kom (2018) 0324 - Bilag 2: Den Europæiske Revisionsrets Udtalelse nr. 1/2018 om forslag til Europa-Parlamentets og Rådets forordning om beskyttelse af Unionens budget i tilfælde af generaliserede mangler i medlemsstaterne for så vidt angår retsstatsprincippet af 2. maj 2018

Europaudvalget 2017-18
KOM (2018) 0324 Bilag 2
Offentligt

Opinion No 1/2018

(pursuant to Article 322(1)(a) TFEU)

Concerning the proposal of 2 May 2018 for a regulation of the European

Parliament and of the Council on the protection of the Union's budget in case

of generalised deficiencies as regards the rule of law in the Member States

12, rue Alcide De Gasperi - L - 1615 Luxembourg

(+352) 4398 – 1

[email protected]

eca.europa.eu

kom (2018) 0324 - Bilag 2: Den Europæiske Revisionsrets Udtalelse nr. 1/2018 om forslag til Europa-Parlamentets og Rådets forordning om beskyttelse af Unionens budget i tilfælde af generaliserede mangler i medlemsstaterne for så vidt angår retsstatsprincippet af 2. maj 2018

CONTENTS

Paragraph

Introduction

Background

The Commission’s Proposal

General remarks

Overall aim to protect the Union budget

New mechanism with much discretionary power for the Commission

No specific stakeholder consultation done

No impact assessment done

Specific remarks

Sources of guidance and criteria are not clearly specified

No deadlines for the Commission

No clear obligation for the Commission to assess possibility to lift

measures at its own initiative

No requirement for the Commission to assess the potential impact on

final beneficiaries and the national budget

Cooperation with European Public Prosecutor's Office not applicable to

all Member States

1-8

1-4

5-8

9 - 18

9 - 11

12 - 16

19 - 30

19 - 23

26 - 29

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THE COURT OF AUDITORS OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union (TFEU), and in

particular Article 322(1)(a) thereof, together with the Treaty establishing the European

Atomic Energy Community, and in particular Article 106a thereof,

Having regard to the Commission’s proposal for a regulation of the European Parliament and

of the Council on the protection of the Union's budget in case of generalised deficiencies as

regards the rule of law in the Member States (“the Proposal”)

Having regard to the Commission’s request for an opinion on the above-mentioned Proposal

of 3 May 2018, received by the Court on 14 May 2018,

HAS ADOPTED THE FOLLOWING OPINION:

INTRODUCTION

Background

The Commission’s 2014 communication ‘A new EU Framework to strengthen the Rule of

Law’

set out a new framework to ensure effective and coherent protection of the rule of

law in all Member States. This framework provided a structure within which to address and

resolve a systemic threat to the rule of law, seeking to avert future threats to the rule of law

in Member States before the conditions for activating the mechanisms in Article 7 of the

Treaty on European Union (TEU) were met. The framework was intended to be

complementary to the Article 7 TEU mechanisms and does not prejudice the use of

infringement procedures under Article 258 of the Treaty on the Functioning of the European

Union (TFEU).

COM(2018) 324 final of 2 May 2018.

COM(2014) 158 final of 11 March 2014.

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The Commission’s 2018 communication ’A new, modern Multiannual Financial

Framework for a European Union that delivers efficiently on its priorities post-2020’

explains that ‘The Union is a community of law and its values constitute the very basis of its

existence. They permeate its entire legal and institutional structure and all its policies and

programmes. Respect for these values must therefore be ensured throughout all Union

policies. This includes the EU budget, where respect for fundamental values is an essential

precondition for sound financial management and effective EU funding. Respect for the rule

of law is important for European citizens, as well as for business initiatives, innovation and

investment. The European economy flourishes most where the legal and institutional

framework adheres fully to the common values of the Union.’

On 14 March 2018, the European Parliament called ‘on the Commission to propose a

mechanism whereby Member States that do not respect the values enshrined in Article 2

TEU can be subject to financial consequences’, warning, however, ‘that final beneficiaries of

the Union budget can in no way be affected by breaches of rules for which they are not

responsible’. It declared that it was ‘convinced, therefore, that the Union budget [was] not

the right instrument for addressing the failure to observe Article 2 TEU, and that any

possible financial consequence should be borne by the Member State independently of

budget implementation’

4. According to the Commission, ‘there is currently no mechanism in place to protect EU tax

payers’ money in case of deficiencies regarding the rule of law in a Member State’

. The

current rules oblige Member States to demonstrate that their management and control

systems and procedures for implementing EU funds sufficiently protect the Union’s financial

COM(2018) 98 final of 14 February 2018.

