The EU rightly wants to address them together in the ongoing negotiations on the EU budget by linking the allocation of funds to member states’ respect for the rule of law. However, the talks between the Council of the European Union and the European Parliament face an impasse and the risk of failure is growing.

Here’s how to avoid it.

No turning a blind eye

In this dispute, the stakes could not be higher. If there is no agreement, the money will not flow quickly, despite the mounting economic challenges that EU countries face from the pandemic. The EU’s credibility would be undermined and its function as a safety net for European citizens compromised.

However, turning a blind eye to the collapse of the rule of law to enable the economic recovery would be a short-sighted strategy. The EU needs to leverage access to the budget – the most effective way to protect the EU’s foundations and push back against anti-democratic tendencies.

The populist leaders of Hungary and Poland, who already face EU scrutiny as part of the (largely ineffective) Article 7 procedure for persistently violating the rule of law, have threatened to block the budget negotiations if a rule of law mechanism is adopted.

Jaroslaw Kaczynski, the leader of Poland’s ruling Law and Justice (PiS) party, claimed in a recent interview that he would not allow Brussels “to terrorise Poland” using EU money. He echoed similar declarations by Hungarian Prime Minister Victor Orban.

The budget negotiations are not formally tied to the rule of law mechanism, but it is politically difficult to approach them in isolation. The decision on how to finance the new recovery fund requires the approval of all the member states and their parliaments. This gives Warsaw and Budapest an opportunity to blackmail the rest of the bloc: if a strong rule of law mechanism is introduced (here, a qualified majority of member states, rather than unanimity, is required), they could decide to block the whole package.

Kaczynski and Orban’s nervousness might seem surprising, given how the proposed rule of law mechanism currently being discussed is unlikely to harm them much. In an attempt to reach a “compromise” in the Council of the EU, the German EU presidency watered down the European Commission’s original concept to such an extent that it could hardly be applied.

For example, even the destruction of Poland’s independent judiciary would not qualify as a reason to discuss potential financial sanctions. According to the proposal, general deficiencies in the rule of law, even the most serious ones, would not be enough to trigger the mechanism. Only breaches of the rule of law that “affect in a sufficiently direct way” the EU’s financial interests would meet the criteria. It was the likelihood that the mechanism could prove to be useless that made the countries known as the “friends of the rule of law” vote against it in the Council of the EU and the European Parliament demand far-reaching amendments.

The EU needs both a post-COVID financial stimulus and a guarantee that autocrats will not use EU funds to destroy the foundations of democracy. After several rounds of negotiations failed to result in a breakthrough, time is running out. To move on, an agreement between the European Parliament and the Council of the EU is needed. Both institutions should be ready to revise their positions. So, how can they emerge from the current impasse?

Protecting judicial independence

First of all, the European Parliament must remain firm in its insistence on an efficient and transparent budget-related mechanism to protect the EU’s fundamental principles. The draft regulation currently being discussed is disappointing. Limiting the scope of the mechanism for fighting corruption does not match the reality of the EU, where some countries are no longer fully-fledged democracies.

However, the new rule of law mechanism cannot and should not address all the problems related to disregard for the European values and principles enshrined in Article 2 of the EU Treaty. To be effective, it needs to be focused. If there is a single point that the European Parliament should insist on, it is that systemic breaches of judicial independence be enough to trigger the mechanism.

The reason is simple: while there is no hierarchy of European values, efficient legal protection by independent courts at the national level is the key precondition for the functioning of the entire system and – most importantly – for the sufficient protection of all the other values. If national courts in Poland, Spain or Sweden are fully independent, it is enough of a guarantee that minority rights, human rights or rules on spending EU money will be respected. This is why the Court of Justice of the European Union (CJEU) has read the requirement of judicial independence into Article 19 of the EU Treaty, which obliges member states to “ensure effective legal protection” and apply EU law domestically.

If courts are independent, no additional instruments at the EU level are needed to ensure that member states comply with EU values and principles. The European Parliament should thus insist that a reference to Article 19 (in conjunction with Article 2) of the EU Treaty provides sufficient reason for triggering the new rule of law mechanism. This should become the European Parliament’s red line in the negotiations.

Moreover, the European Parliament should embrace the European Stability Initiative think tank’s proposal that failure to comply with CJEU judgments concerning Article 19 will result in the European Commission requesting that the country lose access to EU funds. This would substantially strengthen the EU’s most important instrument for protecting the rule of law, the anti-infringement procedure (with reference to judicial independence), with a crucial role for CJEU judgments.

European leaders should not be fooled by Kaczynski and Orban’s threat to block the EU budget. For Poland, it would be a disaster – and possibly political suicide for Kaczynski himself. Warsaw is one of the main beneficiaries of both the Multiannual Financial Framework and the recovery fund, with allocations of around 125 billion euros in grants for the next seven years. Given the dire state of Poland’s public finances and growing needs related to the overdue modernisation of its energy sector, European funds provide a financial backstop that the country cannot cope without.

Tensions within the ruling PiS camp, disastrous management of the COVID-19 crisis and the conflict with the EU have weakened Kaczynski’s position. He is trying to restore it with controversial decisions that please his most radical supporters. The puppet Constitutional Tribunal, packed with Kaczynski’s closest political allies, declared last month the abortion of a malformed foetus to be unconstitutional, which amounts to an almost total abortion ban. Protests of tens of thousands of enraged citizens calling upon Kaczynski to, literally, “f… off” have mushroomed all across the country.

Therefore, opening a new front with a veto against the EU budget could be a step too far. Abandoning a lifeline for the Polish economy to live out his autocratic fantasies would not only fuel the social unrest, but also likely put the unity of the ruling camp at risk.

Kaczynski and Orban are not fighting just against one or other EU regulation. They are fighting for a different EU in which disrespect for human rights, the freedom of the media and an independent judiciary is tolerated in the name of national sovereignty and value pluralism.

This is the moment to decide if appeasement is the right strategy. The EU should not fear populists’ blackmail but call their bluff. Playing hardball should not only be an autocrats’ game.

Piotr Buras is head of the Warsaw office of the European Council on Foreign Relations. His topics of focus include Germany’s EU and foreign policy, Poland in the EU, and EU politics.

The opinions expressed are those of the author and do not necessarily reflect the views of BIRN.