The European Union released its second annual report on the rule of law in EU member states last week, targeting Hungary and Poland for harsh criticism.

“The risks of patronage, favoritism and nepotism” are not addressed in the first case, the report reads, while the independence of the judiciary and political pressure on the media are a concern in both cases. .

In a sense, this harsh rhetoric has only served to highlight the EU’s failure to meaningfully confront these illiberal regimes and push them to change course.

But recent signs indicate that Brussels is ready to challenge the budding authoritarians within it by hitting their wallets. Both countries have seen their proposals for EU grants from the bloc’s € 750 billion coronavirus recovery fund blocked in recent weeks, and more punitive measures may be underway.

The EU has fought for years against the Hungarian and Polish governments due to the erosion of their judicial and media independence, as well as alleged violations of the rights of minorities and migrants. However, the bloc’s structure leaves the European Commission, the EU’s executive arm, little political or legal clout.

Its first legal tool was a procedure known as an infringement procedure, whereby the commission formally notifies the country in question that it must come into compliance with EU law, or face dismissal. before the European Court of Justice. However, this tool is largely designed for minor or even accidental problems, and it has proven largely ineffective in dealing with Member States deliberately challenging the pillars of the bloc.

Brussels sought to fill this void by launching its “nuclear option”: invoke Article 7 of the Treaty on European Union, which could deprive member states of certain rights within the EU. However, this option requires a unanimous vote of member states, and with Budapest and Warsaw supporting each other, it has also proved ineffective.

Faced with the impasse, some voices in Brussels have argued that the real “nuclear option” of the EU is to withhold part of the budgetary funds it provides to these countries. EU leaders have so far been reluctant to do so, reportedly fearing to stir up anti-EU sentiment in the bloc. But recent measures taken by the Hungarian and Polish governments have provoked furious reactions from European leaders, suggesting that the Union may be ready to use its ultimate weapon.

First, the Hungarian parliament, controlled by Prime Minister Viktor Orban’s Fidesz party, adopted a law at the end of June that resembles Russia’s ban on LGBT “propaganda” and links homosexuality to pedophilia.

There is growing concern in Brussels that illiberal regimes are starting to threaten the very survival of the bloc.

EU leaders’ responses to his decision fell far short of the usual statements of “concern”, with European Commission President Ursula von der Leyen calling the legislation “shameful”. At a European summit last month, Orban was told by some of his Western European counterparts that Hungary should leave the EU if it does not want to uphold the bloc’s core values.

Then, in mid-July, the Polish Constitutional Court ruled that the country did not have to comply with an order of the European Court of Justice to overturn the government’s judicial reforms, a direct challenge to the rule of law of the EU in the Member States. In response, Brussels told Warsaw it had to respond within a week and implement the decision by mid-August.

The tight deadline and firm demand were at odds with the committee’s usual conciliatory approach and seemed to focus some minds in Warsaw. Four days later, Prime Minister Mateusz Morawiecki said his government’s “judicial reforms fell short of expectations”.

If Brussels is finally ready to step up, the question remains: why now?

One notable factor is that a few months ago Orban lost the protection of the largest political group in the European Parliament, the European People’s Party, when Fidesz withdrew from it.

Some analysts suggest that Brussels is also simply weary of the growing abuses of the rule of law in Hungary and Poland, and aware that years of negotiations have produced little results. This frustration is felt all the more keenly as the EU is preparing to start distributing billions of euros in subsidies within the framework of the 2021-2028 budget that it adopted last year.

“The problems have piled up,” said R. Daniel Kelemen, expert on EU policy and law at Rutgers University, “and the EU is about to open its checkbook.”

There is also growing concern in Brussels that illiberal regimes are starting to threaten the very survival of the bloc.

“If we find more countries like this that insist on damaging … the European Union, it could simply mean the end of this organization,” warned Donald Tusk, former President of the European Council and former Polish Prime Minister. Tusk’s remarks came as he returned home to prepare to challenge the ruling populist Law & Justice, or PiS, in the election due in 2023.

Given the weaknesses of Brussels’ legal and political position, it has become increasingly evident over the years that its only real lever is financial. In fact, the EU is now in the perverse position of providing billions of euros to governments who use these funds to consolidate their political power, even as they abuse the democratic norms and values ​​of the bloc.

Under the last EU budget, Poland received 86 billion euros, or around 101 billion dollars, making it the biggest net beneficiary of the bloc. Hungary received 22 billion euros.

The committee finally sought to move forward on this last year, proposing a “rule of law mechanism” during budget negotiations that would allow it to cut funding to member states that flout the rule of law. The potential impact was made immediately and abundantly clear when Hungary and Poland threatened to veto the entire € 1.8 trillion budget.

The conditionality mechanism was finally adopted in a watered-down version. But a challenge to its constitutionality has left Budapest and Warsaw with a potential delay in implementing the mechanism, with Brussels agreeing to take a break until the EU’s highest court has considered their complaints, a process that could take until October. Nonetheless, Brussels is starting to seem keen to give this leverage a try before the court ruling. Already, the committee has delayed approval of Hungary’s request for € 7.2 billion in grants under the EU’s coronavirus recovery fund.

In remarks to a Hungarian news site, EU Justice Commissioner Didier Reynders appeared to confirm the intention to tie funds to EU concerns over judicial independence and corruption. “It is no longer a question of prevention but of sanctions,” he said.

The Fidesz government reacted with fury, with Justice Minister Judit Varga claiming that Brussels “blackmailed” its country.

Poland’s stimulus package, amounting to 24 billion euros in grants plus 12 billion in additional loans, has also been delayed, with Brussels demanding better control and audit systems for the funds.

Officially, the commission maintains that relief funds and rule of law issues are not linked. “The assessment of the recovery and resilience plans of Poland and Hungary and… the infringement procedures are two separate and parallel processes,” a spokesperson for the committee told WPR.

But like Reynders, von der Leyen made it clear the committee’s new desire to use its financial weight as leverage over member states.

For example, during a visit to Prague on July 18, she announced that the Czech stimulus fund plan had been approved, but she also told populist Prime Minister Andre Babis that Brussels would not hand over any cash until that the First Billionaire resolves the deep conflict of interest. that the EU has identified concerning the subsidies paid to his company, the agricultural and food conglomerate Agrofert.

Now, some advocates are hoping the delays in clawback funds could be a dress rehearsal for the rule of law mechanism to kick off. While Hungary and Poland contested the tool, Brussels also came under increasing pressure from some quarters to immediately trigger the mechanism. In March, the European Parliament launched a lawsuit against the commission in an attempt to force its hand.

“Cutting funds for Warsaw and Budapest is the most effective (if not the only) way to stop Poland and Hungary’s path to authoritarianism. tweeted MEP Daniel Freund following the publication of the rule of law report.

Kelemen, who co-wrote a recent European Parliament report saying there is no legal basis for waiting for the mechanism to trigger, said the committee looks set to toughen up. But, he warned, the jury is still out.

“We may be at a crossroads,” he said, “but it’s too early to tell. We have had so many disappointments over the years.

Tim Gosling is a Prague-based journalist who has covered the Central European region for several years. He has contributed to Politico Europe, Deutsche Welle and the Financial Times, among other publications, and has also provided analysis on the region for the Economist Intelligence Unit and IHS Markit.