European Parliament resolution of 14 March 2018 on the next MFF: Preparing the Parliament’s

position on the MFF post-2020 (2017/2052(INI)).

See Commission leaflet ‘EU budget for the future – sound financial management and the rule of

law’, https://ec.europa.eu/commission/news/eu-budget-future-2018-may-02_en.

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interests

, failing which the Commission takes corrective action (for example suspending

payments or applying financial corrections). If the Commission identifies infringements of EU

law, it may launch an infringement procedure against a Member State based on Article

258 TFEU. Furthermore, if a Member State does not respect the fundamental values referred

to in Article 2 TEU, including the rule of law, the Commission may trigger the mechanism in

Article 7 TEU, which may ultimately lead to the suspension of certain rights (including voting

rights in the Council; see paragraph 15).

The Commission’s Proposal

In view of the overall aim of the Proposal to contribute to the proper implementation of

the EU budget, the Commission has chosen Article 322(1)(a) of the Treaty on the Functioning

of the EU (TFEU), which is the same legal basis as for the Financial Regulation. The Proposal

is a self-standing regulation within the regulatory package for the Multiannual Financial

Framework 2021-2027.

More specifically, the Commission’s Proposal aims at establishing ‘the rules necessary

for the protection of the Union’s budget in the case of generalised deficiencies as regards

the rule of law in Member States’, which affects or risks affecting the principles of sound

financial management or protection of the financial interests of the Union. It therefore gives

the Commission the right to initiate the procedure before such risks have materialised. By

increasing the protection against possible practices or omissions of national authorities,

which go against the rule of law, the Proposal is intended to have a positive impact on the

sound financial management of the EU budget.

The Proposal provides for the Commission, after having taken into account information

and observations received from the Member State concerned, to submit a proposal to the

According to Article 59 (2) of Regulation (EU, Euratom) No 966/2012 of the European

Parliament and of the Council (Financial Regulation) (OJ L 298, 26.10.2012, p. 1), ‘when

executing tasks relating to the implementation of the budget, Member States shall take all the

necessary measures, including legislative, regulatory and administrative measures, to protect

the Union’s financial interests, ..[..].’

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Council for an implementing act on appropriate measures (depending on the nature, gravity

and scope of the generalised deficiency as regards the rule of law). This proposal shall be

deemed to have been adopted by the Council, unless it decides, by qualified majority to

reject or to amend the Commission’s proposal within one month. Appropriate measures can

take the form of suspension, reduction or restriction of a Member State’s access to the EU

funding, whether in full or in part.

The Proposal obliges the Commission to assess the situation where the Member State

concerned has submitted evidence that shows that the generalised deficiencies established

have been remedied or have ceased to exist in full or in part, and, if the assessment is

positive, to submit to the Council a proposal for a decision lifting those measures in full or in

part. Without such a decision by year n+2, suspended commitments of year n would be

definitively lost for the Member State concerned.

GENERAL REMARKS

Overall aim to protect the Union budget

9. We welcome the aim of the Commission’s legislative initiative to protect the Union

budget against generalised deficiencies as regards the rule of law (see

Box 1)

in a Member

State, which affect or risk affecting the sound financial management or the protection of the

financial interests of the Union.

Box 1 - Rule of Law in the Union

The case law of the Court of Justice and of the European Court of Human Rights, as well as

documents drawn up by the Council of Europe, building notably on the expertise of the Venice

Commission, provide guidance on the core meaning of the rule of law as a common value of the EU

in accordance with Article 2 TEU.

Those principles laid down include: legality, which implies a transparent, accountable, democratic

and pluralistic process for enacting laws; legal certainty; prohibition of arbitrariness of the executive

powers; independent and impartial courts; effective judicial review including respect for

fundamental rights; and equality before the law.

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10. We note that the Commission bases the proposed mechanism on the necessity to

respect the rule of law as a precondition for ensuring compliance with the principles of

sound financial management of EU funds. We agree with the Commission’s view that

unlawful and arbitrary decisions by public authorities responsible for managing funds and for

judicial review could harm the financial interest of the Union.

11. As the supreme audit institution of the Union, we recognize that the confidence of all

EU citizens and national authorities in the functioning of the rule of law is particularly vital

for the further development of the EU into “an area of freedom, security and justice without

internal frontiers”

. We also acknowledge that the independence and impartiality of the

judiciary are essential to ensure the sound financial management and the protection of the

EU budget, particularly with regard to the judicial enforcement of legal claims, the fight

against fraud and other legitimate interests of the EU.

