Weekend Edition Nº146

The Conditionality Regulation in Action: The Case of Hungary

Niels Kirst 1

e rule of law conditionality instrument ties EU funds to EU values, saying you can’t use the EU as an ATM to take the money and discard the values […] (2).

eEuropeanUnion'saemptstoinducetheHungariangovernmenttocomplywiththeruleoflawhaveproven largely ineffective in the past ten years. Even though the European Commission (Commission) made use of a combination of rewards and punishments to protect and restore the rule of law in Hungary, the Article 7 TEU procedurehasstalledwithintheCounciloftheEU(Council).ejudgmentsoftheCourtofJusticeoftheEuropeanUnion(CourtofJustice)cometoolatetoofferanymeaningfulremedy,andtheHungariangovernmenthas ignored concerns expressed in the annual Rule of Law Reports. However, since the EU's most recent rule of law mechanism was activated, the Hungarian government has made some concessions in ongoing negotiations with the Commission. e activation of Regulation 2020/2092 (the Conditionality Regulation) (3) may suggest that the EU has nally found a way to induce Viktor Orbán to respect the rule of law (4). Commentators have recently pointed out that the Commission is using a multilevel conditionality strategy to sway Hungary into compliance with the European value of the rule of law. Additionally, a report commissioned by the European Parliament (Parliament) highlighted the potential scope of application and future opportunities of this new mechanism (5).

erefore, it is high time for analysing the current state of play regarding the Conditionality Regulation. is Long Read will give an overview about the rst application of the Conditionality Regulation, explains the Commission’s multi-layered conditionality strategy, and provide an outlook on the future steps in the Hungarian rule oflawsaga.

1.AssistantProfessorofEuropeanLawatDublinCityUniversity

2. Katalin Cseh (MEP), (4-6 May 2023) (European University Institute (EUI) e State of the Union Conference: Building Europe in times of uncertainty 2023).

3. (16 De- Regulation (2020/2092) of the European Parliamentand of the Council on a general regime of conditionality for the protection of the Union budget cember2020)',(OJ2020L433I/1).

4. Kim Lane Scheppele and John Morijn, (4 April Frozen: How the EU is Blocking Funds to Hungary and Poland Using a Multitude of Conditionalities 2023)(VerfBlog2023),andViktorKazai, (4May2023)(EUblog.eu2023). Carrotsandsticks:euseofEUfundstoenforcetheRuleoflawinHungary

5.EulaliaRubio andothers,etoolsforprotectingtheEUbudgetombreachesoftheruleoflaw:theConditionalityRegulationincontext(PE747.469-April2023).

Katalin Cseh Hungarian Member of the European Parliament

Outset

e Conditionality Regulation is a novel legal instrument in European law to protect the European budget against rule of law deciencies in the Member States (6) It came into force on 1 January 2021 aer erce wrangling in the Council amid resistance by Hungary and Poland (7). On 27 April 2022, the European Commission formally triggered the rule of law Conditionality Regulation against the Member State of Hungary, for the rst time ever (8). is event occurred only three weeks aer the Hungarian parliamentary elections had taken place, which Orbán's Fidesz party won by a wide margin (9) When the Commission triggered the Conditionality Regulation against Hungary, regular debates about the state rule of law in Hungary had already been going on in theEuropeanParliamentforyears(thelateston15September2022)(10) Moreover,eightruleoflaw-relatedinfringement proceedings launched by the Commission were ongoing (11), and an Article 7 TEU proceeding against Hungary in the Council was pending (12) Up to this point, none of these instruments have yielded signicantresultsandchangedHungary'sfastruleoflawbackslidingtowardsasystemofelectoralautocracy(13).

6. Niels Kirst, ‘ ’ Vol. 6 European Papers Rule of Law Conditionality: e Long-Awaited Step Towards A Solution of the Rule of Law Crisis in the European Union Insightpp 101.

7.AlbertoAlemannoandMerijnChamon, (11December2020)(Verfassungsblog2020). ToSavetheRuleofLawyouMustApparentlyBreakIt

8.VladMakszimov,‘ (27April2022)’Euractive(Brussels,Belgium). Hungary:Commissionofficiallylaunchesprocedurelinkingblocfundstoruleoflaw

9. Marton Dunai, ‘ ' (4 April 2022) FinancialTimes(FT) (London, United Viktor Orban wins new term as Hungary’s prime minister but OSCE criticisescampaign Kingdom).

10. (15 September European Parliament Resolution on the existence of a clear risk of a serious breach by Hungary of the values on which the Union is founded 2022).

11. , Commission v Hungary (C-286/12, Retirement Age of Hungarian Judges, EU:C:2012:687); Judgment of the Court of Justice of 6 November 2012 judgment of the Court of Justice of 8 April 2014 judgment of the , Commission v Hungary (C-288/12, Independence of the Data Protection Supervisor, EU:C:2014:237); Court of Justice of 2 April 2020, Commission v Poland, Hungary and the Czech Republic (C-715/17, C-718/17 and C-719/17, Asylum Relocation Decision, EU:C:2020:257); , Commission v Hungary (C-66/18, Hungarian Higher Education Law, EU:C:2020:792); judgment of the Court of Justice of 6 October 2020 judgment of the Court of Justice of 18 June 2020 judgment of the Court of Justice of 17 Decem- , Commission v Hungary (C-78/18, NGO Law,EU:C:2020:476); ber 2020 judgment of the Court of Justice of16 November 2021 , Commission v Hungary (C-808/18, Hungarian Asylum Law,EU:C:2020:1029); , Commission v Hungary (C-821/19, Stop Soros Law,EU:C:2021:930), and , Commission v Hungary (C-769/22, Hungarian Pending proceeding before the Court of Justice LGBTQ Law).

12. European Parliament Resolution on a proposal calling on the Council to determine, pursuant to Article 7 (1) of the Treaty on European Union, the existence ofaclearriskofaseriousbreachbyHungaryofthevaluesonwhichtheUnionisfounded(12September2018).

