Protecting the EU budget — rule of law

SUMMARY OF:

Regulation (EU, Euratom) 2020/2092 on a general regime of conditionality for the protection of the EU budget

WHAT IS THE AIM OF THE REGULATION?

It aims to protect the European Union (EU) budget and NextGenerationEU resources from breaches of the principles of the rule of law* by an EU country that adversely affect the sound financial management of the EU budget or the EU’s financial interests.
Based on the regulation, payments from the EU budget can be interrupted, reduced, terminated or suspended. New commitments can be prohibited.

KEY POINTS

Breaching the principles of the rule of law

For the purposes of the regulation, the following could indicate breaches of the principles of the rule of law:

endangering the independence of the judiciary;
failing to prevent, correct or sanction arbitrary or unlawful decisions by public authorities, including by law-enforcement authorities, withholding financial and human resources affecting their proper functioning or failing to ensure the absence of conflicts of interest;
limiting the availability and effectiveness of legal remedies, including through restrictive procedural rules and lack of implementation of judgments, or limiting the effective investigation, prosecution or sanctioning of breaches of law.

Conditions for measures to be taken

Appropriate measures must be taken where it is established that breaches of the principles of the rule of law in an EU country affect or seriously risk affecting the sound financial management of the EU budget or the protection of the financial interests of the EU in a sufficiently direct way. This includes resources allocated through the EU Recovery Instrument under Regulation (EU) 2020/2094 (see summary) designed to support recovery in the aftermath of the COVID-19 crisis.

Breaches could involve one or more of the following:

the proper functioning of:
- authorities implementing the EU budget, including loans guaranteed by it, especially for public procurement or grants,
- authorities carrying out financial control, monitoring and audit, effective and transparent financial management and accountability systems,
- services investigating and prosecuting fraud, including tax fraud, corruption or other breaches of EU law relating to the budget or to protecting the EU’s financial interests;
effective judicial review by independent courts of actions or omissions by the authorities in relation to the above;
preventing and sanctioning fraud, including tax fraud, corruption or other breaches of EU law relating to the budget or to protecting the EU’s financial interests, and imposing effective and dissuasive penalties;
recovery of funds unduly paid;
cooperation with the European Anti-Fraud Office (OLAF) and, where applicable, with the European Public Prosecutor’s Office (EPPO);
other situations or conduct of authorities that are relevant to the sound financial management of the EU budget or protection of the financial interests of the EU.

Measures to protect the EU budget

If the above conditions are fulfilled and a government entity is the recipient, the EU may:

suspend payments or terminate the legal commitment;
prohibit any new legal commitments;
suspend the disbursement of instalments or early repayment of loans guaranteed by the EU budget;
suspend or reduce the economic advantage guaranteed by the EU budget;
prohibit new agreements on loans or other instruments guaranteed by the EU budget.

Where the European Commission implements the EU budget jointly with EU countries, the EU may:

suspend programme approvals;
suspend or reduce commitments, including through financial corrections or transfers to other spending programmes;
reduce pre-financing;
interrupt payment deadlines;
suspend payments.

Measures taken must be proportionate. They must be determined in light of the actual or potential impact of the breaches on the sound financial management of the EU budget or of the EU’s financial interests. The nature, duration, gravity and scope of the breaches are taken into account.

The regulation ensures that beneficiaries of the funds are not affected by the adoption of measures. Unless expressly foreseen, the measures taken must not affect EU countries’ obligations and in particular their obligation to make payments towards final recipients or beneficiaries. The Commission must do its utmost to ensure that this obligation is respected in accordance with the relevant provisions on the management of the funds.

Adoption and lifting of measures

Where the Commission finds that the conditions for the adoption of measures are fulfilled and that the EU country concerned has not addressed the situation, it must submit a proposal for the adoption of measures to the Council. The Council must decide on the proposal by a qualified majority.

Where the Commission considers that the conditions for taking measures are no longer fulfilled, it will submit a proposal to the Council to lift the measures.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 1 January 2021.

KEY TERMS

The rule of law: the EU value, enshrined in Article 2 of the Treaty on European Union (see summary), implying a transparent, accountable, democratic and pluralistic lawmaking process; legal certainty; prohibition of arbitrariness of the executive powers; effective judicial protection, including access to justice, by independent and impartial courts, also as regards fundamental rights; separation of powers; and non-discrimination and equality before the law.

MAIN DOCUMENT

Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget (OJ L 433I, 22.12.2020, pp. 1-10)