BRUSSELS — European Union leaders head into difficult talks on Thursday to break through a veto by Poland and Hungary holding up the bloc’s budget and a hefty stimulus package, as the two nations attempt to evade oversight that could strip them of E.U. funds if they continue to overhaul democratic institutions at home.
The dispute — which threatens 1.8 trillion euros, or $2.2 trillion, in funding, including money desperately needed for pandemic recovery — has deepened fissures between member states and forced European leaders to reckon with the very nature of the bloc itself.
The emerging compromise, brokered by Germany — which holds the bloc’s rotating presidency — would still tie the funding to adherence to rule of law standards, a win for most member states.
But the legally binding measure would still be watered down. Officials and diplomats briefed before the leaders’ scheduled meeting said the deal would grant Hungary and Poland a statement that would limit the bloc to scrutinizing the spending of E.U. funds. Members would also be able to challenge a ruling in the European Court of Justice.
In typical E.U. fashion, such a compromise would permit the leaders of Hungary and Poland to save face at home or even claim victory. But it would also end the standoff that has delayed the stimulus funds.
A draft statement seen by The New York Times, which could be finalized on Thursday, said that the European Commission would define how the rule-of-law mechanism will work, and noted that it would not be used to discriminate against a member state or encroach on its sovereignty.
The draft would also allow member states to challenge the mechanism in court before it is used. The details make for a lengthy process, postponing any real action by months if not years. That would be advantageous to Viktor Orban, Hungary’s illiberal prime minister, as he faces elections in 2022.
Legal experts were swift to criticize the emerging compromise.
“The draft is unprecedented and legally suspect in that is seems to promise the European Commission will not enforce the new regulation until after Hungary and Poland have had a chance to bring litigation before the European Court of Justice trying to annul it,” said R. Daniel Kelemen, a professor of political science and law at Rutgers University.
The face-off has pushed the building toxicity between the two countries and the rest of the bloc to the heart of Brussels, throwing into disarray painstakingly laid plans for a €750 billion post-coronavirus stimulus package, as well as the regular multiyear budget. Further delays would stop the funds from getting to the nations that most desperately need them, stalling a nascent economic recovery from the worst recession in the bloc’s history.
But the fight has also revealed the depth of the fault lines, at a time when the European Union is trying to band together to fight the pandemic and show a united front in the wake of Britain’s exit.
Hungary and Poland have long been at loggerheads with the European Commission, the bloc’s executive branch, over their dismantling of key rule-of-law institutions. The European Court of Justice, the highest court in the E.U., has declared some of those policies illegal, but the backsliding has continued. Hungarian and Polish leaders argue that institutional changes are their national prerogative, and accuse the Commission of applying double standards to East European states, describing the rule-of-law provisions as arbitrary and political.
Many worry that the damage being done to democracy in Poland and Hungary is not only hard to reverse, but also detrimental to the whole of the European Union, the world’s richest bloc of democracies.
“Europe was set up as a community of like-minded states, and in its DNA, it doesn’t have this awareness that there may be fundamental breaches of the rule of law within the E.U.,” said Wojciech Sadurski, a Polish and Australian expert on constitutional law who is a prominent critic of the Polish government.
On the ground in Hungary and Poland, the impact of these policies is deeply felt.
In Hungary, Mr. Orban and his allies have led a slow, methodical erosion of the rule of law. They adopted a new constitution and changed election laws to favor themselves. The Constitutional Court has been stacked with loyalists as have high-level posts encompassing public media outlets, prosecutor general, the National Bank of Hungary and beyond.
This consolidation of power has drastically curbed meaningful scrutiny: Elections are free, but they are not fair; much of the news media is controlled by allies of the governing party; the opposition in Parliament is small and has no practical power.
Poland’s judicial overhaul, coming under the guise of a push to exorcise remnants of the Communist-era system, has also drawn criticism from the European Commission, which sees interference with judicial independence.
The battle over the rule of law conditionality comes as Poland is being rocked by a surge in coronavirus cases, as well as a growing protest movement over women’s rights.
Laurent Pech, a professor of the European Law at Middlesex University in London said both countries were following “the same blueprint to undermine checks and balances of power.”
“It starts with capturing the constitutional court, then taking control of the public media, the prosecutor services and the police, usually concluding with a revision of the electoral code,” he said.
As a result, Mr. Pech said, Hungary is now “an electoral autocracy,” with Poland, where the governing party faces more resistance, not far behind.
Since coming to power, Poland’s nationalist-conservative government has taken control of the constitutional tribunal, put the prosecutor’s office under the authority of the Justice Ministry, and set up a new disciplinary regime for judges.
The European Court of Justice has ordered the suspension of that disciplinary body, but in recent months, it has stripped immunity and cut the salaries of two judges who had been critical of the government.
The European Commission has brought several cases against both Hungary and Poland, mostly relating to the overhauls and management of the judiciary. But the process is slow, requiring dozens of people to be dedicated to a case over several months. In some cases, the court’s ruling comes too late.
The Commission and Parliament have advanced cases against Poland and Hungary over serious breaches of E.U. values. The ultimate penalty is a removal of voting rights, but no progress has been made in either case.
A key node in the process lies with the grouping of member state leaders, known as the European Council, where Mr. Orban and Prime Minister Mateusz Morawiecki of Poland have occasional allies, chief among them Chancellor Angela Merkel of Germany.
The mistrust generated among citizens and governments in some of the wealthier and more mature democracies is a fresh threat to the bloc’s unity. The so-called frugal nations, which are net contributors to the budget, are leading the charge against Poland and Hungary’s push to skirt scrutiny.
Recent research suggests that citizens in Denmark, Finland, the Netherlands and Sweden are not bothered by their nations’ big contributions to E.U. spending, but feel that some of the receiving countries did not have necessary checks and balances to ensure sound spending. Another poll found that more than 70 percent of E.U. citizens, including those in Poland and Hungary, want rule-of-law checks for fund disbursement.
That pressure is strong in the Netherlands, the most vocal critic of the Polish and Hungarian position, where Prime Minister Mark Rutte faces elections in March.
And while the acutest issues are in Poland and Hungary, rule-of-law problems lurk in several other states, giving rise to concerns that appeasing Warsaw and Budapest might enable more violations elsewhere.
“You can understand the importance of the rule of law when it is gone,” Mr. Pech said. “When you have it, it is much more difficult to value it.”
Matina Stevis-Gridneff and Monika Pronczuk reported from Brussels, and Benjamin Novak from Budapest.