Europe: Caught between a rule-of-law fight and a hard Brexit – POLITICO.eu

Mujtaba Rahman is the head of Eurasia Groups Europe practice and the author ofPOLITICOs Beyond the Bubble column.

As the end of 2020 approaches, the European Union finds itself caught in two highly consequential, high-stakes games of chicken. Their outcome could define the next year, as well as the political legacies of two of Europes most powerful politicians: German Chancellor Angela Merkel and European Commission President Ursula von der Leyen.

The first crisis is the stalling of U.K.-EU negotiations over a future trade deal as the end of the Brexit transition period looms on December 31. The second is a stand-off between Poland, Hungary and the rest of the EU over proposals to link the disbursement of EU funds to countries observance of the rule of law.

While seemingly independent, these crises are very much linked. Failure to secure a deal on one or both of these issues would represent a terrible failure of Germanys presidency of the Council of the EU in other words, its European leadership.

With the EUs next long-term budget and recovery fund deadlocked, a cloud also hangs over the fate of the European economic recovery next year.

The deal EU leaders hammered out in July massively boosted investor confidence because market participants believed Europe had a credible economic plan to build back after the coronavirus pandemic.

With that agreement now in the balance, there are questions as to the EUs appetite to accept a no-deal Brexit and whether EU capitals and the Commission could become more flexible or, as von der Leyen suggested to the European Parliament on Tuesday, creative in fudging a deal to avoid further aggravating Europes economic picture.

Some senior voices in London hope the EUs last-minute troubles will give it pause for thought. But these challenges also increase the risk of miscalculation in negotiations, as both sides conclude that the others problems will push them to offer more concessions than they actually can or will.

Despite the deadlock on the budget, the EU is unlikely to fundamentally soften the price it seeks for a Brexit deal. The Commissions narrative that the single market is an ecosystem whose integrity would suffer unless the U.K. accepts binding level playing field provisions remains the most important substantive concern for the vast majority of EU capitals.

So British Prime Minister Boris Johnson is going to have to accept more constraints on U.K. sovereignty than he personally likes or than the more hard-line factions of his party may be willing to accept. Its not inconceivable that a Brexit trade deal will only go through with support from the opposition Labour Party.

For these very reasons, the decision is a finely balanced one for the U.K. prime minister even if other considerations the governments mismanagement of the coronavirus crisis; concerns over Scottish elections next year; Joe Bidens win in U.S. elections; and a resurgent Labour under Keir Starmer all rationally point in the direction of a deal being the more desirable outcome.

The calculations in Budapest and Warsaw are no less contradictory or indeed complex.

Both countries stand to benefit massively from the EU recovery fund next year through to 2026 (roughly 15 billion for Hungary and 63 billion for Poland). But the new rule-of-law provisions agreed between a majority of EU capitals and the European Parliament pose very serious problems for Hungarys Prime Minister Viktor Orbn and Polandsde facto leader JarosawKaczyski.

Orbns very governance model his modus vivendi is at stake. The greatest beneficiaries of EU generosity over the past decade have been his family and a small coterie of loyal acolytes on the ground. It is for this reason that Budapest has a general problem with any link between EU funds and the rule of law, preferring to deal with disagreements through the EUs slow-burning Article 7 procedure and the possible suspension of voting rights.

Polands concerns, while narrower, are no less existential. Kaczyskis hard line is partly in response to pressure from his junior coalition partner, Solidarity Poland, which is threatening to bring down the government if the rule-of-law mechanism stays as it stands.

This is somewhat tactical. Solidarity Polands leader, Zbigniew Ziobro, is riding a wave of nationalist, anti-EU sentiment that is gaining traction among conservative right-wing voters who are increasingly skeptical of the government. His position is also partly substantive, as Ziobro, who is the justice minister, worries that the mechanism will be used to roll back controversial reforms to the judiciary that his party supports.

Revising the legal text that underpins the new rule-of-law regulation is probably not an option, given the European Parliaments opposition. Here again, is a connection to Brexit the need for the Commission and the German presidency to tread carefully with the Parliament is doubly reinforced by the fact MEPs are also being leaned on to sign off on a Brexit deal with little or no scrutiny and perhaps only on the basis of an English legal text (as opposed to having the 24 language versions available) given the limited time left to ratify the deal and ensure it is implemented by January 1, 2021.

Given the Parliaments fragmented majorities, von der Leyen cannot afford to alienate its powerbrokers; if she does, her Green and digital agendas will run into the sand.

All of the compromises on the table diluting the rule-of-law mechanism at the implementation phase; suspending ongoing Article 7 procedures; or standing up an intergovernmental treaty for the recovery fund to get around Poland and Hungarys vetoes come with significant political and economic downsides. But a price will need to be paid if a deal is to come together.

This, then, is Europe at the end of an incredibly challenging year. It is possible, even likely, that a messy accommodation will be found, both with the U.K. and with Poland and Hungary. This may just be the cost of doing business in Europe. But its equally conceivable that no compromise will be found for either.

Von der Leyen and Merkels ability to navigate these stand-offs will be what decides whether Europe gets off to a strong start in 2021 or if it finds itself engulfed in political and economic crises, both from within and from without.

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Europe: Caught between a rule-of-law fight and a hard Brexit - POLITICO.eu