European Union would cut billions to anti-democratic members

In a matter of weeks, the European Union could take steps to sanction countries that do not respect the bloc’s democratic standards. It could withhold emergency pandemic aid as well as payments stemming from the EU budget.

Poland, which has clashed with the EU on multiple rule-of-law fronts, could lose more than 130 billion euros ($149 billion) of the bloc’s seven-year budget. Hungary could lose more than 40,000 million euros.

The EU accused the governments in Warsaw and Budapest of illegal judicial reforms, corruption and refusing to adhere to the primacy of EU law, a key premise of the bloc’s founding treaty. The flow of billions of euros from Brussels has helped transform the two ex-communist economies, but the EU has grown wary of the funds governments use to undermine democracy and attack the bloc.

Last year – in a move decried by Poland and Hungary – the EU gained the power to withhold budget payments to countries accused of democratic backsliding. The European Commission, the bloc’s executive arm, can activate this so-called conditionality mechanism from early February, once the European Court of Justice has ruled on its legality, according to an official familiar with the plan.

The ruling could coincide with a January 24 deadline imposed on Hungary and Poland to address EU concerns that funds provided by the bloc may have been misused or that the bloc’s financial interests are at risk.

The contest could not come at a worse time for the countries of the East. Hungary’s prime minister, nationalist Viktor Orban, will face Hungarian voters on April 3, and Polish prime minister Mateusz Morawiecki is back on the ballot next year.

If the EU withholds funding to Poland until the end of 2023, the zloty could lose more than 12% against the dollar, according to estimates by Oxford Economics. Gross domestic product growth could slow by a cumulative 1.4 percentage points over the next two years, with a total output loss through 2026 of PLN 170 billion, the equivalent of 8% of economic output.

The EU sees little chance of Warsaw or Budapest offering last-minute concessions that could prevent the conflict from escalating, especially ahead of general elections in Hungary, said the official, who asked not to be identified because the plans are private.

The commission asked Poland to dismantle a chamber it created to sanction judges, reinstate judges who lost their posts in disciplinary proceedings and reform the system, the source said.

‘Shows no signs of improvement’

So far, the Polish government has not given the Commission details on how it intends to fix its controversial reform of the judiciary and bring it back in line with the bloc’s strict rule of law standards, according to the official.

Warsaw has not flinched, even after the EU’s highest court handed the country a record €1m daily fine in October for failing to stop disciplinary proceedings. That came on top of a €500,000 daily fine a month earlier for ignoring an order to close a coal mine near the Czech border.

The EU is now preparing to withhold some budget outlays to Poland for non-payment. Their combined fines have grown by more than €100 million and, with no change in sight in Warsaw, the numbers will continue to rise.

Poland “shows no signs of improvement and the judges continue to be under pressure”, Vera Jourova, vice president of the Commission in charge of Values ​​and Transparency, wrote on Twitter on January 11. “We will continue to fulfill our duty to uphold the rule of law and judicial independence.”