OPINION OF ADVOCATE GENERAL

CAMPOS SÁNCHEZ-BORDONA

delivered on 2 December 2021 ( 1 )

Case C‑156/21

Hungary

v

European Parliament and

Council of the European Union

(Action for annulment – Article 151(1) of the Rules of Procedure of the Court of Justice – Preliminary issue – Request for the removal of a document – Opinion of the Council Legal Service – Regulation (EU, Euratom) 2020/2092 – General regime of conditionality for the protection of the Union budget – Protection of the Union budget in the case of breaches of the principles of the rule of law in a Member State – Legal basis of Regulation 2020/2092 – Article 322(1)(a) TFEU – Infringement of Article 7 TEU and Article 269 TFEU – Infringement of Article 4(1), Article 5(2) and Article 13(2) TEU – Principle of legal certainty – Principle of equal treatment between Member States – Principle of proportionality)

1. In this action, ( 2 ) brought pursuant to Article 263 TFEU, Hungary asks the Court, in its principal claim, to annul Regulation (EU, Euratom) 2020/2092 ( 3 ) or, in the alternative, to annul certain articles of that regulation.

2. In the present case, the constitutional importance of which is undeniable, the Court must determine whether Regulation 2020/2092, which introduces a mechanism to protect the Union budget against breaches of the principles of the rule of law by Member States relating to the implementation of the Union budget, was adopted on an appropriate legal basis and whether it is compatible with various provisions of primary law, in particular Article 7 TEU.

3. The Court has decided to assign the case to the full Court, as the appropriate formation to hear cases of ‘exceptional importance’ (Article 16 of the Statute of the Court of Justice of the European Union).

I. Legal framework

A. Primary law

4. Article 7 TEU provides as follows: ‘1. On a reasoned proposal by one third of the Member States, by the European Parliament or by the European Commission, the Council, acting by a majority of four fifths of its members after obtaining the consent of the European Parliament, may determine that there is a clear risk of a serious breach by a Member State of the values referred to in Article 2. Before making such a determination, the Council shall hear the Member State in question and may address recommendations to it, acting in accordance with the same procedure. The Council shall regularly verify that the grounds on which such a determination was made continue to apply. 2. The European Council, acting by unanimity on a proposal by one third of the Member States or by the Commission and after obtaining the consent of the European Parliament, may determine the existence of a serious and persistent breach by a Member State of the values referred to in Article 2, after inviting the Member State in question to submit its observations. 3. Where a determination under paragraph 2 has been made, the Council, acting by a qualified majority, may decide to suspend certain of the rights deriving from the application of the Treaties to the Member State in question, including the voting rights of the representative of the government of that Member State in the Council. In doing so, the Council shall take into account the possible consequences of such a suspension on the rights and obligations of natural and legal persons. The obligations of the Member State in question under the Treaties shall in any case continue to be binding on that State. 4. The Council, acting by a qualified majority, may decide subsequently to vary or revoke measures taken under paragraph 3 in response to changes in the situation which led to their being imposed. 5. The voting arrangements applying to the European Parliament, the European Council and the Council for the purposes of this Article are laid down in Article 354 [TFEU].’

5. According to Article 269 TFEU: ‘The Court of Justice shall have jurisdiction to decide on the legality of an act adopted by the European Council or by the Council pursuant to Article 7 [TEU], solely at the request of the Member State concerned by a determination of the European Council or of the Council and in respect solely of the procedural stipulations contained in that Article. Such a request must be made within one month from the date of such determination. The Court shall rule within one month from the date of the request.’

6. Article 322(1)(a) TFEU provides that: ‘The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, and after consulting the Court of Auditors, shall adopt by means of regulations: (a) the financial rules which determine in particular the procedure to be adopted for establishing and implementing the budget and for presenting and auditing accounts’.

B. Regulation 2020/2092

7. Article 1 (‘Subject matter’) provides that: ‘This Regulation establishes the rules necessary for the protection of the Union budget in the case of breaches of the principles of the rule of law in the Member States.’

8. According to Article 2 (‘Definitions’): ‘For the purposes of this Regulation, the following definitions apply: (a) “the rule of law” refers to the Union value enshrined in Article 2 TEU. It includes the principles of legality implying a transparent, accountable, democratic and pluralistic law-making process; legal certainty; prohibition of arbitrariness of the executive powers; effective judicial protection, including access to justice, by independent and impartial courts, also as regards fundamental rights; separation of powers; and non-discrimination and equality before the law. The rule of law shall be understood having regard to the other Union values and principles enshrined in Article 2 TEU; …’

9. Article 3 (‘Breaches of the principles of the rule of law’) stipulates as follows: ‘For the purposes of this Regulation, the following may be indicative of breaches of the principles of the rule of law: (a) endangering the independence of the judiciary; (b) failing to prevent, correct or sanction arbitrary or unlawful decisions by public authorities, including by law-enforcement authorities, withholding financial and human resources affecting their proper functioning or failing to ensure the absence of conflicts of interest; (c) limiting the availability and effectiveness of legal remedies, including through restrictive procedural rules and lack of implementation of judgments, or limiting the effective investigation, prosecution or sanctioning of breaches of law.’

10. Article 4 (‘Conditions for the adoption of measures’) provides as follows: ‘1. Appropriate measures shall be taken where it is established in accordance with Article 6 that breaches of the principles of the rule of law in a Member State affect or seriously risk affecting the sound financial management of the Union budget or the protection of the financial interests of the Union in a sufficiently direct way. 2. For the purposes of this Regulation, breaches of the principles of the rule of law shall concern one or more of the following: (a) the proper functioning of the authorities implementing the Union budget, including loans and other instruments guaranteed by the Union budget, in particular in the context of public procurement or grant procedures; (b) the proper functioning of the authorities carrying out financial control, monitoring and audit, and the proper functioning of effective and transparent financial management and accountability systems; (c) the proper functioning of investigation and public prosecution services in relation to the investigation and prosecution of fraud, including tax fraud, corruption or other breaches of Union law relating to the implementation of the Union budget or to the protection of the financial interests of the Union; (d) the effective judicial review by independent courts of actions or omissions by the authorities referred to in points (a), (b) and (c); (e) the prevention and sanctioning of fraud, including tax fraud, corruption or other breaches of Union law relating to the implementation of the Union budget or to the protection of the financial interests of the Union, and the imposition of effective and dissuasive penalties on recipients by national courts or by administrative authorities; (f) the recovery of funds unduly paid; (g) effective and timely cooperation with [the European Anti-Fraud Office (OLAF)] and, subject to the participation of the Member State concerned, with [the European Public Prosecutor’s Office (EPPO)] in their investigations or prosecutions pursuant to the applicable Union acts in accordance with the principle of sincere cooperation; (h) other situations or conduct of authorities that are relevant to the sound financial management of the Union budget or the protection of the financial interests of the Union.’

11. Article 5 (‘Measures for the protection of the Union budget’) states: ‘1. Provided that the conditions set out in Article 4 of this Regulation are fulfilled, one or more of the following appropriate measures may be adopted in accordance with the procedure set out in Article 6 of this Regulation: … (b) where the Commission implements the Union budget under shared management with Member States pursuant to point (b) of Article 62(1) of the Financial Regulation: (i) a suspension of the approval of one or more programmes or an amendment thereof; (ii) a suspension of commitments; (iii) a reduction of commitments, including through financial corrections or transfers to other spending programmes; (iv) a reduction of pre-financing; (v) an interruption of payment deadlines; (vi) a suspension of payments. 2. Unless the decision adopting the measures provides otherwise, the imposition of appropriate measures shall not affect the obligations of government entities referred to in point (a) of paragraph 1 or of Member States referred to in point (b) of paragraph 1 to implement the programme or fund affected by the measure, and in particular the obligations they have towards final recipients or beneficiaries, including the obligation to make payments under this Regulation and the applicable sector-specific or financial rules. When implementing Union funds under shared management, Member States concerned by measures adopted pursuant to this Regulation shall report to the Commission on their compliance with those obligations every three months from the adoption of those measures. The Commission shall verify whether applicable law has been complied with and, where necessary, take all appropriate measures to protect the Union budget, in line with sector-specific and financial rules. 3. The measures taken shall be proportionate. They shall be determined in light of the actual or potential impact of the breaches of the principles of the rule of law on the sound financial management of the Union budget or the financial interests of the Union. The nature, duration, gravity and scope of the breaches of the principles of the rule of law shall be duly taken into account. The measures shall, in so far as possible, target the Union actions affected by the breaches. 4. The Commission shall provide information and guidance for the benefit of final recipients or beneficiaries on the obligations by Member States referred to in paragraph 2 via a website or an internet portal. The Commission shall also provide, on the same website or internet portal, adequate tools for final recipients or beneficiaries to inform the Commission about any breach of these obligations that, in the view of these final recipients or beneficiaries, directly affects them … 5. On the basis of the information provided by the final recipients or beneficiaries in accordance with paragraph 4 of this Article, the Commission shall do its utmost to ensure that any amount due from government entities or Member States as referred to in paragraph 2 of this Article is effectively paid to final recipients or beneficiaries …’

12. Article 6 (‘Procedure’) provides: ‘1. Where the Commission finds that it has reasonable grounds to consider that the conditions set out in Article 4 are fulfilled, it shall, unless it considers that other procedures set out in Union legislation would allow it to protect the Union budget more effectively, send a written notification to the Member State concerned, setting out the factual elements and specific grounds on which it based its findings. The Commission shall inform the European Parliament and the Council without delay of such notification and its content. … 9. Where the Commission considers that the conditions of Article 4 are fulfilled and that the remedial measures, if any, proposed by the Member State under paragraph 5 do not adequately address the findings in the Commission’s notification, it shall submit a proposal for an implementing decision on the appropriate measures to the Council within one month of receiving the Member State’s observations or, in the event that no observations are made, without undue delay and in any case within one month of the deadline set in paragraph 7. The proposal shall set out the specific grounds and evidence on which the Commission based its findings. 10. The Council shall adopt the implementing decision referred to in paragraph 9 of this Article within one month of receiving the Commission’s proposal. If exceptional circumstances arise, the period for the adoption of that implementing decision may be extended by a maximum of two months. With a view to ensuring a timely decision, the Commission shall make use of its rights under Article 237 TFEU, where it deems it appropriate. 11. The Council, acting by a qualified majority, may amend the Commission’s proposal and adopt the amended text by means of an implementing decision.’