13.JorgeLiboreiroandSandorZsiros,‘ (16September2022)’Euro- Hungaryisnolongerafulldemocracybutan'electoralautocracy,'MEPsdeclareinnewreport news (Brussels, Belgium), and ' (15 September 2022)', in Kyriakos Klosidis (ed.), (Brussels, Bel- MEPs: Hungary can no longer be considered a full democracy gium:EuropeanParliament).

e activation of Regulation

2020/2092 (the Conditionality Regulation) may suggest that the EU has nally found a way to induce Viktor Orbán to respect the rule of law

e Conditionality Regulation is a novel legal instrument in European law to protect the European budget against rule of law deciencies in the Member States

On 24 November 2021, the Commission issued a rst request for information (RFI) to the Hungarian government to gather informationaboutthestateoftheruleoflawinHungaryinviewofapotential application of the Conditionality Regulation. e Commission received a reply by 27 January 2022 (14) e Commission, thus, strictly followed the procedure in Article 6(4) of the Conditionality Regulation by issuing an RFI to Hungary before formally triggering the conditionality system in April 2022. In fact, the responses to the RFI only strengthened the Commission'sconcernsabouttheruleoflawinHungary.isledtheCommission to formally trigger the Conditionality Regulation against Hungary in April 2022. e timing of triggering the Conditionality Regulation seems to be intentionally chosen as a moment shortly aer the Hungarian parliamentary elections. is signalled that no shi in domestic policy was to be expected over the following years and that the trend of rule of law backsliding would continuewithOrbán’sFideszgovernmentholdingontopower

However, the application of the Conditionality Regulation is only one side of the coin in the Commission’s current conditionality strategy towards Hungary. Besides the Conditionality Regulation, the year 2022 also marked the advent of the Recovery and Resilience Facility (RRF) (15). Under the RRF Member States receive fundsfromtheNextGenerationEUFund(NGEU).Toreceivethesefunds,eachMemberStatehadtosubmita NationalRecoveryandResiliencePlan(NRRP)in2022,whichtheCommissionwouldlaterapproveaeracareful assessment. As noted by Maurice, ‘each national plan has been drawn up by governments and validated by the Commission and the Council, and payments of EU grants and/or loans, which run until 2026, depend on the achievementofmilestonesandtargetsdetailedintheplan’ (16)

e NRRPs added a further layer of conditionality as the Commission decided to bind the disbursement of funds to specic milestones and targets that need to be achieved by the Member States. As noted by Maurice, ‘theoperationofthefacilityintroducesdefactoconditionality,whichisnotspecictotheruleoflaw,andwhichisusedto the full in this respect by the European institutions’ (17) Notably, both conditionality-based procedures – the Conditionality Regulation and the milestones – were intertwined by the Commission when it started its conditionality strategy towards Hungary in 2022. In the words of Maurice,‘the combined use of conditionality instruments linked to the EU budget and the milestones to be achieved in the Recovery Plans thus multiplies th’ EU's abilitytoforceMemberStatestochangetheirruleoflawpractices’. (18)

14.CouncilImplementingDecision(2022/2506)onmeasuresfortheprotection oftheUnionbudgetagainstbreachesoftheprinciplesoftheruleoflawinHungary(15December2022)(OJ2022L 325)Recital1.

15. (12 February 2021) “RRF Regula- Regulation (2021/241) of the European Parliament and the Council establishing the Recovery and Resilience Facility tion”(OJ2021L57).

16.EricMaurice,‘ '(14March2023)Vol.660FondationRobertSchuman,EuropeanIssues. Ruleoflaw:theuncertaingambleonconditionality

17.Ibid.

18.Ibid.

TriggeringtheProcedure

Hungary and Poland had previously (in 2021) challenged the Conditionality Regulation before the Court of Justice – without any success (19). As the Conditionality Regulation was upheld by the Court of Justice in late 2021 (16 December 2021) (20) and the Commission published its Guidelines on the application of the Regulation in early 2022 (2 March 2022) (21), it saw no further obstacles to the activation of the Regulation. Aer the Commission received Hungary's response to the RFI, it decided to take the next step on 27 April 2022 by sending a wrien notication to Hungary under Article 6(1) of the Conditionality Regulation (22). e timing three weeks aer the landslide victory of Orbán’s Fidesz party seems intentional. e Commission justied the activationoftheConditionalityRegulationwith

‘systemic irregularities, deciencies and weaknesses in public procurement procedures; the high rate of single bidding procedures and the low intensity of competition in procurement procedures; issues related to the use of amework agreements; the detection, prevention and correction of conicts of interest; and issues related to public interest trusts ’

19.VlagyiszlavMakszimov,‘ '(11March2021)EurActiv(Brussels,Belgium). Hungary,Polandrefercontroversialruleoflawmechanismtocourt

20. , Hungary and Poland v Parliament and Council (C-156/21 and C-157/21, ECLI:EU:C:2022:97) and Judgment of the Court of Justice of 16 February 2022

NielsKirstandBeatriceMonciunskaite, (21February2022)(BridgeNetworkEU2022). eCJEUGivesitsGreenLightfortheConditionalityRegulation

21. Communication from the Commission: Guidelines on the application of the Regulation 2020/2092 on a general regime of conditionality of the protection oftheUnionbudget(2March2022).

22. Council Implementing Decision 2022/2506 on measures for the protection of the Union budget against breaches of the principles of the rule of law in Hungary,(OJ2002L325,p 94)Recital2.

e timing three weeks aer the landslide victory of Orbán’s Fidesz party seems intentional

When the Hungarian government was subsequently confronted with the Commission’s accusation, Brussels and Budapest entered a dialogue on how to remedy the rule of law deciencies detected by the Commission is included many back-and-forth wrien exchanges between the Hungarian government and the Commission: e Hungarian government sent leers to the Commission on 27 June, 30 June, 5 July, and 19 July to outlinetheirviewofthingsandevenproposeremedialmeasures(24).However,theCommissionwasunsatisedwith the Hungarian replies to its rule of law concerns erefore, on 20 July 2022, it sent an intention leer to Hungary according to Article 6(7) of the Conditionality Regulation. is intention leer outlined the expected remedial measures by Hungary and the potential budget cuts in case of non-fullment Budget Commissioner Johannes Hahn, who oversees the procedure against Hungary, explained this step in an official Communication to the Commission on the same day (25) e intention leer marked the next step of the escalation against the Hungarian government and allowed it to formally take a position on the expected remedial measures and the proportionalityoftheenvisagedbudgetcuts (26)