New mechanism with much discretionary power for the Commission

12. We note that the proposed mechanism is more specific in objective, scope, and range of

measures which can be taken than the Article 7 TEU mechanisms, and faster to apply. The

draft regulation assigns the Commission more discretionary power in the process than the

current rules to counter any breach against one of the fundamental values set out in

Article 2 TEU.

13. The Commission would start the procedure if it finds it has ‘reasonable grounds’ to

believe that the conditions in Article 3 of the Proposal had been met. In doing so, it may take

into account all relevant information mentioned in Recital 12 of the Proposal, including

decisions handed down by the Court of Justice of the EU, reports from the Court of Auditors

and conclusions and recommendations from relevant international organisations (see

paragraph 19). The criteria for launching the procedure and for the qualitative assessment

are however not clearly defined (see paragraphs 20-23).

Articles 3(2) TEU and 67 TFEU; COM(2014) 158 final as of 11 March 2014.

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14. In reaction to the Commission’s finding, the Member State concerned should provide all

required information and may submit its observations, which the Commission should take

into account. The Commission would decide which measure was appropriate in each

individual case. The Proposal states that the Commission would do so in line with the

principle of proportionality and evaluate each case on its own merits (seriousness, time,

duration, recurrence, intention of the said conduct and degree of the cooperation and

effects of that deficiency on the respective EU funds). The criteria for the choice and extent

of measures are also not clearly defined (see paragraph 20).

15. Article 7 TEU requires a four-fifth majority of the Council to establish a clear risk of a

serious breach of the values referred to in Article 2. Furthermore, it requires unanimity of

the European Council - based on a Commission proposal and after consent of the European

Parliament - to determine the existence of a serious and persistent breach by a Member

State of the values referred to in Article 2. After determination of such existence, the Council

acting by qualified majority can suspend certain membership rights of the Member State

concerned, including voting rights in the Council. In this proposed mechanism, however, the

Commission’s proposal is deemed accepted unless rejected or modified by the Council.

Blocking the Commission’s proposal would require a qualified majority of the Council within

one month (‘reversed qualified majority voting’). The European Parliament would only be

informed of any proposed or adopted measures.

16. The lack of criteria for important milestone decisions in implementing the proposed

regulation and the adoption of the Commission’s proposal under the reversed qualified

majority voting by the Council contributes to the discretionary power provided to the

Commission in the Proposal.

No specific stakeholder consultation done

17. Article 11 (3) TEU requires the Commission to ‘carry out broad consultations with

parties concerned in order to ensure that the Union’s actions are coherent and transparent’.

More specifically, Article 2 of Protocol No. 2 on the application of the principles of

subsidiarity and proportionality annexed to the Treaty stipulates that ‘before proposing

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legislative acts, the Commission shall consult widely’. While we note that the subject matter

has been widely debated including at the European Parliament and the Council, we consider

it would have been essential for the Commission to undertake a specific stakeholder

consultation before publishing the Proposal.

No impact assessment done

18. According to the Interinstitutional Agreement on Better Law-Making, the Commission

should carry out impact assessments of any of its legislative and non-legislative initiatives,

delegated acts and implementing measures which are expected to have a significant

economic, environmental or social impact. Despite the potential impact on final beneficiaries

(see paragraph 26) and the fact that parts of the Union budget are likely to be left outside

the mechanism (see paragraph 28), we note that no impact assessment was undertaken. The

Commission considers that rules adopted under Article 322 TFEU provide the general

framework for implementing spending programmes, which implies that there are no direct

economic, environmental or social impacts that could be usefully analysed. We are,

however, of the view that carrying out an impact assessment before publishing the Proposal

would have allowed for a better informed decision-making by the legislative bodies.

SPECIFIC REMARKS

Sources of guidance and criteria are not clearly specified

19. The Proposal does not clearly specify which available sources of guidance the

Commission should use for making its qualitative assessment to identify a generalised

deficiency as regards the rule of law, which puts sound financial management at risk. It only

states that the Commission may base its assessment on information from all available

sources. In our view, clearer specification could improve the transparency, traceability and

auditability of the proposed mechanism as well as legal certainty and non-arbitrariness of

the executive powers proposed to be conferred to the Commission.

Box 2

shows some

possible guidance sources.