C. Regulation (EC) No 1049/2001 ( 4 )

13. Article 4 (‘Exceptions’) states: ‘… 2. The institutions shall refuse access to a document where disclosure would undermine the protection of: … – court proceedings and legal advice, … unless there is an overriding public interest in disclosure. 3. Access to a document, drawn up by an institution for internal use or received by an institution, which relates to a matter where the decision has not been taken by the institution, shall be refused if disclosure of the document would seriously undermine the institution’s decision-making process, unless there is an overriding public interest in disclosure. Access to a document containing opinions for internal use as part of deliberations and preliminary consultations within the institution concerned shall be refused even after the decision has been taken if disclosure of the document would seriously undermine the institution’s decision-making process, unless there is an overriding public interest in disclosure. …’

II. Proceedings before the Court of Justice

14. In its application, Hungary claims that the Court should: ( 5 ) – Annul Regulation 2020/2092 on a general regime of conditionality for the protection of the Union budget. – In the alternative, annul the following articles of Regulation 2020/2092: Article 4(1); Article 4(2)(h); Article 5(2); Article 5(3), penultimate and final sentences; and Article 6(3) and (8). – Order the European Parliament and the Council of the European Union to pay the costs.

15. The Parliament and the Council ask the Court to dismiss the action and to order Hungary to pay the costs.

16. On 12 May 2021 the Parliament asked for the case to be heard pursuant to Article 133 of the Rules of Procedure of the Court of Justice (expedited procedure), and on 9 June 2021 the President of the Court granted its request.

17. On 12 May 2021 the Council applied to the Court, pursuant to Article 151(1) of the Rules of Procedure, requesting that the Court disregard certain passages in Hungary’s application and in Annex A.3 thereto, because they reproduced or referred to an unpublished opinion of the Council Legal Service. On 29 June 2021 the Court decided, pursuant to Article 151(5) of the Rules of Procedure, that it would rule on that issue, together with the substance of the case, in the judgment.

18. The following parties appeared at the hearing, which was held before the full Court on 11 and 12 October 2021: Hungary, the Republic of Poland, the European Parliament and the Council, the European Commission and the Governments of the Kingdom of Belgium, the Kingdom of Denmark, the Federal Republic of Germany, Ireland, the Kingdom of Spain, the French Republic, the Grand Duchy of Luxembourg, the Kingdom of the Netherlands, the Republic of Finland and the Kingdom of Sweden.

19. In my Opinion, I shall first address the preliminary issue raised by the Council. I shall then set out the legal context surrounding the drafting and adoption of Regulation 2020/2092. Lastly, I shall examine the nine grounds for annulment relied on by Hungary.

III. Preliminary issue

20. The Council asks the Court ‘to disregard the passages in the application and the annexes thereto, particularly Annex A.3, which refer to, reproduce the content of, or reflect the analysis undertaken in the opinion of the Council Legal Service (Council document 13593/18) [“the opinion”] of 25 October 2018 and, in particular, the passages [in paragraphs 21, 22, 164 and 166]’.

21. Hungary asks the Court to dismiss the Council’s request or, in the alternative, to order it to produce the opinion.

22. I should begin by clarifying that the Council is not seeking the removal of an opinion which, quite simply, Hungary has not included as such in its application. Consequently, it is not possible to talk of removing a document which is not in the case file. As can be seen from the wording of the application made by the Council pursuant to Article 151 of the Rules of Procedure, the Council simply requests that the passages in Hungary’s application and its annexes which reproduce or refer to that opinion be disregarded.

23. All EU Member States and the Commission have the opinion, in their capacity as members of the Council or participants in the legislative procedure that led to the adoption of Regulation 2020/2092.

24. Moreover, the existence of the opinion was revealed by the press, ( 6 ) and its content is available on the internet. Nevertheless, the Council has decided to maintain its confidential nature and has refused certain requests for access submitted pursuant to Regulation No 1049/2001, restricting itself to publishing paragraphs 1 to 8 of the document. ( 7 )

25. A paradoxical situation has therefore arisen in which all parties to these proceedings have lawfully had access to the document, of which only the Court is officially unaware. In those circumstances, the Council’s request is somewhat surprising ( 8 ) and does not correspond to the typical case – of the kind addressed in the Court’s case-law – of a request for the removal of documents produced before the Court.

26. The application by Hungary and its annexes include: – a transcription of a passage from the opinion, in paragraph 4 of the document in Annex 3, entitled Non-paper from Hungary concerning the Commission’s proposal of 9 November 2018, which gave rise to Regulation 2020/2092; – references to the opinion which would appear to reproduce its content, although I am unable to determine whether these are verbatim extracts or have been paraphrased by Hungary (paragraphs 22 and 164 of the application, and paragraphs 2 to 7 and 9 of Annex 3); and – simple references to the opinion, in the context of specific arguments adduced by Hungary (paragraphs 21 and 166 of the application).

27. Before addressing the substance of the preliminary issue, I believe it would be helpful to set out the regulations and the relevant case-law of the Court on access to, disclosure of, and reliance in legal proceedings on documents of EU institutions, especially advice from their legal services.

A. Rules on access to and reliance in legal proceedings on documents of EU institutions

28. Access on the part of natural and legal persons to documents of EU institutions is governed by Regulation No 1049/2001. Its purpose is to ensure the widest possible access and, consequently, Article 2(1) establishes the general principle of a right of access to all EU documents, albeit subject to certain conditions and limits. ( 9 )

29. Article 4 of Regulation No 1049/2001, set out above, establishes the exceptions to the right of access, which are framed by reference to public or private interest. These exceptions include provision to refuse access to documents: – where disclosure would undermine the protection of ‘court proceedings and legal advice, … unless there is an overriding public interest in disclosure’; – drawn up ‘by an institution for internal use or received by an institution, which relates to a matter where the decision has not been taken by the institution, … if disclosure of the document would seriously undermine the institution's decision-making process, unless there is an overriding public interest in disclosure’.

30. Regulation No 1049/2001 applies only to access requests by natural and legal persons, not by Member States. Where legislative acts of the Council are concerned, naturally, Member States have at their disposal the documents generated by the Council.

31. However, when it comes to disclosing or releasing restricted documents, Member States must request authorisation for which, in the case of the Council, provision is made in its rules of procedure. ( 10 ) Annex II to those rules contains the specific provisions governing public access to Council documents, which refer to Regulation No 1049/2001. ( 11 )

32. The reference to the rules in Regulation No 1049/2001 is supplemented by guidelines for the handling of documents internal to the Council. ( 12 ) Paragraph 5 of the guidelines states that documents marked ‘LIMITE’ are deemed covered by the obligation of professional secrecy in accordance with Article 339 TFEU and Article 6(1) of the Council’s Rules of Procedure, and must also be handled in compliance with the relevant EU legislation, in particular Regulation No 1049/2001.

33. With regard to access to ‘LIMITE’ documents, under paragraphs 20 to 22 of the Council guidelines, disclosure is subject to prior authorisation by the Council. ( 13 )

B. Case-law concerning, in particular, access to advice of the institutions’ legal services and reliance on such advice in legal proceedings

34. For the most part, the case-law of the Court has been developed in cases involving requests by natural and legal persons for access to documents from the institutions which have been refused.

35. In that case-law, the Court has applied and interpreted Regulation No 1049/2001, specifically as regards requests for access to legal advice of the European Union’s institutions. That regulation has a ‘certain indicative value for the purpose of the weighing up of interests that is required in order to rule’ on requests for the removal of documents in a case before the Court. ( 14 )

36. According to the Court, ‘it would be contrary to the public interest [reflected in Article 4 of Regulation No 1049/2001], which requires that the institutions should be able to benefit from the advice of their legal service, given in full independence, to allow such internal documents to be produced in proceedings before the Court unless their production has been authorised by the institution concerned or ordered by the Court …’. ( 15 )

37. Consistent with this approach, the purpose of the exception relating to legal advice laid down in the second indent of Article 4(2) of Regulation No 1049/2001 is ‘to protect an institution’s interest in seeking legal advice and receiving frank, objective and comprehensive advice’. ( 16 )

38. The examination to be undertaken by the Council in applying that exception, which must be interpreted strictly, ( 17 ) takes place in three stages, which are described in detail in the judgment in Sweden and Turco v Council (paragraphs 37 to 47): – ‘First, the Council must satisfy itself that the document which it is asked to disclose does indeed relate to legal advice’. – ‘Second, the Council must examine whether disclosure of the parts of the document in question which have been identified as relating to legal advice “would undermine the protection” of that advice … The risk of that interest being undermined must, in order to be capable of being relied on, be reasonably foreseeable and not purely hypothetical.’ – ‘Third and last, if the Council takes the view that disclosure of a document would undermine the protection of legal advice as defined above, it is incumbent on the Council to ascertain whether there is any overriding public interest justifying disclosure despite the fact that its ability to seek legal advice and receive frank, objective and comprehensive advice would thereby be undermined.’ ( 18 )

39. Throughout this process, regard should be had to the statements of principle established by the Court in the judgment in ClientEarth v Commission: ( 19 ) ‘– Regulation No 1049/2001 reflects the intention expressed in the second paragraph of Article 1 TEU to mark a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as openly as possible and as closely as possible to the citizen. – That core EU objective is also reflected in Article 15(1) TFEU, which provides that the institutions, bodies, offices and agencies of the European Union are to conduct their work as openly as possible, that principle of openness also being expressed in Article 10(3) TEU and in Article 298(1) TFEU, and in the enshrining of the right of access to documents in Article 42 of the Charter of Fundamental Rights of the European Union. – It can be seen from recital 2 of Regulation No 1049/2001 that openness enables the EU institutions to have greater legitimacy and to be more effective and more accountable to EU citizens in a democratic system. By allowing divergences between various points of view to be openly debated, it also contributes to increasing those citizens’ confidence in those institutions’.

