "the European Council will strive to formulate a common position" should a country facing penalties request a discussion of its case. That means the matter could go all the way to EU leaders — but it does not say that they would be able to block any penalties.