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Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16. December 2020 on a general conditionality regime for the protection of the Union budget (short: the Conditionality Regulation) is an EU regulation that sets out the rules necessary to protect the Union budget in the event of breaches of the principles of the rule of law in the Member States.

If, in an EU Member State, the value of the Union enshrined in the TEU is violated and sufficiently directly affects the economic management of the Union budget or the protection of its financial interests, the Council of the European Union may, on a proposal from the Commission, decide on financial penalties against the Member State.

Origin of the Regulation
In May 2018, the European Commission initiated a legislative procedure on the protection of the Union budget in the event of generalised deficiencies regarding the rule of law in the Member States.

The proposal defined general shortcomings with regard to the rule of law and opened up the possibility for the Commission, in the event of breaches of the rule of law, to impose cuts on individual states from the European Funds if this would jeopardise the proper implementation of the EU budget. In the European Parliament, the proposal was negotiated by the Budget Committee (BUDG) and the Committee on Budgetary Control (CONT).

On 13 November 2019, the European Parliament opened interinstitutional negotiations with the European Council and the Commission. The following year, MEPs managed to reach agreement with the Council on the rule of law conditionality. It should apply not only to cases of corruption or fraud, but also to fundamental EU values such as freedom, democracy and equality. Under this new proposal, the Council would adopt the measures by qualified majority.

On 19 November 2020, Hungary, Poland and Slovenia rejected the rule of law mechanism in the Council and threatened to veto the entire budget package. Slovenia returns later.

On 10 December 2020, the institutions reached an agreement behind closed doors: In order for Hungary and Poland to agree to the creation of the mechanism, the Commission stated that it did not want to trigger the mechanism as long as a lawsuit against its legality is pending before the ECJ. This would likely drag the application of the mechanism for up to two years.

Parliament adopted the final version of the text during the December plenary session on 16. December 2020.

The Regulation entered into force on 1 January 2021.

Conditional mechanism

Application delays
So far, the Commission has not applied the mechanism because of the agreement reached with Poland and Hungary, although there are sufficient reasons to apply it