40. The requirement for ‘openness’ (transparency) may, however, not be sufficient to justify the retention in the case file of an institution’s advice that has been submitted as part of an appeal if certain risks are present. These include the risk of compelling the institution to ‘take a position publicly on advice that was quite clearly intended for internal use, [which would have] negative consequences for the [institution’s] interest in seeking legal advice and in receiving frank, objective and comprehensive advice’. ( 20 )

41. Moreover, to authorise a document to be retained in the case file, when its disclosure has not been authorised by the institution, would enable the procedure for access requests established in Regulation No 1049/2001 to be circumvented. ( 21 )

42. When it comes to the advice of institutions issued in the context of legislative procedures, the case-law of the Court has established a much broader right of access, and consequently a much greater disclosure obligation.

43. This was made clear in the judgment in Sweden and Turco v Council, when the Court rejected the ‘justifications’ relied on by the Council for excluding an opinion of its legal service relating to a legislative proposal from the case file. The Council had argued that disclosure of this opinion ‘could lead to doubts as to the lawfulness of the legislative act concerned’ and that ‘the independence of its legal service would be compromised’. ( 22 )

44. In replying to those arguments, the Court stated as follows: – As regards the first argument, ‘it is precisely openness in this regard that contributes to conferring greater legitimacy on the institutions in the eyes of European citizens and increasing their confidence in them by allowing divergences between various points of view to be openly debated. It is in fact rather a lack of information and debate which is capable of giving rise to doubts in the minds of citizens, not only as regards the lawfulness of an isolated act, but also as regards the legitimacy of the decision-making process as a whole’. ( 23 ) – As regards the second argument, the claimed risk (of compromising the independence of the legal service) cannot be purely hypothetical, and must not be confused with the possibility of pressure being applied for the purpose of influencing the content of opinions issued by that service. ( 24 )

45. It follows from the above considerations that ‘Regulation No 1049/2001 imposes, in principle, an obligation to disclose the opinions of the Council’s legal service relating to a legislative process’. That finding does not preclude a refusal ‘to disclose a specific legal opinion, given in the context of a legislative process, but being of a particularly sensitive nature or having a particularly wide scope that goes beyond the context of the legislative process in question’. ( 25 )

C. Analysis of the request by the Council

46. The Council’s request should be divided into two parts.

47. The first part relates to the request for the removal of Annex 3 to the application, which contains the Non-paper from Hungary concerning the Commission’s proposal that gave rise to Regulation 2020/2092. The Non-paper contains a verbatim extract from the opinion of the Council Legal Service, as well as references to that opinion which appear to reproduce its content.

48. As the Non-paper from Hungary is a document that was drafted and submitted by Hungary in the course of the legislative procedure used to adopt Regulation 2020/2092, it is not covered by the rules on access to documents of EU institutions.

49. There is therefore nothing to prevent Hungary, as the author of the document, from producing it in proceedings before the Court, in spite of the fact that it quotes, directly or indirectly, from the opinion of the Council Legal Service.

50. In the second part of its application, the Council asks the Court to disregard the passages in the application submitted by Hungary which refer to the opinion, reproduce its content, or reflect the analysis it contains.

51. The only part of the Council’s request which could, hypothetically, be granted is the part concerning the reproduction of the content of the opinion, not the points in Hungary’s application which simply happen to coincide with that opinion. A Member State which challenges the validity of a legislative act of the European Union is fully entitled to defend its views, irrespective of whether they coincide with the content of documents prepared in the course of the procedure leading to the adoption of that act.

52. If Hungary had applied to the Council for access to the opinion, the case could in principle be addressed under the Council’s Rules of Procedure, Article 6(2) of which states that the Council may authorise‘the production for use in legal proceedings of a copy of or an extract from Council documents which have not already been released to the public in accordance with the provisions on public access to documents’.

53. For Council documents marked ‘LIMITE’, as in this case, paragraph 5 of the guidelines for the handling of documents internal to the Council, which I referred to above, states that such documents are deemed covered by the obligation of professional secrecy in accordance with Article 339 TFEU and Article 6(1) of the Council’s Rules of Procedure, and must also be handled in compliance with the relevant EU legislation, in particular Regulation No 1049/2001. With regard to access to ‘LIMITE’ documents, paragraphs 20 to 21 of the Council guidelines stipulate that disclosure is subject to prior authorisation by the Council.

54. Hungary would have required that same prior authorisation by the Council in order to include the opinion at issue as an annex to its application, because it is a document marked ‘LIMITE’, to which the Council has given only a very limited circulation and for which it has refused several access requests from private individuals. ( 26 ) As I have already argued, if blanket authorisation were given for documents to be produced in legal proceedings when their disclosure had not been authorised by the institution, the procedure for access requests established in Regulation No 1049/2001 would be easily circumvented. ( 27 )

55. In short, in deciding on this preliminary issue, whatever approach is taken, the key point is the case-law of the Court on the inclusion of legal advice prepared in the context of a legislative process, which requires the three-stage examination I referred to above. ( 28 )

56. As regards the first stage of that examination, there is no doubt that the document concerns legal advice (from the Council Legal Service), and this is not disputed by the parties.

57. In the second stage of the examination one has to assess whether disclosure of that specific advice entails a risk that is reasonably foreseeable and not purely hypothetical to protection of the Council’s legal advice.

58. For the purposes of assessing whether there is such a risk in this case, I shall accept the premiss that Hungary would have required authorisation by the Council to produce the advice in the proceedings before the Court.

59. In my view, such authorisation would also be required in order for it to include in its application verbatim extracts from a document marked ‘LIMITE’, to which the Council restricts access, as in the present case, if, in practice, those extracts would reveal the full content of the document or its substance.

60. Without prior authorisation by the Council, the Member State would be able to evade this requirement in order to disclose confidential Council documents and produce them in proceedings: it would simply need to include the content of the documents in its application instead of appending the documents themselves as documentary evidence.

61. In the light of the above considerations, the following circumstances may be relevant: – Apart from the first eight paragraphs of the opinion, which are purely explanatory rather than analytic, and which have been made public, the opinion is an internal document marked ‘LIMITE’, which is covered by the requirement for professional secrecy. – Hungary is in possession of the text of the opinion legally, in its capacity as a Member State. It therefore obtained the text without evading the procedure in the Council’s Rules of Procedure. Article 5 of Annex II to those rules indeed provides that Member States must apply to the Council for access to documents, but that formality applies only to documents not in their possession. – The Council has not been required to adopt a public position on its legal service’s opinion, since it has been able to reply to Hungary’s application without needing to give an explicit assessment of the opinion. ( 29 ) – ‘Production for use in legal proceedings’ cannot be taken to mean purely circumstantial references in the application to passages from the opinion. Only if the references were so extensive as to equate to unauthorised disclosure of the opinion itself would it be possible to argue that there was an attempt to evade the mandatory requirement for authorisation by the Council. – As I have already said, Hungary is fully entitled to submit its legal arguments, however similar they are to those of the Council Legal Service, which are known to that Member State because it took part in the process of drawing up Regulation 2020/2092.

62. I do not, therefore, believe there is a risk that is reasonably foreseeable and not purely hypothetical to protection of the Council’s legal advice. But if there were such a risk and the second stage of the examination were satisfied, one would still have to consider, in the third stage, whether there is an overriding public interest which justifies the retention in the case file of the direct or indirect references to passages of the opinion by the Council Legal Service.

63. For the reasons I shall set out below, there is such an overriding public interest in this case, irrespective of any private interest on the part of Hungary in having the Council’s request refused and retaining the references to the opinion, which support its argument on the (alleged) invalidity of Regulation 2020/2092.

64. The overriding interest which, in this case, would justify reliance on the passages from the Council Legal Service opinion in the proceedings and their disclosure is the transparency of the legislative process.

65. It should be recalled that access to documents of the Council when acting in its legislative capacity increases the transparency and openness of the legislative process and strengthens democracy, by allowing citizens to scrutinise all the information which has formed the basis of a legislative act. ( 30 )

66. Moreover, in the context of a transparent legislative process, all well-founded legal opinions, whether for or against a particular proposal, which provide the co-legislators (who are ultimately responsible for the decision) and citizens in general with the essential information on which to base an assessment of that proposal should be welcomed.

