Article 7 TEU and the limits of EU rule-of-law enforcement

In April 2020, JuriSpectrum's founding partner and Koralia Kontou asked in a short article whether the Union could still impose the rule of law on its Member States. Article 7 TEU had been triggered against Poland in December 2017 and against Hungary in September 2018; hearings in the Council were going nowhere; and the authors warned that moving to the sanctions stage of Article 7(2) would transform the institutions "from a traditional 'soft law' mechanism to a machine with the right to interfere" in matters at the very core of national sovereignty. Six years later the question has been answered, though not through Article 7. This note explains what changed, what the Court of Justice decided in February 2022, and what remains beyond the Union's reach.

Why Article 7 stalled

Article 7 was designed as a political procedure with a political threshold. Determining a clear risk of a serious breach of the values of Article 2 TEU requires four fifths of the Council; determining the existence of a serious and persistent breach requires unanimity in the European Council, the Member State concerned not voting; only then may rights, including voting rights, be suspended by qualified majority. With two Member States under procedure at once, each able to block the other's unanimity stage, the mechanism was paralysed by design. The Commission's 2014 Rule of Law Framework and its annual Rule of Law Reports since 2020 added dialogue, not consequences.

The budgetary route: Regulation 2020/2092

The legislature's answer was to attach the rule of law to money. Regulation (EU, Euratom) 2020/2092, adopted on 16 December 2020 on the basis of Article 322(1)(a) TFEU and applicable from 1 January 2021, allows the Council, on a proposal from the Commission, to suspend payments or commitments, prohibit new legal commitments or reduce pre-financing where breaches of the principles of the rule of law in a Member State affect or seriously risk affecting the sound financial management of the Union budget or the protection of the Union's financial interests in a sufficiently direct way. Article 3 lists indicative breaches: endangering the independence of the judiciary, failing to prevent, correct or sanction arbitrary or unlawful decisions of public authorities, and limiting the availability and effectiveness of legal remedies. Article 6 lays down a written procedure with time limits, and the Council decides by qualified majority, not unanimity.

Hungary and Poland v Parliament and Council

Both Member States sought annulment. The Court of Justice, sitting as a full court, dismissed the actions in their entirety on 16 February 2022 (Cases C-156/21 and C-157/21). Three holdings matter for practice.

1. Legal basis. A conditionality mechanism which protects the budget against the consequences of rule-of-law breaches is a financial rule within Article 322(1)(a) TFEU. The Court tied this to Article 2 TEU: the values on which the Union is founded define its very identity as a common legal order, are conditions of membership which a State cannot disregard after accession, and underpin the mutual trust on which the solidarity of the budget rests.
2. No circumvention of Article 7. Article 7 is not the only procedure through which the rule of law can be protected. What the Treaties prohibit is a parallel procedure with the same subject matter, the same objective and identical measures. The Regulation differs on each count: its aim is to protect the budget, not to sanction breaches of values as such; its scope is limited to rule-of-law breaches with budgetary implications; and its measures are budgetary.
3. The genuine-link requirement. The Regulation may be applied only where there is a genuine link between the breach and a sufficiently direct effect on, or serious risk to, the budget, and measures must be strictly proportionate to that effect. The Court also confirmed that the concept of the rule of law is sufficiently precise to satisfy legal certainty, drawing on its own case law on judicial independence and effective judicial protection.

What has happened since

The mechanism has been used. In December 2022 the Council, acting on the Commission's proposal, suspended a substantial share of cohesion-policy commitments for Hungary until the remedial measures Hungary had undertaken were fully implemented; the interplay with the milestones of the Recovery and Resilience Facility has since turned rule-of-law conditionality into a permanent item of negotiation between Budapest and Brussels. The Article 7(1) procedure against Poland was closed by the Commission in May 2024 after the change of government and the adoption of an action plan; the procedure against Hungary remains open. In parallel, infringement actions on judicial independence produced judgments and, in one case, a daily periodic penalty payment ordered by the Vice-President of the Court (Case C-204/21 R, Commission v Poland).

The limits that remain

The 2022 judgments settled the legality of the conditionality mechanism, not its reach. Three limits are structural.

• The mechanism protects the Union's money. A rule-of-law problem which does not touch the management of Union funds, whether in media freedom, electoral law or the treatment of civil society, is outside Article 4 of the Regulation and remains an Article 7 matter.
• Every measure requires a Commission proposal and a Council qualified majority. The Court insisted on full judicial review of the Council's decisions, but the decision to propose remains political, and the Commission's willingness to release funds against partial reforms has been criticised from both directions.
• The Court's insistence that the values of Article 2 are conditions of membership raises, but does not answer, the question the 2020 article posed: what the Union can do when a State persistently rejects those values but never mismanages a euro.

The Union did not learn to impose the rule of law. It learned to put a price on it.

This article is provided for general information only and does not constitute legal advice. It reflects the law and the authors' views at the date of publication. For advice on a specific situation, please contact the firm.