In her mission letter, Commission President Ursula von der Leyen has tasked the Executive Vice-President for Tech Sovereignty, Security and Democracy, Henna Virkkunen, with strengthening the Commission’s approach to the rule of law. This step results from continuous agenda-setting efforts by members of the European Parliament and interest groups – especially from the business community – to link challenges concerning national taxation policies and investment security with the rule of law (RoL) and the single market. As a first step, the European Commission will add a single market dimension to the RoL report “to address rule of law issues affecting companies, especially SMEs, operating across borders” from 2025 onwards.

To enhance the report’s impact and improve the RoL situation in all member states, the Commission’s assessment of the new single market dimension must be well-designed and clearly reveal existing deficiencies. However, the report will only make a difference if the new Commission improves its methodology and actively involves stakeholders and civil society in its research process. Furthermore, creating transparency is only the first step in facing the current challenges. The monitoring of member states’ progress in implementing the Commission recommendations must be improved and conditionality should be established by linking the report to other RoL instruments. 

Adding a new single market dimension

RoL deficiencies in the EU member states have become a serious threat to the functioning of the single market. Employers and employees share a common interest in properly implementing the RoL in this area as autocratic rulers exploit illiberal practices to their advantage. This includes clientelism and cronyism, the expansion of executive powers to interfere with markets without parliamentary or judicial oversight and arbitrary legislation, as a recent study of the Institut für Europäische Politik shows. Such practices violate formal and procedural requirements of the RoL which businesses rely on in the single market. Distorted markets then become a pillar of illiberal regimes and drive democratic regression. 

To break this vicious cycle, the report should, first, clearly outline the importance of a functioning rule of law to economic actors. In the past, such debates mostly concerned civil society while businesses remained silent about democratic backsliding to not endanger substantial tax cuts or preferential treatment by illiberal governments. A lack of judicial independence and access to justice, discrimination against foreign investors, or systematic non-enforcement of national or EU law are threats to companies and investors. Making the consequences of RoL deficiencies in the single market transparent will win trade associations as new allies in the fight against democratic regression. 

Second, the report should analyse how national governments use economic governance for illiberal practices that undermine the EU’s legal order. Here, the RoL report should establish a direct link to the European semester, in which the Commission can also address RoL issues. National competition authorities have a pivotal role in guaranteeing the functioning of the single market. The lack of sufficient independence of these oversight bodies, which “protect citizens’ quasi-constitutional economic rights”, is a key concern of the RoL in the single market. 

Third, the report should therefore assess their structural independence and make concrete reform recommendations if necessary. As with judicial systems, cooperation and trust in the independence of these authorities are vital for the functioning of cross-border investment and trade in the EU. 

Fourth, one of the most pressing issues for companies is the de facto discrimination of foreign investors that exists in some member states. Addressing such discrimination is difficult, as many legislative acts are carefully designed not to violate European competition law, while clearly distorting market fairness. For instance, surplus taxes against ‘multinationals’ in Hungary may comply with EU law but are a clear signal that some foreign companies are not welcome in Hungary. The report should also cover cases of discriminatory practice in line with European law but against the spirit of the single market. 

Nevertheless, the area of media freedom and plurality clearly shows that the guarantee of economic freedoms is not a sufficient approach to secure the RoL in Europe. Although fair competition in the media market is necessary, it is not in itself sufficient to guarantee the freedom of expression and information. Media market concentration leading to monopolies, which are in some countries politically close to governments, seriously threaten the RoL. Currently, the report does not sufficiently reflect these political threats to media pluralism and needs it to take them more into account. 

Improving the report’s methodology 

To maximise the impact of the new single market dimension and the RoL report’s other chapters, the Commission should strive to further improve the report’s methodology. That the inclusion of the single market dimension results from political pressure from investors and trade associations that are dissatisfied with the lack of investment security and regulatory reliability in some (mostly Central Eastern European) states shows how important expertise from the ground is. Therefore, the Commission should engage even more with stakeholders and civil society organisations (CSOs), including business associations and labour unions. Indeed, the European Economic and Social Committee is currently working on detailed recommendations to improve the engagement of CSOs in the RoL report.

In addition to improving the research methodology, the Commission should improve the rather technical presentation of its findings. Currently, civil society organisations struggle to translate the report’s key points into digestible language. The European Social Scoreboard and the Single Market Scoreboard are good examples of how to present comparative analyses. The Commission should therefore develop the EU Justice Scoreboard into a fully-fledged rule of law monitor that presents the trends in the EU visually.

Maximising the report’s impact

Simplifying the presentation of the report’s findings is just the first step in maximising the impact of the report on the RoL situation in the member states. More important is the clarity of the Commission’s recommendations to national governments. The Commission should formulate precise reform recommendations, including benchmarks and deadlines, and it should monitor their implementation in the new rule of law monitor in the next report. While transparency on a lack of progress on reform helps CSOs push for reforms in the member states, the EU needs to have stronger instruments, if available. For cases where there is reluctance to reform, the other further strengthened instruments of the EU rule of law toolbox have to be linked to the report to enable the Commission to make reform conditional. Namely, the report’s findings should be linked better to the country-specific recommendations of the European Semester as well as the conditionality regime to protect the Union’s financial interests, including the Common Provisions Regulation and the Recovery and Resilience Facility.

Photo credits: European Union 2024 – Source : EP