Why EU Conditionality Can (And Should) Stop Democratic Backsliding: The Legal Argument Brussels Needs to Make

How a strategic interpretation of EU budget rules could finally give the EU teeth against authoritarian governments in Poland and Hungary

The Problem: Europe’s Enforcement Crisis

For over eight years, the European Union has watched helplessly as Poland and Hungary systematically dismantled their democracies. Captured courts. Intimidated judges. Suppressed media. Rigged elections. All while remaining EU members in good standing, collecting billions in EU funds.

The EU’s traditional enforcement tools have completely failed:

Article 7 (the “nuclear option” to suspend voting rights): Paralyzed for 8+ years because Hungary and Poland veto each other’s sanctions
Court cases: The EU Court of Justice ruled against Poland multiple times. Poland ignored the rulings. Even €1 million per day fines don’t work.
Political pressure: Ineffective when governments benefit domestically from “standing up to Brussels”

But there’s one tool that’s actually working: financial conditionality. The EU froze over €30 billion to Hungary and €35 billion to Poland under Regulation 2020/2092, which allows withholding funds when rule of law violations affect the EU budget.

The problem? The current interpretation is too narrow. It only covers direct corruption and budget fraud—not the full scope of democratic backsliding.

Here’s the legal argument that could change everything.

The Game-Changing Interpretation

What the Law Currently Says

Regulation 2020/2092 allows the EU to freeze funds when rule of law violations:

“affect or seriously risk affecting the sound financial management of the Union budget or the protection of the financial interests of the Union“

Right now, the Commission interprets this narrowly:

Direct theft of EU money? ✓ Covered
Corrupt procurement using EU funds? ✓ Covered
Captured courts failing to prosecute fraud? ✓ Covered
Everything else? ✗ Not covered

The Argument: “Financial Interests” Includes the Single Market

Here’s the key insight: The text says “financial interests of the Union”—not just “the EU budget.”

The EU’s biggest financial interest isn’t the annual budget (€170 billion). It’s the Single Market (generates over €1 trillion in economic value annually).

When Poland and Hungary’s captured courts destroy trust between EU countries, the Single Market breaks down. And when the Single Market breaks down, that absolutely affects the EU’s financial interests.

The Evidence: It’s Already Happening

This isn’t theoretical. The Single Market is already breaking down because of judicial capture, and we can prove it:

1. The European Arrest Warrant Is Failing

The European Arrest Warrant (EAW) lets police in one EU country arrest criminals who fled to another EU country. It only works if countries trust each other’s courts.

What’s happening now:

German courts are refusing to extradite people to Poland
Ireland’s Supreme Court suspended EAW cooperation with Poland
Netherlands raised similar concerns

Why? These courts applied a test created by the EU Court of Justice (LM case, 2018) and found Poland’s judiciary is so compromised that extradited people wouldn’t get fair trials.

The result: Criminals can escape justice by crossing borders. Cross-border policing is essential for both security and business confidence is breaking down.

This is documented, judicial fact and not political opinion.

2. Foreign Investment Is Declining

Compare Poland’s foreign investment to similar countries (Czech Republic, Slovakia):

Before judicial reforms (2015-2016): Poland matched or exceeded peers
During reforms (2017-2020): Poland lagged behind
Peak crisis (2021-2023): Poland’s investment growth significantly below comparators

Business surveys show why: Companies cite “judicial uncertainty” and “governance concerns” in investment decisions.

3. Businesses Are Avoiding Polish Courts

Contracts increasingly require arbitration instead of Polish courts
Insurance costs higher for Polish operations
Legal risk assessments flag Poland specifically

When businesses can’t trust courts to enforce contracts fairly, cross-border trade suffers. That’s the Single Market breaking down in real time.

Why This Interpretation Is Legally Solid

1. The Text Supports It

“Financial interests” is deliberately broad language. If EU countries wanted to limit this to direct budget fraud, they could have said “misuse of Union funds” or “budgetary fraud.” They didn’t. They chose the broader phrase.

