EU approved to cut funds for rule-breaking states

The European Union's top court on Wednesday decided that funds can be cut for member states that flout rule-of-law standards.

The European Court of Justice, or ECJ, dismissed a legal challenge to the bloc's so-called conditionality mechanism by Hungary and Poland, reported the Reuters news agency.

The EU introduced the sanctions mechanism in 2020 as part of the negotiated deal for the bloc's 800 billion euros ($911 billion) novel coronavirus recovery fund.

The legal instrument was designed to punish rule-of-law violations in member states by withholding funding.

Governments in Budapest and Warsaw have been accused of undermining democratic principles, such as judicial or media independence, noted Reuters.

The two countries feared that the European Commission would use the legal mechanism against them and launched an appeal at the ECJ.

The court has found that the mechanism was "legally solid and compatible with the union's treaties", meaning the Commission could now impose penalties on Poland and Hungary "within weeks", said the Financial Times.

"The court dismisses the actions brought by Hungary and Poland in their entirety," said the ECJ in a statement.

"Compliance by the member states with the common values on which the European Union is founded... justifies the mutual trust between those states.

"The sound financial management of the Union budget and the financial interests of the Union may be seriously compromised by breaches of the principles of the rule of law committed in a member state," it said.

Commission President Ursula von der Leyen said in a statement that officials would now analyze the court's judgments before adopting guidelines.

Katalin Cseh, a Hungarian member of European Parliament, told the FT that the mechanism must be applied immediately.

"This court decision is crystal clear: the rule of law mechanism is lawful and stands ready to be applied by the European Commission.

"The commission should waste no second more, and apply the mechanism."

Hungary's minister of justice, Judit Varga, said in an online post that the court's decision "is living evidence that Brussels is abusing its power".

Poland's deputy minister of justice, Sebastian Kaleta, said on Twitter that the move amounted to "blackmail".

"We need to defend ourselves against an attack on our sovereignty, Poland has to defend its democracy against blackmail that aims to take away our right to decide about ourselves," he said.