As a result, the Hungarian government agreed that it would address the identied rule of law deciencies with 17 remedialmeasurestotrytoaverttheCommissionfromformallyforwardingaProposalforanImplementingDecision to the Council, which would have the nal vote on budget cuts. (27) e Hungarian government proposed the remedial measures in two replies to the intention leer on 22 August 2022 and 13 September 2022. (28)

Among them were the following: the establishment of a new Integrity Authority, the establishment of an AntiCorruption Task Force, strengthening the anti-corruption amework, reducing the share of single-bidder procurement procedures,actionplantoincreasecompetitioninprocurementprocedures,strengtheningcooperationwithOLAF,ensuring improved transparency in public spending, and ensuring transparency in the use of Union support by public interest asset management foundations (29) It was then in the Commission’s hands whether or not it would nd the remedialmeasuresandtheimplementationplanputforwardadequatetoremedytheconcerns.

eCommission’sProposalforaCouncilImplementingDecision

On 18 September 2022, the Commission released a statement on Hungary's proposed measures, highlighting that the measures to remedy the deciencies seemed fundamentally suitable However, the implementing provisions were not yet precisely dened, and the concrete implementation of changes were pending (30). erefore, the Commission found that the measures were insufficient overall, and the College of Commissioners decided

24.Ibid.

25. Communication to the Commission: Communication from Commissioner Hahn to the Commission on the information to Hungary, pursuant to Article 6(7)ofRegulation (2020/2092),abouttheintentiontomakeaproposalforanimplementingdecisionontheappropriatemeasurestotheCouncil(20July2022) (EuropeanCommission2022).

26. Council Implementing Decision (2022/2506) on measures for the protection of the Union budget against breaches of the principles of the rule of law in Hungary(15December2022)Recital8(OJ2022L325).

27.Ibid.

28.Ibid.

29. Petri Sarvamaa (MEP) and others, e 7.5 billion Euro question: Did the Hungarian government implement the necessary reforms to avoid rule of law sanctions? (17 November2022)(2022).

30.

(18September2022)(EuropeanCommissionPressOffice2022). EUbudget:CommissionproposesmeasurestotheCouncilundertheconditionalityregulation

to take the next step and adopted a formal Proposal for a Council Implementing Decision released the same day (31) It proposed to suspend 65%ofoperationalprogrammesunderthecohesionpolicyagainstHungary under the Conditionality Regulation, which equalled €7 5 billion of cohesion policy money, in case Hungary would not full key implementation steps by 19 November (32) is Proposal for a Council Implementing Decision was expected to be voted on within one month in the Council of the EU according to Article 6(10) of the ConditionalityRegulation.is wouldhavemeantimmediatebudgetcutsforHungary already in 2022 However, on 13 October 2022, the Council, following a request by the Hungarian government, decided that exceptional circumstancesapplyandextendedthetimelineforthevoteintheCouncilbythreemonthsaccordingtoArticle6(19)oftheConditionalityRegulation e Commission wanted to see the result of the remedial measures proposed by Hungary until 19 November 2022. Specically, to assess the implementation progress of several reforms. e Proposal stated that ‘Hungary shall inform the Commission by 19 November 2022, and every three months thereaer of the implementation of the remedial measuresHungaryhascommiedto[ ]’(33)

However, from 18 September 2022 until 19 November 2022, the Hungarian government did not adopt and implement sufficient legal reforms to satisfy the Commission's demands. Following those developments and amid insufficient reforms by Hungary, the Commission proposed the suspension of €7.5 billion of cohesion funds under the Conditionality Regulation on 30 November 2022 (34). Additionally, the Commission proposed a general ban on the disbursement of funds to the newly established Hungarian foundations of public interest and institutions maintained by them (mainly concerning the areas of education and research universities). Moreover, the Commission subjected the disbursement of funds in the future to the fullment of 17 remedial measures. However, on the same day the Commission proposed adopting Hungary's NRRP, paving the way for Hungary to receive money from the NGEU. To highlight this further: On the one hand, the Commission proposed budget cuts via the Conditionality Regulation. On the other hand, it opened the door for signicant disbursement of funds under the NGEU. However, the Proposal for a Council Implementing Decision of the Hungarian NRRP was subject to 27 super milestones that Hungary was due to fullling before the rst money would ow. e Commission, therefore, tied both decisions together by proposing budget cuts under the Conditionality Regulation and approving Hungary's NRRP but only with a decisive conditionality criterion built into the disbursementoffunds.

32.Ibid.

33.Ibid.

34. Communication from the Commission to the Council: on the remedial measures notied by Hungary under Regulation (2020/2092) for the protection of theUnionbudget(30November2022)(EuropeanCommission2022).

On the one hand, the Commission proposed budget cuts via the Conditionality Regulation. On the other hand, it opened the door for signicant disbursement of funds under the NGEU

31. Proposal for a Council Implementing Decision (2022/0295) on measures for the protection of the Union budget againstbreaches of the principlesof the ruleoflawinHungary(18September2022)(EuropeanCommissionPressOffice2022).

eHungarianRecoveryandResiliencePlan

To beer understand how the Commission envisioned this two-sided conditionality strategy, we must take a step back and look at the details of the NGEU, the RFF, and the NRRPs. In 2022, the Commission had to assess Hungary's National Recovery and Resilience Plan (NRRP). is second prong of the Commission's rule of law enforcement against Hungary is built upon the requirement that all NRRPs must lay out a plan to achieve the country-specic recommendations of the European Semester. As Fabbrini notes, ‘[…],asunderlinedinArticle17 [oftheRRF Regulation],'therecoveryandresilienceplansshallbeconsistentwiththerelevantcountry-specicchallenges andprioritiesidentiedinthecontextoftheEuropeanSemester',andthisisaconditionforeligibilityoftheNRRP.’(35)

is means, the proposed NRRP by the Hungarian government was formally approved but technically found insufficient by the Commission on 30 November 2022. (36) Consequently, the Commission communicated a Proposal for a Council Implementing Decision on the Hungarian NRRP to the Council subject to 27 super milestones. (37) On the same day, on 30 November 2022, the Commission officially proposed suspending 65% of operational programmes under the cohesion policy against Hungary under the Conditionality Regulation, which equalled €7.5 billion of cohesion policy money foreseen for Hungary. (38) e Commission, therefore, drew the consequences of the inadequate reforms that the Hungarian government had to achieve until 19 November 2022.AsputbyNguyen‘ onthesamedayonwhichtheCommissionproposedthesuspensionofthefundsundertheconditionality mechanism, it also proposed the approval of the Hungarian national recovery and resilience plan (NRRP). ’ (39) erefore,theCommissionusedatwo-prongedtactictotargetHungaryforitsruleoflawdeciencies.