Plus, the Regulation’s preamble explicitly says: “Respect for the rule of law is essential for the functioning of the internal market.” The link is right there in black and white.

2. The EU Court Already Established the Principles

Three major cases create the building blocks:

Case 1: ASJP (2018) The Court ruled that Article 19 of the EU Treaty requires all member states to have independent courts. Why? Because without independent courts, EU law can’t function properly.

Case 2: LM (2018)
The Court created a test for when countries can refuse the European Arrest Warrant due to another country’s judicial problems. This implicitly recognized that judicial independence failures harm EU cooperation.

Case 3: Taricco (2015) The Court interpreted “financial interests” broadly to include VAT fraud—even though VAT is collected by national governments. If that indirect connection counts, direct Single Market harm definitely counts.

The Commission wouldn’t be inventing new legal theory, just connecting dots the Court already drew.

3. The Causation Is “Sufficiently Direct”

The Regulation requires effects to be “sufficiently direct”, not too speculative or remote.

The chain here is crystal clear:

Poland captures judiciary (proven by EU Court rulings)
Other countries’ courts apply the LM test and find systemic problems (documented in published court decisions)
Those courts refuse European Arrest Warrants (actual, documented refusals)
Cross-border criminal justice breaks down (measurable failure)
Business confidence suffers (survey data, investment statistics)
Single Market functions worse (economic harm)
EU’s financial interests are damaged (€1 trillion+ market at stake)

Every link is documented. Nothing is speculative. Compare this to the VAT fraud case: that had an equally long causal chain and was accepted.

The Strategic Brilliance: Force Them to Court

Here’s why the Commission should adopt this interpretation even though Poland/Hungary will challenge it:

Poland Has to Challenge (Politically)

Poland’s government cannot politically afford to just accept billions in frozen funds without fighting. Their entire brand is “standing up to Brussels.” Accepting the freeze without litigation would be political suicide.

Even Poland’s new pro-EU government (since October 2023) would face pressure to challenge if the legal grounds seem questionable.

So Poland will definitely sue. This is certain.

But Poland Will Lose

Poland’s arguments would be:

“Single Market disruption isn’t covered by ‘financial interests’”
- Problem: Text is broad, preamble mentions Single Market, precedent supports broad reading
“Our courts are fine”
- Problem: Multiple EU Court rulings say otherwise, plus German/Irish courts documented the problems
“The link is too indirect”
- Problem: Documented EAW breakdowns, investment declines, business surveys: all concrete evidence
“This exceeds EU powers / violates sovereignty”
- Problem: Poland agreed to these rules when joining; can’t claim sovereignty to avoid obligations

The Commission would win because the evidence is overwhelming.

Why Winning Matters So Much

If the EU Court upholds this interpretation, it establishes binding precedent that:

✓ “Financial interests” includes Single Market functioning

✓ Judicial independence violations can trigger conditionality if they harm the Single Market

✓ Any serious EU law violation affecting cross-border cooperation can now freeze funds

This transforms conditionality from a narrow anti-corruption tool into a comprehensive enforcement mechanism.

Suddenly:

Hungary faces the same treatment (precedent is set)
Future governments know democratic backsliding will cost billions annually
The EU finally has enforcement that actually works

Poland challenging is not a bug, it’s a feature. The Commission gets to establish game-changing precedent while Poland’s own litigation validates the new interpretation.

What About the Counterarguments?

“This is too broad everything affects the economy somehow!”

Answer: The Regulation requires “sufficiently direct” effects. Not everything meets that standard.

Member state’s education policy might eventually affect workforce skills over decades? Too indirect.
Systematic judicial capture causing documented EAW breakdowns right now? Sufficiently direct.

The standard provides meaningful limits without preventing enforcement of serious violations.

“This will make member states angry as sovereignty concerns!”

Answer: Most member states (the overwhelming majority) have independent judiciaries and wouldn’t be affected. They’ll likely support stronger enforcement against the few bad actors.