67. This is possible only if the legal opinions that have been expressed are made public, which is precisely what ‘contributes to conferring greater legitimacy on the institutions in the eyes of European citizens and increasing their confidence in them by allowing divergences between various points of view to be openly debated’. ( 31 )

68. On the basis of these reflections, with which I am in complete agreement, the Court has determined that there is, in principle, an obligation to disclose legal advice relating to a legislative process. ( 32 ) The other side of this obligation is that there is no ‘general need for confidentiality’ in respect of that advice. ( 33 )

69. However, the obligation is not absolute. Specifically, it ‘does not preclude a refusal, on account of the protection of legal advice, to disclose a specific legal opinion, given in the context of a legislative process, but being of a particularly sensitive nature or having a particularly wide scope that goes beyond the context of the legislative process in question’. ( 34 )

70. The opinion at issue here was prepared in the context of the legislative process leading to the adoption of Regulation 2020/2092. In my view, the Council has failed to show that the opinion was ‘particularly sensitive’, although the regulation is undeniably of great importance for the European Union and its Member States.

71. It is the content of the legal opinion which must be of a particularly sensitive nature. From that perspective, while an opinion may address an important legislative measure, it can be considered sensitive only if contains information of a particularly delicate nature (for example, on confidential or secret matters), but not if it merely contains an assessment of questions of interpretation of the Treaties, such as issues concerning the legal bases for the measure.

72. In my view, the Council has also failed to demonstrate that the opinion has a ‘particularly wide scope that goes beyond the context of the legislative process in question’.

73. While this expression in the judgment in Sweden and Turco v Council is not overly clear (since, in principle, legal opinions on a legislative proposal are limited to an examination of the validity or defects of the proposal, and do not extend further), I interpret it as referring to opinions which go beyond the content of the legislation which may potentially be subject to challenge and which are therefore not relevant to the judicial proceedings in which their production is sought.

74. Consequently, in this case the transparency of the legislative process must take precedence over the hypothetical risk that the Council’s legal advice will not be duly protected (which has not been proven) or that the Council Legal Service will be hindered in providing advice that is ‘frank, objective and comprehensive’; ( 35 ) those characteristics are, in any event, ensured by the professionalism of the members of the legal service and must be safeguarded by the Council.

75. Having regard to all the above considerations, I propose that the Court should dismiss the Council’s application on a preliminary issue.

IV. Regulation 2020/2092: navigating between financial conditionality and safeguarding the rule of law

76. To arrive at a better understanding of the conditionality mechanism in Regulation 2020/2092 we need to consider: (a) the legislative procedure used to adopt the regulation, and (b) similar mechanisms already established in EU law, to which the mechanism introduced by that regulation is now added.

A. The legislative procedure used to adopt Regulation 2020/2092

77. The drafting of Regulation 2020/2092 has been a particularly complex process, and the legislative procedure that was followed helps us to interpret it properly. ( 36 )

78. The regulation has its origins in the European Union’s efforts to improve the means at its disposal for ensuring that Member States respect the principles of the rule of law. This European Union value, enshrined in Article 2 TEU, has been threatened by the recent practices of some Member States, as repeatedly highlighted by the Parliament and the Commission. Some of those Member States are major recipients of EU budgetary funds. ( 37 )

79. The European Union has a limited arsenal of legal instruments available to it in order to confront breaches of the rule of law: – The mechanism in Article 7 TEU provides for the determination of ‘a clear risk of a serious breach by a Member State of the values referred to in Article 2’ or ‘the existence of a serious and persistent breach’ of those values, and the consequences entailed by such a determination. The effectiveness of the mechanism is fettered by the need for a unanimous decision by the European Council in the latter case. – Actions brought by the Commission (Article 258 TFEU) or by another Member State (Article 259 TFEU) for failure to fulfil an obligation provide an opportunity to determine whether a Member State has failed to comply with one of its obligations under the Treaties.

80. In 2014 the Commission adopted a ‘new EU Framework to strengthen the Rule of Law’, designed to ‘ensure an effective and coherent protection of the rule of law in all Member States. It is a framework to address and resolve a situation where there is a systemic threat to the rule of law’. ( 38 )

81. The new framework sought ‘to resolve future threats to the rule of law in Member States before the conditions for activating the mechanisms foreseen in Article 7 TEU would be met. It is therefore meant to fill a gap. It is not an alternative to but rather precedes and complements Article 7 TEU mechanisms’. ( 39 )

82. In 2019, the Commission updated its strategy, creating the European rule of law mechanism. ( 40 ) Based on close dialogue with national authorities and stakeholders, that mechanism brings transparency and covers all Member States on an objective and impartial basis. The Commission uses those data to prepare an annual report containing an assessment of each Member State. ( 41 )

83. In that context, in May 2018 the Commission put forward a proposal for a regulation on the protection of the Union’s budget in case of generalised deficiencies as regards the rule of law in the Member States. ( 42 )

84. The proposal seems to have given rise to some doubt on the part of the Council Legal Service. The Court of Auditors made certain recommendations for improving its content, ( 43 ) having noted that the legal basis for the proposal was doubtful, the criteria were not clearly specified, it gave the Commission very broad discretion, and it avoided the mechanism in Article 7 TEU.

85. After a complex legislative process, the European Council of July 2020 ( 44 ) reached an agreement to approve the Multiannual Financial Framework (‘the MFF’) 2021-2027 and the Next Generation EU Recovery Plan (‘the Next Generation EU plan’). The agreement stated that ‘a regime of conditionality to protect the budget and Next Generation EU will be introduced’.

86. In spite of that agreement, the two co-legislators continued to have different perspectives on what would eventually become Regulation 2020/2092: – The Parliament sought to use the budget to protect the rule of law, whereas the Council wanted to use respect for the requirements of the rule of law as a means to protect the Union budget. – The Parliament argued for a broad application of the regulation, whereas the Council wanted to limit its application, requiring a direct link between breaches of the rule of law and specific negative effects on the Union budget. ( 45 )

87. On 5 November 2020, the two co-legislators reached agreement over the text which, with minor changes, became Regulation 2020/2092, which came into force on 1 January 2021.

88. Hungary and the Republic of Poland opposed the text agreed by the co-legislators and, while they could not veto its adoption, because the legal basis for it is Article 322(1) TFEU, which provides for a qualified majority, they threatened to prevent the adoption of the MFF 2021-2027 and the Next Generation EU plan, which did require the unanimous approval of Member States.

89. The deadlock was broken at the European Council of December 2020, the conclusions of which included a ‘compromise’ on the scope and application of Regulation 2020/2092. ( 46 )

90. While the European Council has no legislative powers in this area, its conclusions reaffirm procedural and substantive guarantees for Member States included in Regulation 2020/2092 and offer an interpretation (which, in view of the source, could be classed as authoritative, although not binding) of the meaning and scope of various of its elements. In any event, I should point out that interpretation of Regulation 2020/2092 is a matter for the Court.

91. In particular, the European Council conclusions state that the new regulation ‘is to be applied in full respect of Article 4(2) TEU, notably the national identities of Member States inherent in their fundamental political and constitutional structures, of the principle of conferral, as well as of the principles of objectivity, non-discrimination and equal treatment of Member States’.

92. The areas of consensus identified by the European Council include, inter alia, the following: ( 47 ) – The objective of the regulation is to protect the Union budget, including the Next Generation EU plan, its sound financial management and the Union’s financial interests. ( 48 ) – The application of the conditionality mechanism under the regulation will be objective, fair, impartial and fact-based, ensuring due process, non-discrimination and equal treatment of Member States. – With a view to ensuring that these principles will be respected, the Commission intends to develop and adopt guidelines on the way it will apply the regulation, including a methodology for carrying out its assessment. Such guidelines will be developed in close consultation with the Member States. Should an action for annulment be introduced with regard to the regulation, the guidelines will be finalised after the judgment of the Court so as to incorporate any relevant elements stemming from such judgment. ( 49 ) – The measures under the mechanism will have to be proportionate to the impact of the breaches of the rule of law on the sound financial management of the Union budget or on the Union’s financial interests. The causal link between such breaches and the negative consequences on the Union’s financial interests will have to be sufficiently direct and be duly established. – The triggering factors set out in the regulation are to be read and applied as a closed list of homogenous elements and not be open to factors or events of a different nature. The regulation does not relate to generalised deficiencies. ( 50 ) – The application of the mechanism will be subsidiary to the other procedures set out in Union law and will be applied where the latter do not provide for the Union budget to be protected more effectively.

93. With this European Council ‘compromise’, Hungary and the Republic of Poland lifted their veto on the MFF and the Next Generation EU plan, and Regulation 2020/2092 was finally adopted by the Council on 14 December and by the Parliament on 16 December 2020. ( 51 )

94. The reduction in the scope of application of Regulation 2020/2092, through the requirement for a ‘sufficiently direct’ link between budget implementation and the breach of the principles of the rule of law has, to some extent, been ‘offset’ by the application of this financial conditionality mechanism to the funds made available by the European Union to the Member States through the Next Generation EU plan, established pursuant to Regulation (EU) 2020/2094. ( 52 ) Regulation 2020/2092 will also apply to both ‘widespread’ and ‘individual’ breaches of the principles of the rule of law. ( 53 )

95. The (non-)application of Regulation 2020/2092 continues, however, to be a source of institutional disputes between the Commission and the Parliament. ( 54 )

B. Financial conditionality mechanisms in EU law

96. The European Union has a budget that provides it with the means necessary to attain its objectives and carry through its policies. Without prejudice to other revenue, the budget is financed from own resources (Article 311 TFEU) in accordance with provisions laid down in a decision of the Council. ( 55 ) The budget is the instrument of EU law which, each year, translates the principle of solidarity ( 56 ) into financial terms and it is of constitutional importance.

