Hungary and Poland have lost their court challenge to an EU rule that allows billions of euros of funding to be conditional on democratic standards.
The European Court of Justice ruled that complying with rule of law was a condition of enjoying membership of the EU.
Governments in Hungary and Poland have been widely accused of backsliding on standards in recent years.
Hungary’s governing party condemned the ruling as a political decision.
The ECJ ruled that “sound financial management of the EU’s budget” could be seriously compromised by breaches of rule of law.
EU member states signed up to common values such as rule and law and solidarity and the EU “must be able to defend those values”.
Both countries have been investigated for undermining the independence of courts, media and non-governmental organisations and both are key recipients of EU funding.
The court ruling could affect the way billions of euros of Covid recovery money is shared among member states.
Polish deputy minister Janusz Kowalski accused the EU of trying starve Hungary and Poland financially.
“This is the end of the EU as we know it! We must defend Polish sovereignty,” he said.
Meanwhile in Hungary, where the ruling Fidesz party of Viktor Orban is campaigning to win a fourth term in office, Justice Minister Judit Varga accused the EU of abuse of power.
In a statement, European Commission President Ursula von der Leyen said the rule of law mechanism was aimed at protecting the EU’s budget for the benefit of all EU citizens.
Guidelines would be provided in the coming weeks to give “further clarity about how we apply the mechanism in practice”, she added.
