European leaders have hailed the breakthrough that saw the approval of the EU's much-delayed €1.8 trillion budget and coronavirus recovery package.
It was held up for weeks because Poland and Hungary opposed a mechanism that would make some funds conditional on a country's respect for core European values.
Warsaw and Budapest, frequently at odds with Brussels over values like rule of law and judicial independence, called it "political blackmail".
But they have now agreed on a compromise with other European leaders.
It will see the mechanism suspended while Brussels draws up guidelines for how it should be used and what might trigger it.
Europe's top court, the European Court of Justice, is also expected to weigh in on its validity.
EU law expert Alberto Alemanno told Euronews that in compromising with Poland and Hungary, European leaders had "killed a mechanism that is supposed to guarantee the rule of law" by turning it into an "instrument of last resort".
Alemanno, a professor at Paris' HEC Business School, said the deal was "the fruit of a political choice made by European leaders" to keep Poland and Hungary "on board" with the budget.
How did Poland and Hungary react?
"We have reached an agreement of a kind that, let me stress it, has accepted all of our preconditions that we have made," said Poland's prime minister Mateusz Morawiecki.
"We have a budget, together with the reconstruction fund, which means big funds for investment, big funds for supporting the development of Poland's economy, for new technologies, for many goals that need to be implemented, especially now that we want to quickly come out of the pandemic. That's important to us."
Meanwhile, Hungary's prime minister, Viktor Orban, was also in a celebratory mood.
"And we could say modestly, of course, that we saved the unity of the union. So don't forget that this dispute was not only about the rule of law, regulation, financial issues, it was about the future of the European Union and the question: what is the power centre of the European Union, the European institutions like Parliament, Commission or the member states?
"And today we delivered evidence that the European Union is nothing else, just the community and alliance of the nations and the states. And nobody can circumvent the intentions and the will of the elected governments of any nation neither the European Parliament nor the Commission, nobody, because [the] European Union is the unity of the nations."
'Europe’s rule of law is in crisis'
A French official, who was not permitted to discuss the sensitive deliberations on the record, said that the steps taken against any country for failing to uphold the rule of law would apply retroactively from January 1, 2021.
French President Emmanuel Macron tweeted that the leaders “adopted a robust agreement on the mechanism to put in place, in respect of the rule of law. Europe moves forward, united, and displays its values.”
While acknowledging that national governments are in dire need of coronavirus funds, some warned of the dangers of delaying action yet again against Hungary and Poland, whose nationalist governments have been accused of undermining judicial independence and media freedoms.
Daniel Freund, the Green group negotiator on the rule of law in the European Parliament, warned that the compromise being discussed would put the system “on hold for 1-2 years.”
“Europe’s rule of law is in crisis,” he said, adding that EU members should not be pressing the European Commission to avoid enforcing “existing laws while judicial independence is abolished in Poland or billions of EU funds end up with Orban’s family and friends.”
Eve Geddie, Director of Amnesty International’s European Institutions Office said the delay “will allow for irreparable damage to the human rights of people in Poland and Hungary, and to the integrity of the rule of law across the EU.”
How did other EU leaders react?
German Chancellor Angela Merkel said it was a "great relief" that EU leaders passed the delayed €1.8 trillion budget and coronavirus recovery fund.
Charles Michel, president of the EU Council, made of up of leaders of European countries, broke the news of the budget agreement on Twitter on Thursday.
“Now we can start with the implementation and build back our economies," he wrote. "Our landmark recovery package will drive forward our green and digital transitions.”
Commission President Ursula von der Leyen said the agreement "underlined indeed Europe’s ability to come together and act" in the face of the "worst crisis" the bloc has faced.
The package includes the Multi-annual Financial Framework (MFF), the EU's seven-year budget, worth just under €1.1 trillion, and the €750 billion COVID-19 recovery fund, known as Next Generation EU.