Written by 11:00 am Europe Economy

Rule of law stand-off threatens new EU funding to Poland

Brussels is ready to freeze payments of regional aid to Poland because of threats to judicial independence, as the stand-off over rule of law violations hangs over funding lines worth tens of billions of euros to Warsaw.

A failure by Warsaw to comply with crucial EU requirements on fundamental rights means the bulk of payments under the union’s new round of cohesion spending will be held back by the European Commission until the matter is resolved, officials said. Poland is expecting to receive cohesion funding worth €76.5bn from 2021 to 2027.

The move heightens the financial stakes in a long-running legal conflict between Brussels and Poland’s ruling Law and Justice party over rule of law matters. The conflict centres on the subjugation of the judiciary to the executive — and how far Warsaw will need to go to loosen its grip on the courts to meet with EU law.

“The cohesion funds are like oxygen . . . right now even more because of the situation in Ukraine,” Andrzej Szumowski, a former Polish deputy minister responsible for European integration, said. “Our businesses, our NGOs and our society absolutely need to get some funds.” 

EU cohesion programmes are viewed by poorer eastern European states as the quid pro quo for opening up their economies to richer western countries when they join the bloc. Poland has been the biggest beneficiary of the EU’s structural funding initiatives.

Warsaw is also trying to convince the commission to release its first payment under the EU’s €800bn Covid-19 recovery fund — a separate disbursal that is also blocked because of rule of law violations.

The feuding over EU money has lurched to the top of the domestic agenda in Poland as it prepares for elections next year. Tensions are simmering in the ruling coalition as opposition politicians accuse the government of sacrificing EU money in order to maintain curbs on the judiciary.

In the latest government reshuffle, Poland this week replaced its minister for EU affairs. Szymon Szynkowski vel Sęk succeeded Konrad Szymański, who had been seen in Brussels as a conciliatory figure advising prime minister Mateusz Morawiecki.

The commission has recently signed off on three of Poland’s cohesion programmes under the current EU budget. The programmes cover big infrastructure projects and green investments. The two sides are working on finalising others.

Officials confirmed that the majority of the new cohesion funds from the current period are for now inaccessible. Only a slice of pre-financing, paid annually without conditions and worth just 0.5 per cent of the overall amount, has been received. Warsaw is still able to draw down the cohesion funds from the 2014-2020 budget period.

The likely freeze is the result of provisions related to the EU’s charter of fundamental rights that are now part of the union’s budget legislation. Commission officials have to check for compliance with the charter before reimbursing member states with cohesion fund payments. Poland’s suppression of judicial independence is likely to impede payments, according to two people familiar with the discussions.

Warsaw has been trying to convince Brussels that reforms this year to its system for disciplining judges are sufficient to address the commission’s rule of law concerns. But senior EU officials do not believe they yet go far enough.

Speaking this week in the EU’s committee of the regions, an advisory body representing local and regional authorities, Marc Lemaître, of the commission’s regional development division, acknowledged Poland was able to access EU pre-financing for its approved cohesion spending plans. But as long as the “enabling condition” under the charter of fundamental rights was unfulfilled, bills sent to Brussels would not be reimbursed.

This did not mean the money would not eventually be paid out, he stressed.

One Polish official played down any potential effect of delayed disbursement on Warsaw’s fiscal situation, saying that payment requests under the new round of cohesion funding would only start to be made next year, by which time the rule of law situation would hopefully be resolved.

“Funds will be accessible, under [the recovery fund] and cohesion, in due time,” the official insisted.

The Polish Development Fund and regional policy ministry did not address the specific issue of future EU regional aid, but instead defended the country’s overall performance on rule of law. “The Polish government makes sure that no one in our country is discriminated in any way,” the ministry said in an emailed response. “The partnership agreement (for regional funding) confirms that no discrimination is allowed during the preparation, implementation, monitoring, reporting and evaluation of programmes. What is very important [is that] the European Commission shares our opinion on this matter.”

However, Szumowski said that the threat of losing access to cohesion funds was a serious problem for his country.

Szumowski warned that access to EU money had become hostage to domestic politics. “Signing our commitments when we joined the European Union, we entered the club not for four years, from election to election, but as long as the EU exists,” he added.

Warsaw’s coalition government has claimed it is making progress on its rule of law disputes with Brussels after winning approval for its overall plan under the €800bn recovery fund. Magdalena Rzeczkowska, finance minister, told the Financial Times that Warsaw was “on the way to get this money” and that her government could lodge a first payment request — for €2.85bn in grants and €1.37bn in loans — before December.

Some EU diplomats and officials say political progress in the discussions over judicial independence remains slow.

A commission spokesperson confirmed that Brussels had recently approved the content of a trio of cohesion programmes submitted by Poland. But as a result of the non-fulfilment of “enabling conditions” related to the charter of fundamental rights, it could not make any reimbursement of expenditure submitted by Poland — other than for technical assistance and spending aimed at fulfilling the conditions.

“The commission and Poland will continue working together to overcome the remaining issues,” the spokesperson said.

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