97. The income and expenditure of the annual Union budget are determined by the multiannual framework referred to in Article 312 TFEU. The MFF ensures that EU expenditure develops in an orderly manner and within the limits of its own resources. The present applicable framework is the MFF 2021-2027, ( 57 ) which provides for an increase of 0.6% in own resources, together with the funds made available with the adoption of the recovery instrument to tackle the economic consequences of COVID-19. ( 58 )

98. Responsibility for implementing the Union budget rests with the Commission, pursuant to the first paragraph of Article 317 TFEU. It must do so ‘in cooperation with the Member States, in accordance with the provisions of the regulations made pursuant to Article 322 [TFEU], … having regard to the principles of sound financial management. Member States shall cooperate with the Commission to ensure that the appropriations are used in accordance with the principles of sound financial management’. ( 59 )

99. Article 310(6) TFEU provides that ‘the Union and the Member States, in accordance with Article 325, shall counter fraud and any other illegal activities affecting the financial interests of the Union’.

100. The Financial Regulation ( 60 ) establishes that the Commission may implement the Union budget directly, indirectly and under shared management with Member States. In practice, over 70% of the budget is implemented by the Commission under shared management with Member States, in accordance with the stipulations in Article 63 of the Financial Regulation. Under that shared management, the tasks required to implement Union budget funds are delegated to the authorities of Member States, under the oversight of the Commission. ( 61 )

101. It is in this context of shared budget implementation between the Commission and Member States that the conditionality mechanisms in the Financial Regulation and other specific EU rules have emerged.

102. The regimes of conditionality for the protection of good budgetary management reflect a more widespread phenomenon of the use of conditionality both in EU law and in other countries (including countries with federal legal systems) ( 62 ) and in international organisations such as the International Monetary Fund and the World Bank.

103. In EU law, conditionality naturally applies to the accession of new States, subject to compliance with what are known as the Copenhagen criteria, and is standard practice in the European Union’s external relations, where EU development aid is similarly naturally conditional on compliance with human rights requirements. ( 63 )

104. In the field of internal relations between Member States and EU institutions, conditionality has been used, in particular, in instruments of economic and social cohesion and in budget management. ( 64 )

105. Purely by way of example, the following examples of financial conditionality can be found in the new regulation laying down common provisions on structural funds for 2021 to 2027: ( 65 ) – Environmental and climate conditionality, provided for in Article 6 (‘Climate targets and climate adjustment mechanism’) and Article 9(4). – Conditionality based on respect for ‘horizontal principles’ (Article 9) regarding protection of fundamental rights and compliance with the Charter of Fundamental Rights in the implementation of the funds. – Conditionality linked to specific objectives, provided for in Article 15 (‘Enabling conditions’) and in Annex III. ( 66 ) The annex contains ‘horizontal enabling conditions applicable to all specific objectives and the criteria necessary for the assessment of their fulfilment’. It includes effective monitoring mechanisms of the public procurement market; tools and capacity for effective application of State aid rules; effective application and implementation of the Charter of Fundamental Rights; and implementation and application of the United Nations Convention on the rights of persons with disabilities (UNCRPD) in accordance with Council Decision 2010/48/EC. ( 67 ) If these conditions are not met, the Commission may suspend reimbursement of expenditure incurred by the Member State. – Macroeconomic conditionality, provided for in Article 19 (‘Measures linking effectiveness of Funds to sound economic governance’). This provision authorises the Council, acting on a proposal from the Commission, to suspend part or all of the commitments or payments for one or more of the programmes of a Member State: (i) where that Member State does not take sufficient corrective action or fails to act to avoid an excessive imbalance, determined in accordance with Regulation (EU) No 1176/2011; ( 68 ) (ii) where the Commission concludes that the Member State has not taken measures as referred to in Council Regulation (EC) No 332/2002 ( 69 ) and decides not to authorise the disbursement of the financial assistance granted to that Member State; and (iii) where the Council decides that a Member State does not comply with the macroeconomic adjustment programme referred to in Article 7 of Regulation (EU) No 472/2013 ( 70 ) or with the measures requested by a Council decision adopted in accordance with Article 136(1) TFEU.

106. Likewise, Articles 96 and 97 of the Common Provisions Regulation 2021-2027 authorise the Commission, respectively, to interrupt the payment deadline or suspend payments to Member States where there is a serious irregularity or deficiency or there is a reasoned opinion by the Commission in respect of an infringement procedure under Article 258 TFEU on a matter that puts at risk the legality and regularity of expenditure. Under Article 104, the Commission may also make a financial correction after the event, by reducing support from the funds to a programme where this type of situation arises.

107. Conditionality mechanisms are also found in sector-specific rules applicable to EU financial instruments. By way of example, these include the following: – Macroeconomic conditionality, provided for in Article 10 of Regulation (EU) 2021/241 ( 71 ) in similar terms to those of Article 19 of the Common Provisions Regulation 2021-2027. Macroeconomic conditionality for structural funds applies to the Recovery and Resilience Facility, which is the main financial vehicle of the European Union Recovery Instrument, adopted under Regulation 2020/2094 to supplement the MFF and designed to tackle the economic consequences of COVID-19. This facility will be implemented by the Commission under direct management, in accordance with the relevant rules adopted pursuant to Article 322 TFEU, in particular the Financial Regulation and Regulation 2020/2092. – Conditionality to achieve respect for rules on human rights in European integrated border management, provided for in Article 4 of Regulation (EU) 2021/1148. ( 72 ) – Conditionality aimed at respect for human rights and for environmental objectives provided for in Article 4 of Regulation (EU) 2021/1229, which establishes the public sector loan facility under the Just Transition Mechanism. ( 73 ) – Climate and environmental conditionality for direct payments to farmers under support schemes within the framework of the CAP, provided for in Articles 43 to 47 of Regulation (EU) No 1307/2013. ( 74 )

108. While these conditionality mechanisms vary, all share a common logic: eligibility for a payment from the Union budget is conditional on compliance with certain horizontal requirements that are different from and additional to the requirements directly established by the European fund from which the payment is made. ( 75 )

109. The financial conditionality introduced by Regulation 2020/2092 is linked, as far as budget implementation is concerned, to respect for the rule of law, which is ‘essential for the protection of the other fundamental values [in Article 2 TEU]’. ( 76 ) Member States must comply with it, as a horizontal condition, when implementing the Union budget.

110. Financial conditionality establishes a link between solidarity and responsibility. The European Union transfers funds from its budget to Member States provided that the money is spent responsibly, which means spending it in accordance with EU values, such as the rule of law. Only if the budget is implemented in accordance with EU values will there be sufficient mutual trust between Member States when it comes to providing the European Union with the financial resources required to achieve its objectives.

111. We are all conscious that this new dimension to the technique of conditionality has significant repercussions for relations between the European Union and Member States. As a result of the conditionality mechanism, EU institutions have stronger powers to ensure that Member States respect the values of EU law when they participate in the management of the Union budget.

112. However, the use of the technique of financial conditionality in secondary legislation must comply with the requirements of primary law and fall within the European Union’s competence.

113. To date, the case-law of the Court has focused primarily on environmental conditionality applied to direct payments to farmers ( 77 ) and on macroeconomic conditionality, which was viewed favourably in the Pringle judgment. ( 78 )

114. In this latter judgment, the Court considered that conditionality was an appropriate mechanism for ensuring respect for EU law and for measures adopted by EU institutions to coordinate Member State’s economic policies. It also stated that the macroeconomic conditionality provided for in Article 3, Article 12(1) and the first subparagraph of Article 13(3) of the Treaty establishing the European stability mechanism (ESM Treaty) ( 79 ) ensured that the activities of the ESM were compatible with, inter alia, Article 125 TFEU and the coordinating measures adopted by the European Union. ( 80 )

115. This case and Case C‑157/21 provide the Court with an opportunity to develop its case-law on financial conditionality, and to extend it to an instrument used by its institutions to promote respect by Member States for the value of the rule of law enshrined in Article 2 TEU, in order to protect the Union budget.

116. Having set out these considerations, I shall now analyse the various grounds for annulment relied on by the Hungarian Government.

V. First plea in law: there is no legal basis for Regulation 2020/2092 or the legal basis is inappropriate

A. The parties’ arguments

117. According to the Hungarian Government, while Article 322(1)(a) TFEU empowers the EU legislature to adopt financial rules on the implementation of the Union budget, Regulation 2020/2092 does not contain budgetary or financial provisions.

118. Consequently, the legal basis of Regulation 2020/2092 is not correct and the European Union has no power to approve secondary legislation with this content.

119. In its view, Regulation 2020/2092 allows the Commission and the Council to define the notion of the rule of law and the conduct that breaches the requirements imposed by that value of the European Union. The adopted mechanism authorises the imposition of sanctions that affect a Member State’s fundamental structures, over which the European Union has no competence.

120. Article 322 TFEU makes no provision for such actions and is therefore an inappropriate legal basis for Regulation 2020/2092, whose scope of application conflicts with the procedure in Article 7 TEU.

121. The Hungarian Government also sets out the differences between Regulation 2020/2092 and other EU financial and budgetary rules for which the basis is Article 322(1)(a) TFEU.

122. Among the elements of Regulation 2020/2092 that are incompatible with Article 322 TFEU, the Hungarian Government cites, first, conflicts of interests in the allocation of EU funds. Regulation 2020/2092 does not contain any procedural rules for Member States on establishing rules on conflicts of interest and how to avoid them, thus enabling measures to be adopted against Member States on the basis of undefined infringements that go beyond the requirements laid down in the Financial Regulation.

123. Second, it argues that Article 5(2) of Regulation 2020/2092 obliges Member States to use their own funds to finance programmes for which the European Union withdraws funding, in order to protect beneficiaries. This provision is not consistent with the rules for implementing the Union budget and represents a penalty for a Member State that breaches the requirements of the rule of law.

124. According to the Hungarian Government, Article 322 TFEU cannot be used as the basis for imposing obligations on national budgets, as it provides only for the adoption of rules on implementing the Union budget.

