BRUSSELS (BLOOMBERG) - The European Union (EU) has fired off warning letters to Hungary and Poland, kick-starting a process that could eventually deny the duo billions of euros under a controversial new tool to punish nations violating the bloc's sacred rule-of-law standards.
The European Commission on Friday (Nov 26) wrote to Budapest and Warsaw asking for their response to reports that funds provided by the bloc could have been subjected to corruption or fraud.
"Hungary and Poland have now two months to send the requested information," the EU's executive said in an e-mailed statement.
Friday's move marks the first informal step towards triggering the so-called conditionality mechanism, which is being challenged by Hungary and Poland at the bloc's top court.
The EU has been hinting for weeks it may wield the new tool to withhold payments from its budget - as well as a €750 billion (S$1 trillion) pandemic recovery package - to member states accused of democratic backsliding.
The mechanism is one of the EU's most powerful tools to address rule-of-law violations.
But the commission's concerns over the situation in the two nations have already convinced it to withhold approval of Poland's and Hungary's recovery plans, which is needed to unlock stimulus funds from the pandemic package.
If the two countries were to miss out on the stimulus funds - either by the commission not approving their plans or because of the conditionality mechanism - Poland would forfeit some €36 billion in recovery money and Hungary €7.2 billion.
Commission President Ursula von der Leyen said last month that "no measures will be taken" before a ruling from the bloc's top court on the pending challenges from Poland and Hungary questioning the legality of the EU's new powers.
Instead, she said the commission could "send letters to ask for information or questions that are necessary to be asked", falling short of triggering the mechanism formally. The EU court's ruling is expected by early next year.
The EU has for years been battling against Poland and Hungary over numerous issues, from the rule of law to climate policy, that have so far led to little by way of concrete punishment.
The pair are the only two EU states subject to a so-called Article 7 procedure, which could lead to the suspension of their EU voting rights.
Poland's top court last month put the commission in an even more difficult spot when it ruled that some EU laws are incompatible with the country's Constitution, undermining a cornerstone of EU membership.
Hungarian Prime Minister Viktor Orban's government has also decided to ask its Constitutional Court to review an EU court ruling related to migration, which EU Justice Commissioner Didier Reynders said was "unacceptable".