The European Commission has hit out at Poland and Hungary for perceived failures to live up to the bloc's democratic standards, prompting Budapest to call the accusations "absurd and false." 

The Commission's first report on the shortcomings of the rule of law comes as members prepare to decide whether to make access to EU money conditional on respecting democratic principles. 

That could affect countries' ability to draw on a new $879.2 billion COVID-19 recovery fund.

Published on Wednesday, the document describes Poland's recent justice reforms as "a major source of controversy" and the direction of Hungary's judicial independence to be of "serious concern."

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Following its release, Hungary's justice minister, Judit Varga, hit back, condemning its sources as "biased and non-transparent," adding "it cannot serve as a basis for any further discussion on rule of law in the European Union."

Warsaw and Budapest were already at loggerheads with the EU over state control of courts, media, non-government organizations and academic institutions.

Hungary's Prime Minister Viktor Orban had called for the bloc's top democracy official, Vera Jourova, to be dismissed after she warned that his vision of "illiberal democracy" was spearheading an "ailing democracy" in Hungary. 

"The European Union was created also as an antidote to ... authoritarian tendencies." she said. The European Commission dismissed Orban's demand for her to go.

The document also took aim at Bulgaria, Romania, Croatia and Slovakia over the independence of their courts, as well as corruption scandals in Bulgaria, Slovakia, Croatia, Czechia, Hungary and Malta.

It added some governments' coronavirus emergency measures were too stringent in restraining the media and civil society, saying the pandemic was acting as a "stress test" of democratic resilience of EU members.

EU funding and the rule of law

On Wednesday, a majority of the bloc's 27 members supported a proposal by Germany to make upholding the rule of law a condition of access to EU handouts.

This will be an important feature of negotiations in the European parliament next month on the distribution of the $2.1 trillion in aid from the EU's recovery fund and its budget for 2021-27.

Poland and Hungary reportedly opposed the proposal, while Sweden, Finland, Denmark, Belgium and the Netherlands called for tougher rule-of-law conditions, a position shared by most EU lawmakers.

Finland's Petri Sarvamaa, a member of the European parliament, said the negotiations were going to be "very, very difficult."

The EU's attempts to rein in Warsaw and Budapest on the rule of law have yet to produce any major results, with the two nations shielding each other from punishment due to the EU requiring unanimity to suspend voting rights.

Hungary has threatened to veto the proposal if its EU funding comes under attack, with a government spokeswoman saying: "This is not rule of law; this is the rule of blackmail."