Could power of the euro rein in Poland and Hungary where rule of law has not?

At the moment, it's nothing more than a huge construction site on the outskirts of Warsaw. But when it’s done, commuters will have smooth new platforms that they’ll access via an underground tunnel that won’t sit underwater every time it rains.

“It was in really bad shape,” says Piotr Chyralecki, who works at a kiosk near the station.

The transformation of this commuter hub is just one of hundreds since Poland joined the European Union in 2004: 4 billion euros ($4.7 billion) in EU funds over the past decade have supported nearly 600 projects in Warsaw alone. In the period 2014 to 2020, the EU has earmarked 86 billion euros ($102 billion) for Poland, making it the largest recipient of aid in the bloc. The budget is making it easier and safer for Poles to travel, connecting once remote villages to cities, and opening up new business opportunities across the country.

The upgrade in Polish infrastructure is the physical manifestation of what it means to belong to the EU.

And now the bloc is considering a new budget that would cut funds for member states that undermine the rule of law. As Poland's ruling Law and Justice party (PiS) and Hungarian Prime Minister Viktor Orbán clash with Brussels over attempts to rein in their judiciaries, media, and civil society, billions of euros are at stake.

The proposals are a sign of just how significant the rift between Eastern and Western Europe has become in the EU, as former Soviet countries grapple with state capture and stunted democratic transformation.

While the funding proposals are controversial and could be viewed as a power grab itself by the EU, many also point to them as a new instrument that might finally crystallize the stakes for the public. The rise in populism in this part of the EU is often explained as a consequence of failed communication about what accession to the bloc really meant – that it’s more than just an economic transaction. If those concrete benefits are under threat, the public might begin to question more deeply how committed they need to be to the so-called core values of Europe.

“The attitude in many of the new member states ... is a bit more transactional than you find in Belgium or France or Luxembourg,” says Stefan Lehne, a visiting scholar at Carnegie Europe in Brussels, who focuses on relations between the EU and member states. “For them their wish to belong to the EU was always linked to expectations of concrete benefits.... If important benefits would be under threat, the governments would come under pressure.”

The post-Soviet poster child

According to the proposals for the 2021-27 budget, funds could be withheld from countries that don’t abide to treaty obligations on rule of law, such as maintaining independent courts. How much money is in jeopardy would only become clear after difficult negotiations, but the intention is clear: the EU wants the measures to be proportionate to the threat a country’s actions pose to the rule of law.

The proposal comes amid criticism that the EU is not doing enough to ensure democracy in its own house. The bloc took the unprecedented step of triggering Article 7 for the first time in response to Poland’s controversial judiciary reform, which in theory would cost the country its voting rights. But the mechanism requires unanimity, and Hungary – which has been charting its own illiberal path – has long said it would block any such measure.

The disciplinary action, and threat of more, are an embarrassment for the poster child of post-Soviet transformation. Piotr Nowina-Konopka, who was deputy negotiator on Poland's accession to the EU, says that the principle of rule of law was “obvious” at the time Poland joined the EU. “When you join the club you have to obey its rules,” he says. Only a decade out from communism at the time, he says, "we knew that this criterion was the most important, a condition without which there was no sense of thinking about EU membership.”

Pro-EU sentiment still runs high across Poland. At a celebration of Europe Day (May 9) in Warsaw, Poles gathered recently to sing the EU anthem, “Ode to Joy.” “Poland has made a huge step forward thanks to the EU,” says Beata Wolszczak, a teacher at the annual march.

But anti-EU sentiment is also growing, and on many issues there is a clash between Polish identity and a culture many feel Brussels imposes on them. A CBOS poll published in December 2017, for example, showed that 74 percent of respondents were against taking refugees from Muslim countries even if the EU would cut funds in response.

And Ms. Wolszczak, like many, worry about the EU's plan fueling more populism. The plan envisions governments making up for the loss of EU funds from their own pockets, but it becomes an easy political football. The Polish government has already staked out the position that the EU funds are “compensation” due Poland for the opening of its market to the bloc. “I'm afraid that Poles would turn away from the EU if Brussels cuts the funds, because the government's propaganda against the EU will be very strong,” Wolszczak says.