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Box 2 - Examples of possible guidance sources

The Commission could find sources of guidance from chapter 23 (judiciary and fundamental rights)

and chapter 24 (justice, freedom and security) applicable to EU accession negotiations, as well as the

Cooperation and Verification Mechanism (CVM) on Bulgaria and Romania, which was deployed to

address shortcomings in the fields of judicial reform, corruption or organised crime. Other examples

of possible relevant sources or guidance are the Venice Commission’s Rule of Law Checklist, the

Council of Europe Recommendation CM/Rec (2010)12 ‘Judges: independence, efficiency and

responsibilities’, the Venice Commission Report on the Independence of the Judicial System Part I:

the Independence of Judges (CDL-AD(2010)004), and the Venice Commission Report on Part II: the

Prosecution Service (CDL-AD(2010)040).

20. Article 4(3) of the Proposal provides that the measures taken should be proportionate

to the nature, gravity and scope of the generalised deficiency. Proportionality should be

ensured by taking into account the seriousness of the situation, its duration, its recurrence,

the intention and the degree of cooperation of the Member State and the effects of the

generalised deficiency on the respective EU funds.

21. The proposed measures should also, ‘insofar as possible, target the Union actions

affected or potentially affected by that deficiency’. However, no precise criteria are set for

important milestone decisions, such as the initiation of the procedure or determining the

choice and extent of measures, which does not ensure a consistent application of the

provisions.

22. According to the Commission, further detailing the criteria is not necessary and would

be counterproductive, as the generalised deficiencies as regards the rule of law need to be

established on the basis of a qualitative assessment, which does not allow for the use of

quantitative criteria. Any quantitative approach would weaken the mechanism substantially

due to the risk that not all possible cases are covered. Moreover, it argues that the burden of

proof for its qualitative assessment, which is subject to judicial review, is with the

Commission and the Council.

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23. In the context of our audits of the excessive deficit procedure and the macroeconomic

imbalance procedure

, we noted the existence of clear criteria, which allowed us to

conclude that weaknesses in the consistent and transparent application of the two

procedures existed. With this background, we consider there is a need for developing

criteria that allow for a critical appreciation of the consistency in applying the provisions

with a view to ensure equal treatment of Member States in case of generalised deficiencies

as regards the rule of law, which puts sound financial management at risk.

Recommendation 1

We recommend that the legislative bodies set clear and specific criteria for defining what constitutes

a generalised deficiency as regards the rule of law, which puts sound financial management at risk,

and for determining the extent of measures, either in the proposed regulation or in possible

implementing rules. When setting the criteria, the sources of guidance, which the Commission used

in the context of EU accession negotiations, as well as in the Cooperation and Verification

Mechanism to track the progress of a Member State could be taken into consideration.

No deadlines for the Commission

24. Despite fixing no deadlines for the Commission, the draft regulation sets strict deadlines

by which the Member State concerned must reply to the Commission’s notification (within a

time limit not less than one month), and by which the Council must reject a proposed

decision by qualified majority (within one month). We note that the Treaty does not

prescribe any deadlines for the mechanism of Article 7 TEU or the infringement procedure of

Article 258 TFEU. The Commission informed us that it has in any event the obligation to act

within a reasonable timeframe

Special Report No 10/2016 ‘Further improvements needed to ensure effective implementation

of the excessive deficit procedure’ and Special Report No 3/2018 ‘Audit of the Macroeconomic

Imbalance Procedure (MIP)’.

See Joined Cases C-74/00 P and C-75/00 P Falck SpA and Acciaierie di Bolzano SpA v Commission

of the European Communities, EU:C:2002:524, par. 139-141

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Recommendation 2

We recommend that the legislative bodies specify the basis for setting time limits by which the

Member State concerned has to provide the required information as well as introducing similar

deadlines for the Commission whenever appropriate, for example as regards the lifting of measures

in case the underlying generalised deficiencies have ceased to exist.

No clear obligation for the Commission to assess possibility to lift measures at its own

initiative

25. According to Art. 6 (2) of the Proposal, the Commission has the obligation to carry out

an assessment with regard to the lifting of measures following a request made by the

Member State concerned. We note, however, that the Proposal does not contain a provision

which requires the Commission to carry out an assessment in the absence of such a request

at its own initiative, if there are grounds justifying it. The Commission has informed us that it

would still do so.

