Europe Can Have Stimulus or Rule of Law, Not Both

This trap was laid in July. Under the moderation of Germany, which holds the rotating EU presidency, the 27 national leaders tentatively agreed to a groundbreaking budget-plus-stimulus deal to address the pandemic. Worth 1.8 trillion euros ($2.1 trillion) in total, the package includes 750 billion euros to be financed by the first “European” bonds ever issued, which is why it’s considered the germ of a future fiscal union. But it still has to be accepted by the European Parliament and ratified by all member states.

To get that initial agreement, its drafters added some vague wording about conditionality. The aim was to link any receipts of EU money to upholding the rule of law. Broadly defined, this term includes everything from an independent judiciary and a free press to other basics of liberal democracy, as enshrined in the EU’s treaties. Uncontroversial, you might think.

Those phrases entered the text to give the naysayer countries a reason to support the overall package. Its critics, dubbed the “frugals,” are the Dutch, Austrians and Scandinavians, who aren’t crazy about joint borrowing and spending. So the language to tie funds to rule of law was a motivation for them to nod the deal through. 

The conditionality clause’s obvious targets are Hungary, which has been dismantling democratic norms for a decade, and Poland, which has been at it for five years. The EU has no mechanism for expelling member states. But it has initiated so-called Article 7 probes into both countries, which could in theory deprive them of their voting rights in Brussels. In reality, there are so many hurdles before such an outcome that the populist regimes in Budapest and Warsaw simply ignore the proceedings.

That’s why the “frugals” and several other member states, cheered on by the European Parliament and Commission, wanted to add a new mechanism to discipline Hungary and Poland. They meant to revive a proposal from 2018, whereby the Commission could impose punishments against errant countries unless a qualified majority — usually 55% of member states representing at least 65% of the EU’s population — rejects the sanctions. Budapest and Warsaw could never have mustered that much support to veto their own censure.

A proposal this week from Germany dilutes this idea beyond recognition, however. Sanctions must now be accepted, instead of rejected, by a qualified majority. Hungary, Poland and a few eastern European allies could easily get a blocking minority.

Moreover, any proposed punishment must relate directly to transgressions that compromise the use of EU funds — if corruption sends the money to the wrong accounts, for example. A wider deterioration from democracy to autocracy, which is how the U.S. think tank Freedom House describes Hungary’s development, would no longer qualify.

It’s easy to see, if still unfortunate, why Germany would go wobbly like this. Chancellor Angela Merkel sees the next few months as her last chance to leave a positive European legacy. She needs this pandemic fund done and dusted, and can’t risk a veto by Hungary or Poland.

The Commission, too, is between a rock and a hard place. It must point out that Budapest and Warsaw violate the letter and spirit of the EU’s treaties, and yet it can’t be seen to single them out. So this week it published a report on the rule of law in all 27 states. It has concerns about various places, from Bulgaria and Romania to Spain and Malta. But those are as nothing next to worries about Poland and Hungary, which Vera Jourova, a Commissioner, last week called a “sick democracy.”

Hungarian Prime Minister Viktor Orban has theatrically demanded Jourova’s resignation and claimed that she was insulting all Hungarians. His goal, as ever, is to whip up support at home by demonizing Brussels.

Meanwhile, the “frugals,” who didn’t like the stimulus and borrowing plan to begin with, are horrified that rule of law is no longer a priority. Many members of the European Parliament are even more irate and threatening the deal’s rejection. Suddenly, the EU has reverted to stereotype, with everybody bickering, lots of people prepared to cast sulky vetoes, and paralysis looking distinctly possible.

My prediction is that Merkel, as is her wont, will still pull off the deal in the end. But it will come at a cost that will become clear only later. The EU, which claims to draw strength from its humanitarian and democratic values, has forfeited enforcing those standards internally, and appears ready to surrender them when they’re inconvenient. Earlier this year, I worried that the EU could gradually become irrelevant in world history. This week hasn’t exactly cheered me up.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andreas Kluth is a columnist for Bloomberg Opinion. He was previously editor in chief of Handelsblatt Global and a writer for the Economist. He’s the author of “Hannibal and Me.”

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