This could, in turn, lead to what Mr. Nowina-Konopka calls a “soft Polexit”: not loss of membership but loss of engagement. He laments that already Poland is no longer invited to participate in informal meetings of the five biggest countries in the EU about the budget.

Leverage against Orbán?

Anti-EU propaganda has helped Mr. Orbán consolidate power in Hungary since 2010. On many fronts he has gone much farther than PiS – with both more time and more political leeway – and is seen as thus harder to tame.

Benedek Jávor, a Hungarian opposition member of the European Parliament, says that the threat of withholding funding could finally shift the narrative. “To put it simply, it would end an era when a few corrupt and illiberal states are able protect one other,” he says. Mr. Jávor complains that newer member states faced a higher bar to prove democratic credentials to join the EU than they do as members and says the European Commission has been “too soft.”  

The Hungarian government has not elaborated on potential funding cuts. “There are EU treaties in force, and we work on the basis of these,” says Zoltán Kovács, spokesman of the Hungarian government, refusing to go into further detail.

Orbán attempted to downplay the EU's proposals to the Hungarian public. “Keep calm,” he said in his Friday morning interview on the government-controlled National Public Radio after the budget proposals were unveiled. “The debate will be long and drawn out, but ultimately it has to have unanimous support,” he said.

Krisztian Szabados, director of Political Capital Policy Research and Consulting Institute, says Orbán is incorrect that Hungary's consent is required. Rather, Mr. Szabados says, amendments were intentionally devised to require a qualified majority, not unanimity, in order to avoid the complications that Article 7 have posed.

Orbán has spent more time since the EU's budget proposals on his bread-and-butter issues, like railing against George Soros, the Hungarian-American philanthropist who helped grow Hungary’s democratic institutions after the fall of the Iron Curtain. Orbán claims Mr. Soros wants to send millions of migrants to Hungary. This week Soros’s Open Society Foundations announced that, facing government hostility, they were moving their Budapest-based operations to Berlin.

Robert Grzeszczak, a professor who specializes in EU law at the University of Warsaw, says that threatening funds could force governments to end their double speak: bashing the EU while taking its money. “I think that the government will not go to war with the EU and will try to find a compromise,” he says. In fact, only recently PiS has softened its tone on cooperating with the EU on the bloc’s legal concerns.

A threat to national sovereignty

But challenges remain, and not just within the countries where funding is at stake. The proposal would empower the European Commission to judge the rule of law in sovereign countries, which could backfire since the EU itself is often faulted for its own democratic deficits. “The judgment of whether rule of law is functioning or not goes to the heart of national sovereignty,” says Mr. Lehne in Brussels. “Many countries would say ‘We don’t want to give the Commission the power to tell us if our judiciary is independent or not.’”

“All of these countries who feel European integration has gone too far and powers need to be returned to member states would be …  quite reluctant to go down that road,” Lehne says.

It could also generate claims of hypocrisy and a sense of “us” v. "them." Western Europe is not immune to corruption: The recent legal woes of Silvio Berlusconi in Italy or Nicolas Sarkozy in France underscore that point.

The funds were intended to bridge divides between poorer and wealthier Europe. On a recent day on the Krakowskie Przedmieście, one of the most prestigious streets of Warsaw thanks to an uplift with EU funds, Jerzy Szafranowski, a doctoral candidate in history at the University of Warsaw, says the funds have completely changed the landscape of his country. Yet while he supports the plan, he also believes it’s a minefield.

“Poles feel that this money is due to them,” he says, and not just because of what they contribute into the common budget but because Poland was not helped under the Marshall Plan after World War II. He believes withholding funds could aggravate resentments already on the surface – the reason populism has thrived in Poland in the first place.

“Poles still have complexes when they compare themselves with Western Europe, many of us don't feel like real Europeans," he says, “and maybe that's why some want to underline their Polishness, that this is a real value.”