35.FedericoFabbrini, ‘NextGeneration EU:LegalStructureandConstitutionalConsequences’CambridgeYearbookofEuropeanLegalStudies2022.

36. Commission nds that Hungary has not progressed enough in its reforms and must meet essential milestones for its Recovery and Resilience funds (30 November2022)(EuropeanCommissionPressOffice2022).

37. Proposal for a Council Implementing Decision (2022/0414) on the approval of the assessmentof the recovery and resilience plan for Hungary (30 November2022)(2022).

38. Communication from the Commission to the Council on the remedial measures notied by Hungary under Regulation 2020/2092 for the protection of the Unionbudget(EuropeanCommissionPressOffice2022).

39.uNguyen,eHungaryFiles:Untanglingthepolitical andeconomicknots(8December2022)(PolicyBrief,2022).

e Commission used a two-pronged tactic to target Hungary for its rule of law deciencies

e Partnership Agreement between Hungary and the Commission

Tocompletethepuzzle,HungaryandtheCommissionalsoenteredintoaPartnershipAgreementinDecember2022,whichallowstheUniontoexerciseconditionality regarding the disbursement of EU funds. As noted by Maurice ‘on 22 December 2022, the Commission approved the partnership agreement with Hungary for Cohesion Policy 2021-2027, for a total amount of almost €22 billion’ (40) e Partnership Agreement contains enabling clauses that must be fullled to disburse cohesion funds to the Member States. In the case of Hungary, these enabling clauses are horizontally tied to the Charter of Fundamental Rights conditions. Consequently, Hungary is under pressure, especially regardingdomesticLGBTQandasylumlegislation,whichinfringesonEuropeancitizens' rights guaranteed in the Charter. Additionally, the Partnership Agreement mentions the 27 super milestones of the Hungarian NRRP as a further condition. Consequently, the Partnership Agreement is another powerful instrument to exercise conditionality towards Hungary. According to Maurice, ‘it setsjudicialindependenceasahorizontalcondition,i.e.onethatcouldjustifythesuspension of the entire €22 billion programme, and makes the disbursement of funds conditional on the implementation of twenty-seven super milestones required under theRRP. ’(41)

e Council’s Decision on the Application of the ConditionalityRegulation

Coming back to the Conditionality Regulation and the 17 remedial measures thatHungaryhadtoimplementtoaverttheadoptionofanImplementingDecision by the Council, the Hungarian government started implementing several reform packages rather quickly and adopted two extensive reforms linked to the remedial measures in the Hungarian parliament on 22 November 2022 and7December2022.etworeformpackageswererushedthroughtheHungarian parliament and adopted by a Fidesz two-thirds majority. As noted by Maurice ‘the Commission had [ ] proposed a 65 per cent suspension in September, but the Hungarian parliament passed two so-called 'omnibus' laws in October and November to meet the EU's demands.’ (42) To keep the Commission infor-

e Partnership Agreement is another powerful instrument to exercise conditionality towards Hungary

med about the progress made, the Hungarian government sent leers to the Commission on 19 November 2022, 26 November 2022, 6 December 2022, and 7 December 2022. (43) However, this was to no avail, as the Commission was still unsatised with Hungary's progress e ball wasnowintheCouncil’scourt.eCouncilplannedtodebateanddecide regarding the Proposal for an Implementing Decision over the freezing of funds proposed by the Commission. (44) Consequently, it was now in the Council's hands to decide how it would respond to Hungary ' s reforms and the Commission's assessment and proposal. Observers did not expect the Council to make a quick decision regarding the Implementing Decision proposed by the Commission. A long process ofnegotiationintheCouncilovertheapprovaloftheImplementingDecision seemed likely. However, things turned out differently. First, the Council, on 6 December 2022, demanded an updated assessment of the already fullled Hungarian remedial measure by 7 December 2022, which the Commission published on 9 December 2022. is indicated that the Council pivoted towards a timely decision on the proposed ImplementingDecision.

Second, on 12 December 2022, only 12 days aer the Commission's nal assessment of the Hungarian progress, theCouncilvotedontheImplementingDecisionputforwardbytheCommissionanddecidedbyaqualiedmajority to suspend €6.3 billion of cohesion funds from Hungary. (45) is was a complete novelty in EU law – suspendingEUfundstoaMemberStateduetodomesticruleoflawconcerns.eCouncilmainlyfollowedtheproposal by the Commission and only slightly amended the amount of the frozen funds. From 65%, it went down to 55% of funding suspension of the budgetary commitments in cohesion policy programmes for Hungary to accommodate the Hungarian government. In fact, it lowered the funding suspension to 55%, equalling €6.3 billion of European cohesion policy money foreseen for Hungary e Council made this last-minute change by triggering Article 6(11) of the Conditionality Regulation, allowing it to amend the Proposal for an Implementing Decision freely (46) is gives the Council a de facto carte blanche in deciding what measure it considers appropriate. Substantially, the Council was unsatised with Hungary's progress in addressing the rule of law deciencies foundbytheCommission

43.CouncilImplementingDecision(2022/2506)onmeasuresfortheprotection oftheUnionbudgetagainstbreachesoftheprinciplesoftheruleoflawinHungary(OJ2022L325)Recital32.

44.Nguyen,op cit.

45. (12 December 2022) (Council of the Rule of law conditionality mechanism: Council decides to suspend €6.3 billion given only partial remedial action by Hungary EUPressOffice2022).

46. Article 6 (11) of Regulation 2020/2092 states, ‘e Council, acting by a qualied majority, may amend the Commission's proposal and adopt the amended textbymeansofanimplementingdecision.’SeealsoKirst,op cit.

