The EU can withhold funds from member states for breaches of the rule of law, the Court of Justice of the European Union said today in a ruling which could allow the bloc to deny billions of euros to Hungary and Poland.

A ‘conditionality mechanism’ was introduced by the EU in 2020, which links funding to respect for the rule of law, following increasing concern within the EU in relation to judicial independence and the rule of law in the two countries.

Under the regulation, member states’ funding can be suspended for ‘endangering the independence of the judiciary’, ‘failing to prevent, correct or sanction arbitrary or unlawful decisions by public authorities’ and ‘limiting the availability and effectiveness of legal remedies’.

The CJEU today dismissed actions brought against the regulation by Hungary and Poland ‘in their entirety’, following an advisory opinion by one of the court’s advocates general in December.

Compliance with the EU’s values ‘is a condition for the enjoyment of all the rights deriving from the application of the treaties to that member state’, which ‘cannot be reduced to an obligation which a candidate state must meet in order to accede to the European Union and which it may disregard after its accession’, the court held.

‘The European Union must be able to defend those values, within the limits of its powers as laid down by [EU] treaties,’ it added.

The CJEU said there is ‘a clear relationship’ between respect for the value of the rule of law and ‘the efficient implementation of the union budget, in accordance with the principles of sound financial management, and the protection of the financial interests of the union’.

‘That sound financial management and those financial interests are liable to be seriously compromised by breaches of the principles of the rule of law committed in a member state,’ the court ruled.

European Commission president Ursula von der Leyen said: ‘Today’s judgments confirm that we are on the right track.’

Ministers in both the Hungarian and Polish governments criticised the ruling, with Polish deputy justice minister Sebastian Kaleta reportedly describing the decision as ‘blackmail aimed to deprive us of our right to self-determination’.