125. The Parliament and the Council reject the arguments of the Hungarian Government and consider that Article 322(1)(a) TFEU is the correct legal basis for Regulation 2020/2092. ( 81 )

126. In the view of those two institutions, Regulation 2020/2092 introduces a budgetary (financial) conditionality mechanism that is designed to ensure respect for the requirements of the rule of law, in line with other conditionality mechanisms that already exist within the European Union. This is supported by an analysis of the aim and content of the regulation.

B. Assessment

127. I shall begin by recalling the settled case-law of the Court on the choice of legal bases in primary legislation for the adoption of secondary legislation: ( 82 ) – ‘The choice of legal basis for an EU measure must rest on objective factors that are amenable to judicial review; these include the aim and content of that measure. If examination of the measure concerned reveals that it pursues a twofold purpose or that it has a twofold component and if one of those is identifiable as the main or predominant purpose or component, whereas the other is merely incidental, that measure must be founded on a single legal basis, namely that required by the main or predominant purpose or component’. ( 83 ) – ‘Moreover, … to determine the appropriate legal basis, the legal framework within which new rules are situated may be taken into account, in particular in so far as that framework is capable of shedding light on the purpose of those rules’. ( 84 ) – Once a harmonisation measure has been adopted, ‘the EU legislature cannot be denied the possibility of adapting that act to any change in circumstances or development of knowledge having regard to its task of safeguarding the general interests recognised by the Treaty’. ( 85 )

128. According to that case-law, an analysis of the aim and content of Regulation 2020/2092 will enable us to determine whether Article 322(1)(a) TFEU is the appropriate legal basis for the measure, whether a different legal basis should have been used, or whether the European Union lacks the power to adopt the regulation.

1. The aim of Regulation 2020/2092

129. According to Article 1 of Regulation 2020/2092, the purpose of that regulation is to establish ‘… the rules necessary for the protection of the Union budget in the case of breaches of the principles of the rule of law in the Member States’.

130. Various recitals of Regulation 2020/2092 highlight the link between respect for the rule of law and sound financial management of the Union budget. – Recital 7 states that ‘whenever Member States implement the Union budget, … respect for the rule of law is an essential precondition for compliance with the principles of sound financial management enshrined in Article 317 [TFEU]’. – Recital 8 ( 86 ) declares that sound financial management can only be ensured by Member States if public authorities act in accordance with the law, if cases of fraud are effectively prosecuted and if administrative decisions are subject to effective judicial review. – Recital 9 ( 87 ) highlights the importance of the independence of the judiciary and the criminal investigation services to tackle unlawful and arbitrary decisions of public authorities that could harm the financial interests of the European Union. – Recital 13 emphasises that ‘there is … a clear relationship between respect for the rule of law and the efficient implementation of the Union budget in accordance with the principles of sound financial management’. – Recital 15 underlines that ‘breaches of the principles of the rule of law, in particular those that affect the proper functioning of public authorities and effective judicial review, can seriously harm the financial interests of the Union’.

131. In the light of these recitals, which are clearly in line with the provisions of Regulation 2020/2092, I consider that the purpose of this regulation is to create a specific mechanism to ensure proper management of the Union budget where a Member State commits breaches of the rule of law which jeopardise the sound management of the European Union’s funds or its financial interests.

132. This aim seems to me to be consistent with the choice of Article 322(1)(a) TFEU as the legal basis for Regulation 2020/2092. ( 88 )

133. The Parliament and the Council submit that the purpose of the disputed regulation can be identified from these recitals. They reject the analysis of the Hungarian Government which states that Regulation 2020/2092 seeks to add another procedure to those already in place ( 89 ) to protect the rule of law, with no legal basis for it in primary law.

134. It is true that, taken out of context, recital 14 of Regulation 2020/2092 would appear to provide some support for the Hungarian Government’s argument, since it declares that ‘the mechanism provided for in this Regulation complements these instruments by protecting the Union budget against breaches of the principles of the rule of law affecting its sound financial management or the protection of the financial interests of the Union’.

135. This apparent inconsistency in the logic of the recitals of Regulation 2020/2092 may be due to the way in which the legislative process took place. As I have already explained, the Commission’s original proposal focused less on the financial conditionality of the proposed mechanism and more on protecting the rule of law. Opposition from the Council meant that the final text of Regulation 2020/2092 became an instrument of financial conditionality, under which safeguarding the rule of law operates as a horizontal condition that must be respected by Member States in implementing the budget.

136. It is therefore necessary to carry out a detailed analysis of the content of Regulation 2020/2092 in order to determine whether the ‘final legislative product’ is genuinely a financial conditionality mechanism, like others in EU law. If it is, Article 322(1)(a) TFEU would provide an appropriate legal basis, because the regulation would be a rule concerning budgetary implementation.

137. If it is not, as the Hungarian Government argues, then it would be another instrument to protect the rule of law, with budgetary implications, for which Article 322 TFEU would not offer an appropriate legal basis and which the European Union would not have competence to introduce.

138. In my view, the purpose of Regulation 2020/2092 is to ensure, through the conditionality mechanism, proper implementation of the Union budget where breaches of the rule of law occur in a Member State which jeopardise the sound financial management of EU funds.

139. Taken as a whole, the aim of Regulation 2020/2092 is therefore to protect the Union budget in the face of specific situations which pose a threat to correct budgetary implementation and breach the rule of law. Its aim is not, therefore, to protect the rule of law by means of a sanction mechanism.

140. Seen from this perspective, Regulation 2020/2092 has a similar objective to that of the Financial Regulation, where there is no dispute over the use of Article 322 TFEU as the legal basis.

141. Indeed, in a joint declaration drawn up on the adoption of Regulation 2020/2092, the Parliament, the Council and the Commission declared their intention to incorporate the content of the regulation into the Financial Regulation when the latter was amended. ( 90 )

142. As noted by the Council, the decision of the European legislature to draft a regulation to safeguard the proper implementation of the Union budget in the event of breaches of the rule of law falls within its legislative discretion.

143. In any event, that decision could not be classed as manifestly incorrect. Compliance with the principles of the rule of law may be vitally important for the sound operation of public finances and proper budgetary implementation. ( 91 )

144. To sum up, the creation of a financial conditionality mechanism linked to the rule of law seems to me to be a feasible legislative option that is covered by primary law.

2. Content of Regulation 2020/2092

145. In assessing whether Regulation 2020/2092 is covered by Article 322(1)(a) TFEU, it is also essential, in accordance with the case-law of the Court, to analyse its content.

146. That analysis will allow us to verify whether the components of Regulation 2020/2092 are those of a genuine financial conditionality mechanism (along the lines of those that already exist in EU law) and, consequently, to ascertain whether Article 322(1)(a) TFEU provides the correct legal basis for it.

(a) Conditions for the adoption of measures under the procedure in Regulation 2020/2092

147. Article 4(1) of Regulation 2020/2092 provides that ‘appropriate measures shall be taken where it is established in accordance with Article 6 that breaches of the principles of the rule of law in a Member State affect or seriously risk affecting the sound financial management of the Union budget or the protection of the financial interests of the Union in a sufficiently direct way’.

148. The parties to the proceedings disagree over the interpretation of this provision: – The Hungarian Government argues that it establishes a three-stage procedure which requires proof of: (a) a breach of the rule of law; (b) a serious and sufficiently direct risk to the sound financial management of the Union budget or to the protection of the financial interests of the Union; and (c) the need to take proportionate measures to tackle it. In its opinion, the legal basis of Article 322(1)(a) TFEU does not cover the first of these stages. – The Parliament and the Council disagree with this interpretation and consider that the procedure contains only two stages: (a) proof of the existence of a breach of the rule of law which directly poses a serious risk to the sound financial management of the Union budget or to the protection of the financial interests of the Union; and (b) the adoption of measures to counteract it. Thus, conditionality would apply only in the case of serious breaches of the rule of law that directly affect the implementation of the Union budget.

149. In my view, this latter interpretation of Article 4(1) of Regulation 2020/2092 is the correct one. Financial conditionality is restricted to those breaches of the rule of law which have a sufficiently direct link to budgetary implementation and which affect or seriously risk affecting the sound financial management of the Union budget or the protection of the financial interests of the Union.

150. A literal interpretation leads to this interpretation, since Article 4(1) of Regulation 2020/2092 requires a sufficiently direct link between the breach of the rule of law and the implementation of the budget. Only then can the conditionality mechanism be triggered, meaning that Regulation 2020/2092 does not address all breaches of the rule of law, but only those that are directly linked to budgetary implementation.

151. Likewise, although Article 2(a) of Regulation 2020/2092 provides a definition of the rule of law, it does so only ‘for the purposes of this Regulation’. It is true that that the provision defines ‘the rule of law’ both in general terms (as the Union value enshrined in Article 2 TEU) and openly, in that it links the concept to the principles which it then proceeds to set out, but, I repeat, it does so within the limited scope I have just identified.

152. Similarly, Article 3 of Regulation 2020/2092 lists examples of breaches of the principles of the rule of law ‘for the purposes of this Regulation’.

153. A systematic interpretation of Article 4(1) of Regulation 2020/2092 in conjunction with other articles of the regulation also leads me to believe that financial conditionality applies only to serious breaches of the rule of law that have a direct effect on implementation of the Union budget.

154. The non-exhaustive examples of ‘breaches of the principles of the rule of law’ listed in Article 3 of Regulation 2020/2092 are limited, in Article 4(2) of the regulation, to certain areas of activity undertaken by national authorities that are directly related to the implementation of the Union budget.

155. It must be stressed that the situations described in Article 4(2) of Regulation 2020/2092 concern either specific budget implementation activities or general activities involving oversight of budget implementation activities.