A long process of negotiation in the Council over the approval of the Implementing Decision seemed likely. However, things turned out differently

‘As a consequence, in light of the assessment carried out above, it should be concluded that the remedial measures notied by Hungary, taken as a whole, as adopted and in view of their details, and the ensuing uncertainty about their applicationinpractice,donotputanendtotheidentiedbreachesoftheprinciplesoftheruleoflaw’

Notably, also on 12 December 2022, the Council approved the Hungarian NRRP (48) is was necessary as the fundingoutoftheRecoveryandResilienceFacilityforHungarywouldhavegoneinvainifthenationalplanwere not approved within the year 2022 As noted by Maurice, ‘while it decided to suspend cohesion funds under the budgetary conditionality mechanism, the Council adopted Hungary's €5 8 billion recovery and resilience plan, including twenty-seven " super milestones" on justice, transparency in public procurement, and the ght against aud, corruption andconictsofinterest.’ (49)

e Council followed the Commission's lead in the two-sided conditionality strategy towards Hungary. On the one hand, it suspended funds under the Conditionality Regulation. On the other hand, it formally approved the NRRP tied to strict milestones under the RRF Regulation. On the NRRP, ‘[t]he Council specied that these milestonesmustbe"fullyandcorrectly"implementedbeforeHungarycansubmititsrstpaymentclaim ’ (50) e December 2022 Council decisions, therefore, set the stage for a multi-layered conditionality strategy to force Hungary to adopt reforms addressing its grave rule of law deciencies. However, a further factor in this political game over the rule of law was the Russo-Ukrainian War which shocked Europe and prompted European macro-nancial assistancetoUkraine.

CouncilImplementingDecision(2022/2506)onmeasuresfortheprotection oftheUnionbudgetagainstbreachesoftheprinciplesoftheruleoflawinHungary(15December2022)Recital58.

A further factor in this political game over the rule of law was the Russo-Ukrainian War which shocked Europe and prompted European macro-nancial assistance to Ukraine

ApoliticalpowergamebetweenHungaryandtheotherMemberStatesovershadowedthedecisionsmadeon12 December 2022 by the Council (51). Previously, Hungary had vetoed the macro-nancial assistance for Ukraine and the agreed global corporate tax rate in the Council. Hungary, thus, blackmailed the EU and the other Member States into approving the Hungarian NRRP and lowering the proposed amount withheld under the Conditionality Regulation. Unfortunately, Hungary was successful with this strategy. In exchange for the approval of the NRRP and the lowering of the funds withheld under the conditionality mechanism, Hungary lied its veto on the €18 billion aid for Ukraine and a global corporate tax rate (52). In a rapid turn of events, Hungary lied the vetoandtheHungarianNRRPwasapproved.eunanimousdecisiononmacro-nancialassistancetoUkraine wasthereforedearlybought.Acriticalobservermightcallthispoliticalhorse-tradingovertheruleoflaw.

LatestDevelopments

In 2023, the Hungarian government has increasingly tried to convince the Commission that it acts in full faith to achieve the milestones to unlock the Recovery Fund and the money withheld under the Conditionality Regulation TiborNavracsics,aformerEUCommissioner,andcurrentMinisterintheOrbángovernment, wasappointed as Hungary's chief negotiator with the EU in the hopes that his calm approach would balance out Orbán's anti-EUrhetoric(53) However,negotiationshavenotprogressedassmoothlyasexpected,withNavracsicsinitially aiming for a deal by the end of March 2023 Recently, a group of six human rights NGOs conducted a thorough analysis of the legislative measures adopted by the Orbán government until 31 March 2023 to address the EU's concerns eir ndings suggest that despite some progress, there are still numerous unresolved issues Additionally,theremedialmeasurestakensofarareconsideredinadequate

‘[ ]numerousissuesrelatedtotheanti-corruptionamework,competitioninpublicprocurement,judicialindependence,thepredictability,qualityandtransparencyoflaw-making,therightsofrefugeesandasylum-seekers,academic eedom and the rights of LGBTQI+ persons remain unresolved, and remedial measures taken so far remain unsatisfactory’”(54)

So far, the Commission had already four bilateral meetings with Mr Navracsics (January, March, April, and May) to be briefed about the progress of the Hungarian government in fullling the 27 milestones under the Recovery Fund and the 17 remedial measures under the Conditionality Regulation. e Hungarian government is facing increasing pressure, with a high ination rate of around 25% and a bleak economic forecast from the Commission. (55) Additionally, some popular Hungarian universities have been excluded from EU programs such as Erasmus+ and Horizon Europe due to government appointees taking control of public interest trusts. (56) erefore, the pressure is growing within Hungary to nally unlock some of the money that is currently withheld by theCommission.

51.SamFlemingandMartonDunai, ‘ (6December2022)’FinancialTimes(London,UnitedKingdom). Hungaryblocks€18bnworthofEUaidforUkraine

52.AliceTidey,‘ (13December2022)’Euronews(Brussels,Belgium). Hungaryagreesdealandlisvetoon€18bnEUaidpackageforUkraine

53.Rankin,Jennifer(2022),' (8August2022)',eGuardian HungarytriestounlockfundsfrozenamidEUdisciplinaryprocess

54. (April2023)(2023). AssessmentofcompliancebyHungarywithconditionstoaccessEuropeanUnionfunds

55. (13February2023)(EuropeanCommission2023). Winter2023EconomicForecast:EUeconomysettoavoidrecession,butheadwindspersist

56. By activating the Rule of Law Conditionality Regulation, the Council also froze access to Erasmus+and Horizon Europe funds for 21 Hungarianuniversities that remain under the management of public interest trusts. See Olga Ceran and Ylenia Guerra, e Council’s Conditionality Decision as a Violation of AcademicFreedom?(28March2023)(VerfBlog2023).

