The European Union's top court has rejected legal action brought by Hungary and Poland against a mechanism that links funding to upholding democratic norms. 

The tool allows the EU to reduce payments to Budapest and Warsaw, which, respectively, deny they suffer from what Brussels claims are are 'rule-of-law' problems. 

The EU says democratic standards are eroding in several member countries, particularly in Hungary and Poland, where the independence of judges is deemed under threat.

The Hungarian government is being criticized by Brussels for what the EU says are inadequate anti-corruption measures.

An EU report from last year also noted that media pluralism "remains at risk" in Hungary.

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The wide-ranging audit found Poland deficient in the four main areas reviewed: national justice systems, anti-corruption frameworks, media freedom and checks and balances.

The mechanism allows the EU to suspend or reduce funding to member countries over rule-of-law shortcomings that affect or seriously risk affecting the EU's financial interests.

Defiance in Hungary and Warsaw

Responding to the judgment on Wednesday, Hungary's justice minister said: "the decision is proof that Brussels abuses its power."

Judit Varga said: "Brussels can't let it go that Hungarian people can express their opinions."

"The bureaucratic elite don't want to accept the free choices of Hungarians."

The president of the European Commission also released a statement, welcoming the move from the European Court of Justice to confirm the validity of the new mechanism.

Ursula von der Leyen said: "The Commission has been monitoring the situation in all member states and we are assessing in-depth certain cases."

"Where the conditions of the regulation are fulfilled, we will act with determination."

There is now likely to be a back and forth of exchanges with Brussels, the possibility of political reviews, appeals, and further meetings of national leaders to determine the size of any possible sanction against Hungary and Poland.