Public opinion across Europe strongly supports rule of law enforcement. Governments reflecting this opinion won’t oppose reasonable measures.

“Won’t this just be used against everyone for everything?”

Answer: The Commission has limited resources and must pick its battles. Conditionality will be reserved for serious, systematic violations—not minor technical infractions.

Plus, proportionality review means punishments must fit the crime. Small violations get small penalties; major violations get major penalties.

“Some damage is irreversible what’s the point?”

Answer: Three reasons:

Even partial compliance helps: Poland’s new government is gradually reforming, despite constraints from illegally appointed judges. Imperfect progress is better than no progress.
Deterrence matters: Even if Poland and Hungary can’t be fully fixed, the precedent prevents future backsliding elsewhere. The next government thinking about capturing courts will reconsider when they know it costs billions.
Irreversibility argues FOR aggressive enforcement: Precisely because damage is hard to reverse, it’s crucial to act early and decisively in future cases.

The Practical Roadmap

Phase 1: Build the Evidence Base (Now)

The Commission should systematically document:

All court decisions refusing EAW cooperation with Poland/Hungary
Foreign investment statistics showing decline
Business surveys citing governance concerns
Economic data on cross-border trade friction
Expert opinions on Single Market functioning

Phase 2: Issue Expanded Conditionality Decision (6-12 months)

Apply Regulation 2020/2092 with explicit Single Market grounds:

“In addition to corruption and budget oversight concerns, Poland’s systematic judicial independence violations undermine mutual trust and Single Market functioning, affecting the financial interests of the Union. Evidence: documented EAW breakdowns, investment decline, business confidence surveys showing lost trust.”

Phase 3: Win in Court (12-24 months)

Poland challenges. Commission presents overwhelming evidence. Court upholds broad interpretation. Precedent established.

Phase 4: Apply to Hungary and Future Cases (Immediately After)

With precedent set, Hungary faces same treatment. Any future backsliding anywhere triggers conditionality automatically.

Within 3-4 years, the EU transforms from having weak enforcement to having strong, effective, judicial-backed enforcement.

Why This Matters Beyond Poland and Hungary

This Could Reshape EU Governance

Right now, the EU has strong rules but weak enforcement. Member states know they can violate with limited consequences.

If this interpretation succeeds:

Financial leverage becomes real: Billions at stake, not just symbolic fines
Quick response possible: Qualified majority voting (no single veto), decisions in months not years
Covers all serious violations: Any systematic problem affecting EU functioning
Prevention works: Governments won’t start backsliding knowing the cost

The EU would finally have enforcement mechanisms that match its ambitions.

It Could Inspire Other International Organizations

The UN, Council of Europe, WTO all face similar challenges: how to enforce shared rules when members resist?

Most have only reputation damage as punishment which doesn’t work against shameless violators.

The EU’s conditionality mechanism demonstrates that financial incentives tied to meaningful cooperation can achieve compliance where political pressure fails.

Other organizations might adopt similar approaches:

IMF conditioning loans on judicial independence (as predicate for economic stability)
World Bank tying development funding to governance reforms
Regional development banks making rule of law a funding condition

The EU would be pioneering a new model of international cooperation: significant benefits, but enforceable obligations as the price of membership.

The Bottom Line

The legal argument is sound. The evidence is overwhelming. The timing is opportune.

What the Commission needs to do:

Adopt the broad interpretation of “financial interests” to include Single Market functioning
Welcome Poland’s challenge rather than fearing it
Win in the EU Court by presenting the compelling evidence and doctrine
Establish precedent that transforms EU enforcement forever

The stakes could not be higher. Democratic backsliding threatens not just Poland and Hungary but the entire European project. If the EU can’t enforce its founding values, what’s the point?

For eight years, Article 7 has been paralyzed. For eight years, Court judgments have been ignored. For eight years, authoritarianism has advanced unchecked.

Conditionality offers the EU its best (and perhaps only) realistic path to solving the rule of law crisis.

The legal tools exist. The evidence is ready. The political moment is right.

What remains is the courage to use them.

lawrota.com