Most recently, on 3 May 2023, the Hungarian parliament adopted a new reform of the judiciary (57) – a key demand by the Commission. e Hungarian parliament passed an amendment aimed at strengthening the independence of the judiciary. e bill by Prime Minister Orbán's government was voted for by 151 deputies, including 19 from the opposition. e reform restores most of the powers of the independent State Judicial Council that it had lost to the State Judicial Office, which is subordinate to the government, because of past judicial reforms In the future, judges will again be able to appeal to the Court of Justice if they want to clarify doubts about thelegalityofjudgmentsunderEuropeanlaw–anessentialfeatureoftheintegrated European legal order. e Orbán government had abolished this possibility in the past e legislative package is intended to open the way tothereleaseofsomeofthefundsthattheEUiscurrentlywithholding However, from a rule of law perspective, this is only a drop in the ocean given degree of backsliding in the last ten years. On 31 May 2023, the Commission, in form of Budget Commissioner Hahn, stated that problems clearly remain, and Hungary needs to offer appropriate solutions. Additionally, the timing, for releasing funds of the NRRP and under the Conditionality Regulation to Hungary, is geing very tight on the issue of conict of interest in public interest trusts. A failure to remedy this would affect Erasmus funding for certain Hungarian universities. erefore, the discussions between the Commission and the Hungarian government continue, but the underlyingissueshavenotyetbeensufficientlyremedied.

Conclusion

e episode of the rst application of the rule of law Conditionality Regulation highlights a shi of the Commission’s tactics towards deploying a full-scale conditionality towards Hungary – a promising tactic, given the unsuccessful aempts in the past. However, the question remains what to make of the Commission and the Council's joint action to embrace a two-(or even three-)sided conditionality strategy towards Hungary. (58) From the outset, it is to be welcomed that the EU has nally found a way to exercise leverage over Hungary to halt the ongoing rule of law backsliding in the Member States, which severely threatens the values of the EU enshrined in Article2TEU,thecohesionoftheUnionandthestatusoftheEUintheworld.erefore,theConditionalityRegulation's rst application against Hungary is essential for a Commission moving from being a harmless observer on the side-lines to becoming a real enforcer and guardian of the EU values. Moreover, tying it with other instruments, such as the NRRP and the Partnership Agreement, is a clever gambit as it allows the Commission to mainstream conditionality towards any EU funds going to Hungary. However, there are three things to be observedinthisstrategytoprotecttheruleoflawanddemocracyinHungary:

e discussions between the Commission and the Hungarian government continue, but the underlying issues have not yet been sufficiently remedied

57.PaolaTamma,‘ (2May2023)’PoliticoEurope(Brussels,Belgium). HungaryembarksonjudicialreformhopingtounlockEUcash 58.IfonecountsthePartnershipAgreementbetweentheCommissionandHungaryasanadditionallayer,itequalsathree-sidedconditionalitystrategytowards Hungary

First, the Conditionality Regulation is no panacea for rule of law problems in the Member States as its application is hampered by its strict legal requirements and restricted scope As Maurice puts it ‘theconditionalitymechanism is only legal because it requires a direct link between rule of law violations and the EU budget to be demonstrated, andthemilestonesimposedintherecoveryplansmusthaveaneconomicandsocialjustication, astheRecoveryandResilience Facility is legally based on the EU's economic and social competences ’ (59) erefore, the Commission is still hampered in its efforts to request fundamental rule of law conditionality as all instruments that are currently used are initially intended for different purposes (such as for EU budget protection or economic and social developmentintheMemberState).

Second, the Commission's strategy will only be successful if the Commission maintains its strict requirements and keeps holding the line in not disbursing any funds to Hungary until the rule of law deciencies are adequately and fully addressed. As also noted by Maurice ‘the potential power of the budgetary conditionality mechanism, the favourable conditions in cohesion programmes, and the milestones in Recovery and Resilience Plans will only be effective if the Commission maintains a clear and demanding line in their application.’ (60) Any political compromise or horse-trading over the rule of law risks the credibility of the Commission's demands and empowers the HungariangovernmentnottotaketheCommission'sdemandsseriously.

e Conditionality Regulation's rst application against Hungary is essential for a Commission moving from being a harmless observer on the side-lines to becoming a real enforcer and guardian of the EU values

ird, and from an institutional perspective, the introduction of the RRF and the milestone system inuences the balance of power between the EU institutions and the Member States as it shis the weight towards the EU institutions and equips the Commission with further leverage towards Hungary. In Fabbrini’s words ‘om a political viewpoint, NGEU increases the weight of the EU institutions, both globally, and in their relations with member states' governments, because through a system of signicant nancial incentives they can inuence national economic policies, favouring virtuous behaviours such as reforms and investments.’ (61) It opens a new avenue for the Commission to substantially inuence and steer reform programs in the Member States towards a functioning rule of law systemandconfrontbackslidingintheMemberStates.

Conclusively, the rst application of the rule of law Conditionality Regulation against Hungary has been a success–sofar.ItseemsliketheHungariangovernmentisengaginginreformwiththepossibilityofunlockingEuropean funds which the Member State desperately needs given its macroeconomic situation. However, it is too early to judge whether the Commission’s multi-layered conditionality strategy – including the Conditionality Regulation,theNRRP,andthePartnershipAgreement–willbesuccessfulintheend.Inanycase,itisinteresting to observe how the Commission is moving from being an under-enforcer (62) to applying its new budgetary powerforcefulagainstruleoflawoffendingMemberStates.

61.Fabbrini, op cit.

62. R Daniel Kelemen and Tommaso Pavone, ‘Where Have the Guardians Gone? Law Enforcement and the Politics of Supranational Forbearance in the EuropeanUnion’Vol.74WorldPolitics

News Highlights

12 June to 16 June 2023

Union Syndicale Fédérale/European Public Service Union v. Court of Justice:OfficialpublicationinOJ

Monday 12 June

READ MORE ON EU LAW LIVE

Official publication was made of an action brought by the Union Syndicale Fédérale/European Public Service Union — Court of Justice (Luxembourg, Luxembourg) against the Court of Justice: USF/EPSU-CJ v Court of Justice of the EuropeanUnion(CaseT-198/23).

Court to rule on Polish rules waiving objectivecriteriaforseingjudge’ssalaries and their compatibility with EU ru-

leoflawrequirements

Monday 12 June

Official publication was made of a preliminary ruling request from the Sąd Rejonowy w Białymstoku (Poland) concerning the independence of judges in Poland: XL v Sąd Rejonowy w Białymstoku(C-146/23).

Hungarian Supreme Court seeks preliminary ruling on GDPR and immunity certicatecomplaint

Monday 12 June

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Official publication was made of a request for a preliminary ruling submied by the Kúria (Supreme Court, Hungary) concerningdataprotection:Másdi(caseC-169/23).