No requirement for the Commission to assess the potential impact on final beneficiaries

and the national budget

26. Appropriate measures may be adopted under the direct, indirect and shared

management modes, the consequences of which, according to the Proposal’s explanatory

memorandum, ‘should fall on those responsible for identified shortcomings’. Unless

provided otherwise in the Council decision, the imposition of the measures should not affect

the obligation of government entities or Member States to implement the programme or

fund affected by the measure and the obligation to make payments to final beneficiaries

http://curia.europa.eu/juris/document/document.jsf?text=&docid=47692&pageIndex=0&docla

ng=FR&mode=lst&dir=&occ=first&part=1&cid=263967.

This reflects point 119 of the European Parliament resolution of 14 March 2018, ‘The next MFF:

Preparing the Parliament’s position on the MFF post-2020’, which mentions that ‘final

beneficiaries of the Union budget can in no way be affected by breaches of rules for which they

are not responsible’.

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We note that the Proposal does not contain a provision on how this would be ensured. In

practice, this would require the Member State concerned to step in and pay or otherwise

ensure the financing of the projects or programmes.

27. In this context, we note that payments of national and EU funds may be conditional on

the availability of budgetary funding, as revealed during our audits

. The Commission has

informed us that it has proposed rules

for the next MFF which would impose a series of

obligations on national authorities to ensure payments to the beneficiaries in full and on

time. We note, however, that the proposed common provisions regulation also contains a

clause, which makes the obligation of the national authority to ensure payment to the

beneficiary subject to the availability of funding

28. The aim of the draft regulation is to protect the Union’s budget in its entirety. While

doing so, it however seeks to ensure that any repercussions of the measures taken fall on

the government entities responsible for the identified generalised deficiencies, and not on

non-governmental final beneficiaries

(such as Erasmus students, researchers or civil society

organisations) or other Member States (e.g. through European Territorial Cooperation

Programmes). With this aim in mind, the Proposal foresees that for direct and indirect

management, measures can only be applied if a government entity is the beneficiary.

Consequently, if the beneficiary is a non-government entity, the EU funding which goes to

During our audits in the field of shared management, we found contracts concluded between

national authorities and final beneficiaries, which contained conditional clauses linking

payments to availability of budgetary funding.

Proposal for a Regulation of the European Parliament and of the Council on the financing,

management and monitoring of the common agricultural policy (COM(2018)393 final) and the

Proposal for a Regulation of the European Parliament and of the Council laying down common

provisions on the European Regional Development Fund, the European Social Fund Plus, the

Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and

for the Asylum and Migration Fund, the Internal Security Fund and the Border Management and

Visa Instrument (COM(2018)375 final).

See Article 68 (1) b) of the proposal for the common provisions regulation.

Depending on the regulation on which basis EU funding is provided, final beneficiaries are also

referred to as final recipients.

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such an entity is left outside the measures the Commission would propose. Without an

impact assessment which could have clarified how much of the Union budget would

necessarily remain outside the protection of this proposed mechanism, it is difficult to

establish the potential magnitude of this.

Recommendation 3

We recommend that the legislative bodies request the Commission to assess in detail in its proposal

to the Council how the legitimate interests of final beneficiaries will be safeguarded. For all measures

under Article 4(1) of the Proposal (such as the reduction of commitments or the suspension of

commitments or payments), the rights of the final beneficiaries should be safeguarded.

29. In cases where national funds are used to substitute the suspended or reduced EU

funds, these funds would have to come from the national budget of the Member State

concerned. This leads to budgetary implications for the Member State

, particularly in case

of large-scale suspensions or reductions.

Recommendation 4

We recommend that the legislative bodies request the Commission, before deciding on which

appropriate measures to propose, assess the possible budgetary implications of a reduction in the EU

funding for the national budget of the Member State concerned with due regard to the principles of

proportionality and non-discrimination.

Cooperation with European Public Prosecutor’s Office not applicable to all Member States

30. A generalised deficiency as regards the rule of law in a Member State can relate to the

effective and timely cooperation with the European Anti-Fraud Office and with the European

Public Prosecutor's Office. We draw attention to the fact that not all Member States are part

of the European Public Prosecutor's Office cooperation, making the provisions relating to the

In its resolution of 14 March 2018, the European Parliament has stated that the ‘Union budget is

not the right instrument for addressing the failure to observe Article 2 TEU, and that any

possible financial consequence should be borne by the Member State independently of budget

implementation’.

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European Public Prosecutor’s Office, after its establishment, only applicable to the

participating Member States.

Recommendation 5

We recommend that the legislative bodies clarify that the provisions relating to the European Public

Prosecutor’s Office can, after its establishment, only be applicable to the participating Member

States.

This Opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 12 July

2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

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