156. It is true that, viewed in isolation, some general activities referred to in Article 4(2) of Regulation 2020/2092 ( 92 ) would not necessarily, in themselves, affect implementation of the Union budget within the meaning of Article 322(1)(a) TFEU, and are not automatically related to sound financial management ( 93 ) or to protection of the European Union’s financial interests.

157. However, Article 4(2) of Regulation 2020/2092 is careful to restrict the scope of those general activities to activities performed by national authorities that are linked to budgetary implementation. That is the case with: – The actions of investigation and prosecution services, which, in this context, apply only in relation to ‘breaches of Union law relating to the implementation of the Union budget or to the protection of the financial interests of the Union’ (subparagraph (c)). – The effective judicial review by independent courts, where it is exercised in respect of actions or omissions by national authorities which, in turn, relate (under subparagraphs (a), (b) and (c) of the same paragraph) to implementation of the Union budget (subparagraph (d)). – The prevention and sanctioning of fraud, corruption and other breaches of EU law where, again, these actions relate ‘to the implementation of the Union budget or to the protection of the financial interests of the Union’ (subparagraph (e)).

158. With regard to the closing clause (subparagraph (h)), which refers to ‘other situations or conduct of authorities’, these can only fall within Regulation 2020/2092 where they ‘are relevant to the sound financial management of the Union budget or the protection of the financial interests of the Union’. The closing clause does not, therefore, apply to conduct unrelated to budgetary implementation.

159. In my view, the technique used by the legislature to determine the scope of the disputed mechanism and the requirements for its application is appropriate in as much as it requires respect for the principles of the rule of law as a horizontal condition for proper budgetary implementation.

160. The serious breaches of those principles that would allow the conditionality mechanism to be applied are those arising from activities to implement the Union budget or from general activities by national authorities that are directly related to implementing the budget.

161. In any event, Article 6(9) of Regulation 2020/2092 requires the Commission to set out the specific grounds and concrete evidence for the existence of a serious breach of the principles of the rule of law that is directly related to the implementation of the budget. Only then can appropriate measures be adopted against the offending Member State.

162. A purposive interpretation and a historical interpretation of Article 4(1) of Regulation 2020/2092 also lead me to the conclusion that financial conditionality applies only to breaches of the rule of law that directly affect implementation of the Union budget.

163. In this regard, I should stress once again that it is helpful to take account of the evolution of the legislative process that led to the adoption of Regulation 2020/2092.

164. As I noted earlier, the Commission’s original proposal focused more on protecting the rule of law and less on the financial conditionality of the mechanism. As a result of the Council’s involvement, the final text of Regulation 2020/2092 became more clearly a financial conditionality instrument, in which safeguarding the rule of law operates as a horizontal condition that must be respected by Member States when implementing the budget.

165. A key element in the development of the legislative text was the insertion in Article 4(1) of Regulation 2020/2092 of the requirement of a sufficiently direct link ( 94 ) between budgetary implementation and the breach of the principles of the rule of law. ( 95 )

166. The introduction of this element, much criticised in some of the literature, ( 96 ) implies a certain reduction in the scope of application of the Commission’s original proposal. As finally drafted, the financial conditionality mechanism is strictly linked to implementing the Union budget, so as not to breach Article 7 TEU and in order to ensure that the legislation falls within the legal basis of Article 322 TFEU. ( 97 )

167. The sufficiently direct link ensures that the conditionality mechanism will not apply to all serious breaches of the rule of law, but will be limited to serious breaches that are closely related to implementation of the budget. ( 98 ) The Commission must prove this link before proposing remedial measures, and such a link is not automatically assumed proven, however serious the breach of the principles of the rule of law.

168. Recital 13 of Regulation 2020/2092 emphasises that link when it states that ‘there is therefore a clear relationship between respect for the rule of law and the efficient implementation of the Union budget in accordance with the principles of sound financial management’.

169. To sum up, an interpretation of Article 4(1) of Regulation 2020/2092 based on literal, systematic, purposive and historical criteria leads me to conclude that the regulation establishes a financial conditionality mechanism which applies only to serious breaches of the rule of law that directly affect the implementation of the Union budget. Interpreted in this way, Regulation 2020/2092 has a sufficient legal basis in Article 322(1)(a) TFEU.

170. That conclusion is not affected by the Hungarian Government’s argument concerning the (alleged) contradiction between the provisions of the Financial Regulation relating to conflicts of interest (Article 61) ( 99 ) and Article 3(b) of Regulation 2020/2092, which provides that, among other cases, failure on the part of national authorities to ensure ‘the absence of conflicts of interest’ may be indicative of breach of the principles of the rule of law.

171. As noted by the Council, the application of Regulation 2020/2092 is subsidiary to the European Union’s other financial rules. Article 6(1) of Regulation 2020/2092 provides that the Commission is to trigger the mechanism ‘unless it considers that other procedures set out in Union legislation would allow it to protect the Union budget more effectively’. ( 100 )

172. This means that the procedure for resolving conflicts of interest in Article 61 of the Financial Regulation will apply to specific cases, and the mechanism in Regulation 2020/2092 will be deployed only where the functioning of an authority of the Member State that is involved in implementing the Union budget is compromised by particularly serious conflicts of interest.

(b) Criteria for the adoption of measures under the procedure in Regulation 2020/2092

173. According to the Hungarian Government, the measures that EU institutions can adopt pursuant to Regulation 2020/2092 are, in fact, sanctions for breach of the rule of law, rather than genuine ‘measures’ to protect the Union budget. Consequently, Article 322(1)(a) TFEU is an inappropriate legal basis.

174. It argues that this can be inferred from recital 18 and Article 5(3) of Regulation 2020/2092, which set out criteria for adjusting those measures that focus more on the breach itself (that is, its nature, duration, gravity and scope, as well as the ‘intention’ of the Member State) than on protecting the Union budget.

175. The response from the Council and the Parliament is that Article 5(3) of Regulation 2020/2092 establishes a hierarchy of criteria which include, in particular, proportionality and ‘the actual or potential impact of the breaches of the principles of the rule of law on the sound financial management of the Union budget or the financial interests of the Union’. With regard to ‘the nature, duration, gravity and scope of the breaches of the principles of the rule of law’, these are subsidiary factors in an assessment. The criterion of the offending Member State’s intention, referred to in recital 18, has no normative value.

176. In my view, Article 5(3) and recital 18 of Regulation 2020/2092 are not entirely consistent with each other. When it comes to the adoption of measures, the latter seems to regard the criterion concerning ‘the effects on the sound financial management of the Union budget or the financial interests of the Union’ as a subsidiary factor.

177. However, I believe it is clear from a systematic interpretation of Article 5(3) of Regulation 2020/2092 that, when adopting measures, regard must be had, above all, to proportionality and to the actual or potential impact of the breaches of the principles of the rule of law on the sound financial management of the Union budget or the financial interests of the Union. In so doing, the particular nature of those measures, which are not intended as penalties for breach of the principles of the rule of law, is preserved. ( 101 )

178. The nature, duration, gravity and scope of the breaches of the principles of the rule of law committed by the offending Member State can serve only to determine the impact of the Member State’s actions on the implementation of the Union budget.

179. Under this interpretation, Article 5(3) of Regulation 2020/2092 falls within Article 322(1)(a) TFEU because the measures it provides for are, I repeat, budgetary corrective measures rather than penalties on the offending Member State.

180. The Hungarian Government doubts that the content of the final sentence of Article 5(3) of Regulation 2020/2092 (‘the measures shall, in so far as possible, target the Union actions affected by the breaches’) is compatible with that legal basis. It considers that the provision allows for a ‘cross-conditionality’ that goes beyond protection of the Union budget.

181. I find the Council’s explanation, which is based on the principle of proportionality, convincing. The explanation for the exceptional use of financial ‘cross-conditionality’ lies in the fact that certain breaches of the principles of the rule of law committed by national authorities can affect a very large number of sectors, and it would be disproportionate to adopt remedial financial measures in all those sectors. As the Council stated at the hearing, cases can also arise in which breaches of the principles of the rule of law come to light after particular EU spending programmes have been fully implemented, and financial corrective action is not feasible. In such cases, corrective action could be taken in respect of other ongoing spending programmes, to ensure that the conditionality mechanism is effective. ( 102 )

182. Interpreted in this way, this exceptional use of financial ‘cross-conditionality’ (which means that corrective action need not be taken against all sectors affected by the breach of the rule of law or that it can be applied to ongoing expenditure from the Union budget) does not negate the budgetary nature of the mechanism and is compatible with Article 322 TFEU.

(c) Criteria for the lifting of measures under the procedure in Regulation 2020/2092

183. Article 7(1) and (2) of Regulation 2020/2092 provides for measures to be lifted at the request of the Member State or on a proposal from the Commission, where the conditions that led to their adoption cease to exist.

184. This means that in order for the financial conditionality remedial measures to remain in place there must be a continuing impact or risk of an impact on the Union budget.

185. As the Council explains, where the impact on implementation of the budget ceases, the remedial measures are lifted, even if the Member State remains in breach of the principles of the rule of law. As the European Parliament noted at the hearing, where penalties are imposed there is no possibility of their being lifted.

186. This therefore demonstrates (or rather, confirms) that the conditionality mechanism applies financial corrective action rather than penalties for breach of the principles of the rule of law.

(d) Protection of beneficiaries under the procedure in Regulation 2020/2092

187. When read in the light of recital 19 of Regulation 2020/2092, Article 5(2) of the regulation ( 103 ) introduces a safeguard for final recipients or beneficiaries of spending programmes funded by the Union budget.

188. The adoption of financial conditionality measures in the event of a breach of the rule of law by a Member State must not harm the funds’ final beneficiaries, who must continue to receive funding. Moreover, the Member State must regularly report to the Commission on this obligation.