Preliminary references concerning the principles of dissuasive penalties in casesofseriousfraudaffectingtheEU’snancial interests and the (retroactive) application of the more lenient criminallaw,publishedinOJ READ MORE

Monday 12 June

Two preliminary ruling requests, coming from the Brașov Court of Appeal, Romania, concerning the applicability of the more lenient criminal law and the principles of retroactivity and effective and dissuasive penalties in cases of serious fraud affecting the EU’s nancial interests, were officially published in the OJ: Parchetul de pe lângă Tribunalul Braşov (C-75/23) and Unitatea Administrativ Teritorială Judeţul Braşov(C-131/23)

Council takes action to safeguard workersfromchemicalhazards

Monday 12 June

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By initiating negotiations with the European Parliament, e Council took a signicant step towards protecting workers from health risks associated with exposure to dangerous chemicals through the introduction of a new amending directive onlimitvaluesforleadanddiisocyanatesintheworkplace.

Court of Justice to rule on a preliminary reference concerning the compulsory restructuring of a credit institution

Monday 12 June

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Official publication was made of a case concerning a preliminary ruling request whereby the applicant is seeking claricationinregardtoalegalsituationinvolvingthecompulsoryrestructuring of a credit institution: Getin Holding and Others (C-118/23)

Advancing Rights for Platform Workers:CouncilSetsPosition

Monday 12 June

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e EU imposed restrictive measures on nine individuals under the Global Human Rights Sanctions Regime, in response to the sentencing of Russian opposition politician Vladimir Kara-Murza to 25 years in prison on politically motivated charges.

Euroins Insurance Group AD’s request for suspension dismissed by ESA’s Board of Appeal in appeal against EIOPA

Tuesday 13 June

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e Board of Appeal of the European Supervisory Authorities (ESAs) dismissed the interim measures requested by Euroins Insurance Group AD (Euroins) under the European Insurance and Occupational Pensions Authority’s (EIOPA) Regulation

Court of Justice to stream hearing today in case concerning the annulment of a resolution scheme adopted by the SingleResolutionBoard

Tuesday 13 June

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e Court of Justice’s hearing in Commission v CRU (C-551/22 P), concerning an appeal with regard to a case wheretheappellantisseekingtheannulmentofthejudgment of the General Court in Fundación Tatiana Pérez de Guzmán el BuenoandSFL—StiungfürForschungundLehre(SFL)vSingle Resolution Board (T-481/17), is available on the Court of Justice’swebsite

EDPB adopts nal version of Guidelines on the calculation of administrative nesundertheGDPR

Tuesday 13 June

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Following public consultation, the European Data Protection Board (EDPB) adopted a nal version of the Guidelines on the calculation of administrative nes under the GDPR, the aim of which is to harmonize the methodology that data protectionauthorities(DPAs)usetocalculatenes

Advancing sustainable nance: Commission introduces measures to foster greeninvestments

Wednesday 14 June

e Commission presented a new package of measures aimed at strengthening the EU sustainable nance framework andpromotinginvestmentinasustainablefuture.

Commissionproposesmeasurestoharness the full potential of social economyforjobs,innovation,andsocialinclusion

Wednesday 14 June

e Commission put forward a comprehensive proposal to support and empower social economy organizations, which prioritize social and environmental causes across diverse sectors,suchassocialservices,housing,andenergy,overprot.

Digitalizing Visa Applications: Parliament and Council reach consensus on simpliedprocess

Wednesday 14 June

e Council and the European Parliament reached a provisional agreement on regulations to digitalize the visa procedure, introducing online visa applications and replacing physicalvisastickerswithdigitalvisas

Council adopts position on proposal to simplify the fee and remuneration structure within the context of the EMA

Wednesday 14 June

e EU health ministers adopted the Council’s position on a regulation to modernize and simplify the structure of the fees payable to the European Medicines Agency (EMA) to beer reecttheevolvingdemandsandchallengesitfaces

GeneralCourtupholdsCommissiondecision on state aid to Ryanair and clariesprivateoperatorcriterion

Wednesday 14 June

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e General Court upheld the Commission Decision on state aid granted by France to Ryanair and Airport Marketing Services in Ryanair and Airport Marketing Services v Commission(T-79/21).

General Court dismisses action against Commission’s decision on approving the merger of two vertically-integrated undertakings

Wednesday 14 June

e General Court, siing in its Extended Composition formation, rendered its judgment in a case concerning an action for annulment of the European Commission Decision, in Case M.9014 PKNOrlen/Grupa Lotos, regarding the approval of amerger:casePolwaxv.Commission(T-585/20).

Commission takes action against Googleforallegedantitrustviolationsinadtechsector

Wednesday 14 June

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e Commission informed Google of its preliminary view that Google has violated EU antitrust regulations by distorting competition in the advertising technology (adtech) industry.

Council agrees negotiating mandate on thelistingact

ursday 15 June

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e Council agreed to its negotiating mandate on the listing act, a legislative package that aims to ‘make EU public capital markets more aractive for EU companies and facilitate accesstocapitalforcompaniesofallsizes’

Council adopts mandate for new EU lawonliabilityfordefectiveproducts

ursday 15 June

e Council reached a consensus on its negotiating mandate for a new EU law regarding liability for defective products, aiming to modernize existing civil liability regulations, ensuring theirrelevanceinthedigitalageandcirculareconomy.

Court of Justice affirms consumer rights: compensation allowed beyond mortgage reimbursement for unfair

terms

ursday 15 June

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e Court of Justice ruled that EU law does not preclude consumers to seek compensation beyond reimbursement of monthly mortgage loan installments if the loan agreement is annulled due to unfair terms: Bank M. (Conséquences de l’annulationducontrat)(caseC-520/21).

ursday 15 June

Advocate General Rantos delivered his Opinion in Kočner v. Europol(CaseC-775/21P),acaseconcerningthejointandseveral liability of a Member State and Europol in relation to unlawfuldataprocessing

ree challenges concerning the UK’s withdrawal from the EU dismissed by CourtofJustice

ursday 15 June

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On 15th June, the Court of Justice handed down its judgments in Silver and Others v Council (Cases C-499/21 P, C-501/21 P, and C-502/21 P), all of which concern the United Kingdom’swithdrawalfromtheEuropeanUnion.

