Ambassadors of the 27 member states meeting in Brussels were unable to endorse the budget because Hungary and Poland vetoed it. The EU is currently investigating both countries for allegedly undermining the independence of courts, media and non-governmental organisations. The clause linking future funds to the rule of law threatens to cost each country  billions of euros in EU funding. EU states had already agreed on the €1.1tn budget for 2021-2027, and the coronavirus stimulus package after a marathon four-day summit in July.


The ambassadors had voted through the clause that made access to EU funds conditional on adherence to the rule of law, because this only required a qualified majority, the German EU presidency said. But the budget and the rescue package needed unanimous support and were then blocked by Poland and Hungary.


Romanian Prime Minister Ludovic Orban said the rule-of-law clause was an important protection to ensure taxpayer's money is "spent in a just and effective manner". He called on EU states "to work together" adding: "We need to refocus and get this agreement done." German ambassador Michael Clauss, who chaired the meeting, warned that the EU would face "a serious crisis" if the financial package was not quickly adopted.


The impasse will be debated by EU European affairs ministers on Tuesday and by EU leaders in a video-conference on Thursday. However, officials say a solution might take longer to find.


The proposal to link the two matters is not in keeping with EU treaties and the Portguese presidency, which takes over from the German presidency on 1st January, seems unlikely to press the issue.