Addressing System Deficiencies in the Protection of the Financial Interests of the EU: Preventing Harm and Incentivizing Change

Abstract The article looks at how “systemic” irregularities or breaches of law imputable to EU Member States are defined in key legal documents relating to the protection of the EU budget – notably with regards to Agricultural, Structural and Recovery funds, and with regards to the Conditionality Regulation. It is argued that “system deficiencies” arise where the financial interests of the European Union are damaged or put at risk because the systems meant to protect these interests in a Member State are considered deficient themselves. The scope of these systems varies with documents: some systems are defined in sectoral legislation and only have relevance for specific funding programmes; other systems have a more constitutional character and are linked to the protection of the rule of law in EU member states. Moreover, the severity of system deficiencies can be graded on a scale. This has implications regarding the extent of the financial consequences which can be imposed on Member States for the protection of the EU budget – how much EU funding should be withheld from them. It is also argued that the rationales underlying the imposition of financial consequences – putting the EU budget out of harm’s way or incentivizing change to reduce risk? – have implications pertaining to the legal and constitutional relationship established between the EU and its Member States.