Europol and a Member State can be jointly and severally liable for damage resulting from unlawful data processing,holdsAGRantos

AdvocateGeneralĆapetaproposesthat

Claricationsonenvironmentalimpact assessments and reasons for authorization:CourtofJustice

for2020

ursday 15 June

AdvocateGeneralĆapetadeliveredherOpinioninacaseconcerning a preliminary ruling request whereby the validity of Regulation 2020/123/EU xing for 2020 the shing opportunities for certain sh stocks and groups of sh stocks, applicableinUnionwatersand,forUnionshingvessels(2020Regulation) is challenged, particularly by reference to Regulation 1380/2013/EU on the Common Fisheries Policy (CFP Regulation): Friends of the Irish Environment (Total allowable catchabovezero)(C-330/22).

AGCollins

ursday 15 June

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On 15th June 2023, Advocate General Collins delivered his Opinion in RTL Nederland and RTL Niewus (Case C-451/22), a case concerning the disclosure of information underRegulation376/2014onthereporting,analysis,andfollow-upofoccurrencesincivilaviation.

ursday 15 June

InthecaseofEcoAdvocacyCLG(C-721/21),theCourtofJusticeclariedwhether,inthecontextofascreeningexercise,itis necessary to undertake environmental impact assessments, and what degree of reasons must be stated by the national authorities.

Court of

of, thoseorganizations

ursday 15 June

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e Fih Chamber of the Court of Justice delivered its judgment in Saint-Louis Sucre (Reconnaissance d’une organisation de producteurs) (C-183/22) regarding a preliminary ruling request from the Conseil d’Etat concerning the interpretation of certain provisions of Regulation No 1038/2013 establishing a commonorganizationofthemarketsinagriculturalproducts.

the Court of Justice declare partially invalid regulation seing shing limits

Condentiality provision in Regulation on occurrences in civil aviation not incompatible with fundamental rights:

Justice rules on the requirements of members of producers’ organizations to belong to, and control the organization and decision-making

ursday 15 June

AG Pikamäe deliverd his Opinion in a case concerning a preliminary ruling request whereby clarication is sought on the compatibility of Bulgarian law with certain provisions of Directive2016/680ontheprotectionofnaturalpersonswithregard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data, and Article 52(1) of the Charter of Fundamental Rights: Direktor na Glavna direktsia „Natsionalna politsia“ pri MVR – Soa(C-118/22)

Commission Notice on the interpretation and implementation of the EU Taxonomy Regulation and Sustainable Finance Disclosure Regulation, publishedinOJ

ursday 15 June

Official publication was made of a Commission Notice which provides clarication on the interpretation and implementation of certain legal provisions of the EU Taxonomy Regulation and its connection to the Sustainable Finance Disclosure Regulation(SFDR)

ESA closes infringement proceedings againstNorwayontheNAVcase

ursday 15 June

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e EFTA Surveillance Authority (ESA) closed a case against Norway on individuals’ rights to retain sickness benets abroad. e decision comes as a result of Norway’s legislativechangestocomplywiththerelevantEEArules.

ursday 15 June

AG Richard de la Tour delivered his Opinion in a case concerningthecompatibility ofnationallegislationonthegrantingof international protection with Article 5(3) of Directive 2011/95onstandardsforthequalicationofthird-countrynationalsorstatelesspersonsasbeneciariesofinternationalprotection, for a uniform status for refugees or for persons eligible for subsidiary protection, and for the content of the protection granted (recast): Bundesamt für Fremdenwesen und Asyl (Conversionreligieuseultérieure)(C-222/22).

Commission takes action on 5G networkcybersecurity

ursday 15 June

e Commission, together with EU Member States and ENISA(EUAgencyforCybersecurity),announced,initsprogress report, signicant developments in the cybersecurity of 5Gnetworks.

ESA adopts revised Informal Guidance Notice

ursday 15 June

e EFTA Surveillance Authority (ESA) adopted a revised, more exible, Notice on informal guidance for novel or unresolved questions concerning EEA competition law, which would help businesses to seek informal guidance on the application of EEA competition rules concerning agreements between undertakings and market abuses as set out in Articles 53 and54oftheEEAAgreement.

AG Pikamäe: Absence of a temporal perspective of the need to retain personal data in light of criminal poceedings isincompatiblewithEUlaw

AG Richard de la Tour: National legislation precluding subsequent asylum application is incompatible with EU law, if new circumstances are sincere andwell-founded

Friday 16 June

eEuropeanCommissionputforthaproposalfornewregulationsaimedatempoweringconsumerstomakesustainablechoiceswhenpurchasingmobilephones,cordlessphones,andtablets.

Insights, Analyses & Op-Eds

e Scope of the Right to Family ReunicationataCrossroads

by Mark Klaassen and Gerrie Lodder

by Leandro Mancano

Op-Ed on the Court of Justice’s preliminary ruling in O G case (C-700/21) where unprecedented questions were raised concerning the principle of equality in EU criminal law and reintegrationofthird-countrynationalsintotheexecutingStateofaEuropeanArrestWarrant

Op-Ed on the Court of Justice’s pending case in Landeshauptmann von Wien (C-560/20) concerning the interpretation of certain provisions of the Family Reunication Directive within the context of the family reunication of other family members of an unaccompanied minor beside his or her parents.

Reintegration of ird Country Nationals and the Principle of Equality. e Court Claries the Interpretation of the European Arrest Warrant FrameworkDecision

NewEURulestopromotesustainableandrepairablephonesandtabletsforcirculareconomy

by Urho Kosonen

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Op-Ed on the Court of Justice’s judgment in BK (C-176/22), constituting a welcome addition to its efforts on curbing perhaps the most pressing, yet inherent problem of the preliminaryrulingprocedure–itstime-consumingnature.

by Delphine Defossez

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Analysisof the Court of Justice’s judgment in UFC–Quechoisir and CLCV (C-407/21) the interpretation of Article 12(2) to(4)ofthePackageTravelDirectivewherenationalrulesmake temporary derogations from consumer legislation governing package travel contracts in exceptional and unavoidable circumstancesorforcemajeure

Member States cannot adopt national law which modify the obligations to reimburse in full of tour operators(UFC – Que choisir and CLCV, C-407/21)

e careful rst steps towards having simultaneously active judicial proceedings in the single European legal space BK(C-176/22)

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