MEPs on Wednesday approved the regulation designed to protect EU funds from being misused by EU governments who bend the rule of law.

Under the new regulation, EU budget payments can be withheld from countries in which established breaches of the rule of law compromise management of the EU funds. At the same time, the EU is ensuring that final beneficiaries do not end up paying the bill.

“We made it. It’s the law now. No one-sided declaration can change this fact. The conditionality regime will enable us to scrutinise dubious plans to apply EU funds against the EU's values”, said the co-rapporteur Petri Sarvamaa.

He added that Parliament had ensured that all the necessary points made it in the regulation and the text stays intact.

"We expect the Commission, as the guardian of the treaties, to independently start implementing this regulation from 1 January 2021. This is also what Europeans are waiting for,” he said.

Co-rapporteur Eider Gardiazabal Rubial said the EU is not an à la carte establishment, where one can keep rights but not meet obligations.

"It’s a community based on common values that member states and citizens must uphold. The mechanism that links the EU budget to respect for the rule of law adopted today is a major achievement for the Parliament,” she said.

She added that the EP made sure that the budget sanctions under this regulation target offenders directly and not the final beneficiaries.

Students, researchers, companies, and NGOs will not be affected, she said.

How will it work?

The Commission, after establishing that there has been a breach, will propose that the conditionality mechanism should be triggered against an EU government, and subsequently either cut or freeze payments to that member state.

The Council will then have one month to vote on the proposed measures (or three months in exceptional cases) by a qualified majority.

MEPs succeeded in shortening the time that the EU institutions will have to adopt measures against a member state, if risks of breaches of the rule of law are identified, to a maximum of seven to nine months (down from 12 to 13 months).

Law will apply to individual or systemic breaches

The new law does not only apply when EU funds are misused directly, such as in cases of corruption or fraud. It will also apply to systemic breaches of fundamental values that all member states must respect, such as democracy or the independence of the judiciary, when those breaches affect – or risk affecting – the management of EU funds.

In the negotiations, MEPs also succeeded in securing a specific provision that clarifies the possible scope of the breaches by listing examples of cases, such as threats to the independence of the judiciary, failure to correct arbitrary/unlawful decisions, and limiting legal remedies.

Final beneficiaries will be protected

To ensure that the final beneficiaries who count and depend on EU support – such as students, farmers, or NGOs – are not punished for the actions of their governments, they will be able to file a complaint to the Commission via a web platform, which will assist them in ensuring they receive the due amounts. The Commission will also be able to make a financial correction by reducing the next instalment of EU support to the respective country in question.

What happens next

Voted into law by Parliament on Wednesday, the new regulation applies to all EU funds under shared management from January 1.

Parliament will also vote on a resolution with recommendations to Council and Commission for the application of the conditionality regulation.