189. In the view of the Hungarian Government, in the event of financial corrective action, the Member State concerned must pay the funds to the beneficiaries from its own budget. Regulation 2020/2092 therefore imposes obligations on Member States in respect of their national budgets, for which there is no provision in Article 322 TFEU.

190. The Council’s response is that Article 5(2) of Regulation 2020/2092 has a declaratory effect and does not impose obligations on the Member State over and above those specified in ‘the applicable sector-specific or financial rules’. In actual fact, it merely adds a means of monitoring compliance with obligations already found in sector-specific rules, to protect beneficiaries of EU budgetary funds in the event of financial corrective action.

191. In my view, the Hungarian Government’s argument should be dismissed, since the protection of beneficiaries provided for in Article 5(2) of Regulation 2020/2092 is a typical and logical measure in shared management of funds from the Union budget.

192. As recital 19 of Regulation 2020/2092 states, ‘… in shared management payments from the Commission to Member States are legally independent from payments by national authorities to beneficiaries’.

193. It follows from this premiss that measures adopted pursuant to Regulation 2020/2092 do not affect ‘the availability of funding for payments towards beneficiaries according to the payment deadlines set out under the applicable sector-specific and financial rules. … Obligations towards final recipients or beneficiaries set out in this Regulation are part of applicable Union law with respect to implementing funding in shared management’.

194. In view of the disjunction between payments by the Commission to the Member State and payments by national management authorities to beneficiaries of the programmes and funds financed by the Union budget, it makes sense to impose a general requirement on Member States to maintain payments to beneficiaries, even where the European Union takes financial corrective action.

195. Indeed, financial corrective action would cease to be effective if national authorities could require beneficiaries to repay funding already received, or if they did not pay them the funding that had been promised, following approval by the EU institutions of a measure to protect the Union budget in the light of a breach of the principles of the rule of law affecting management of the budget.

196. In such cases, the effect of the financial corrective action adopted by EU institutions must be borne by the offending Member State, and must not be passed on to beneficiaries of the funding, who are not party to the breach. ( 104 )

197. The impact of financial corrective action can adversely affect natural and legal persons of a Member State only where they are responsible for breach of the EU rules governing the allocation of funds from the Union budget, which, I reiterate, is not the case under Regulation 2020/2092.

198. By contrast, where responsibility for the breach lies with national authorities, they must face the consequences of their own actions which prompted the remedial measures, ( 105 ) as is the case under Regulation 2020/2092.

199. A similar approach is to be found in Article 103 of the Common Provisions Regulation 2021-2027, which establishes rules on financial corrections by Member States. ( 106 ) Provision to protect final beneficiaries is also included in Article 11 of Regulation (EU) No 1306/2013. ( 107 )

200. In short, the safeguard for final beneficiaries introduced by Article 5(2) of Regulation 2020/2092 can readily be included within a financial conditionality mechanism and relates to implementation of the Union budget, and therefore Article 322 TFEU provides a sufficient basis.

201. I consider, therefore, that the first plea in law should be dismissed.

VI. Second plea in law: infringement of Article 7 TEU and infringement of Article 4(1) TEU in conjunction with Article 5(1) and Article 13(2) TEU and Article 269 TFEU

202. In its second plea in law, the Hungarian Government claims two infringements of the Treaties: – Infringement of Article 7 TEU. – Infringement of Article 269 TFEU and of the principle of institutional balance laid down in Article 13(2) TEU.

203. The Hungarian Government draws a link between the (alleged) infringement of Article 7 TEU and infringement of the principle of conferred powers in Article 4(1) and Article 5(2) TEU, on the ground that Regulation 2020/2092 is founded on an inadequate legal basis. In so far as it thus repeats arguments put forward in the context of the first plea in law, I refer to my comments on those arguments set out above.

A. First part of the second plea in law: infringement of Article 7 TEU

1. The parties’ arguments

204. The Hungarian Government argues that the procedure in Regulation 2020/2092 is simply a specific version of the procedure laid down in Article 7 TEU, which is not permitted by Article 7 nor by any other provision of primary law. It claims that two of the three stages of that procedure are the same as those of the mechanism established in Article 7 TEU, with the conditions for triggering the latter mechanism being stricter than those for adopting measures under the contested regulation.

205. In the view of the Hungarian Government, the purpose of Regulation 2020/2092 is the same as that of Article 7 TEU, since it seeks to prevent breaches of the principles of the rule of law through the imposition of sanctions. Evidence for this is provided by the lack of any genuine conditionality mechanism; the absence of any real link between breach of the principles of the rule of law and the Union budget; the fact that the measures are connected more closely to those applicable to breaches of the rule of law than to the Union budget; the inclusion of the Member State’s intention as a relevant factor; and the fact that the lifting of the measures is linked to the ending of the breach.

206. The Parliament and the Council reject these arguments, stating that the mechanism in Regulation 2020/2092 is independent of the procedure in Article 7 TEU, pursues different aims and is governed by different rules. Its purpose is to protect the Union budget, not to sanction breaches of the rule of law. The conditions for adopting measures and the type of measures involved differ from those of Article 7 TEU.

2. Assessment

207. In order to determine whether Regulation 2020/2092 establishes a procedure that is compatible with the procedure in Article 7 TEU, the first question that needs to be clarified is whether the latter is the only means available under EU law to protect the value of the rule of law.

(a) Non-exclusivity of Article 7 TEU as a means to protect the rule of law

208. In my view, Article 7 TEU would not authorise the EU legislature to introduce, by means of secondary law, another similar mechanism, albeit with less extensive substantive and procedural requirements, which had the same objective of protecting the rule of law and which applied similar sanctions.

209. However, that does not mean that the protection of the rule of law can be achieved only through Article 7 TEU. ( 108 ) There is nothing to prevent the use of instruments other than that in Article 7 TEU to provide such protection, provided that their essential characteristics differ from those of the instrument in Article 7 TEU.

210. As noted by the Council, the principles of the rule of law have a structural value in the EU legal system, meaning that breach of those principles can have a serious impact on it. ( 109 ) That is why, particularly in its case-law on judicial independence ( 110 ) and on European arrest warrants, ( 111 ) the Court has emphasised the values in Article 2 TEU and accepted the lawfulness of provisions of secondary legislation intended to protect those values, alongside the provisions of Article 7 TEU. It has also cited the protection of the rule of law in justifying the recognition of the standing of third States to bring actions for annulment. ( 112 )

211. With regard to arrest warrants, where the European Council and the Council have not taken the decisions referred to in Article 7 TEU, but there is evidence of systemic or generalised deficiencies concerning the independence of the judiciary in the issuing Member State, the executing judicial authority may refuse to execute them, where there are substantial grounds for believing that the requested person will, if he or she is surrendered to that Member State, run a real risk of breach of his or her fundamental right to a fair trial, guaranteed by the second paragraph of Article 47 of the Charter. ( 113 )

212. It is thus clear that, in such cases, the Court uses one of the principles of the rule of law to identify an exception to the arrest and surrender of the requested person that is separate from the procedure in Article 7 TEU.

213. Something similar occurs with the protection of the independence of the national courts responsible for applying EU law where, once again, the Court has relied on the value of the rule of law ( 114 ) to defend that independence, even where there has been no use of Article 7 TEU.

214. Compliance by a Member State with the values enshrined in Article 2 TEU is a condition for the enjoyment of all of the rights deriving from the application of the Treaties to that Member State. A Member State cannot, therefore, amend its legislation in such a way as to bring about a reduction in the protection of the value of the rule of law, a value which is given concrete expression by, inter alia, Article 19 TEU. The Member States are thus required to ensure that, in the light of that value, any regression of their laws on the organisation of justice is prevented, by refraining from adopting rules which would undermine the independence of the judiciary. ( 115 )

215. It is clear from these examples from the case-law of the Court concerning the protection of the rule of law that rules introduced by EU institutions that seek, in specific areas (and not necessarily through the mechanism in Article 7 TEU), to respond to certain breaches of that value which affect budgetary management are compatible with the primary legislation.

216. If those breaches affect the implementation of the Union budget by the Member States, I reiterate, nothing precludes the EU legislature from adopting a rule (such as Regulation 2020/2092) to protect that budget, without conflicting with, or circumventing the application of, Article 7 TEU.

(b) Comparison of the procedure in Article 7 TEU with that in Regulation 2020/2092

217. An analysis of Regulation 2020/2092 helps to determine whether the procedure it establishes is a genuine financial conditionality mechanism, along the lines of those that already exist in EU law, or an instrument for sanctioning breaches of the principles of the rule of law similar to that in Article 7 TEU.

218. I have performed that analysis, with regard to the legal basis of Regulation 2020/2092, in my examination of the previous ground for annulment. That analysis leads me to reject the Hungarian Government’s arguments on the nature of the conditionality, which, in its view, is more concerned with combating breaches of the rule of law than with protecting the Union budget.

219. I shall now complete my analysis by looking at the case-law of the Court on the differences between financial conditionality mechanisms ( 116 ) and actions for failure to fulfil obligations, which provide, by analogy, some assessment criteria that can be applied to the present case. The two procedures are independent of each other, because they pursue different aims and are governed by different rules.

220. Those differences include the following: – In actions brought under Article 258 TFEU, the Commission is free to discontinue the procedure if the Member State has put an end to the alleged failure; this is not the case, for example, with the procedure for clearing EAGGF accounts, where the Commission has no discretion to derogate from the rules regulating the allocation of those burdens. ( 117 ) – Under the procedure for clearing EAGGF accounts, the Commission must carry out a financial correction if the expenditure in respect of which financing has been requested has not