All member states must uphold democratic standards to access the EU's billion-euro emergency coronavirus relief package and budget. The bloc also agreed to impose sanctions on nations that fail to apply the rule of law.

The European Union parliament and its 27 member states agreed on Thursday to tie the bloc's long-term budget access to a mechanism requiring countries to live up to Europe's democratic standards.

In a statement, the European Council said the agreed mechanism "allows to protect the EU budget where it is established that breaches of the principles of the rule of law in a member state affect or seriously risk affecting the sound financial management of the EU budget or the protection of the financial interests of the EU in a sufficiently direct way."

Bloc members also agreed to impose sanctions on EU countries that fail to apply the rule of law.

Under the agreement, the European Commission, the EU's executive arm responsible for ensuring bloc-wide laws, would first have to establish whether any fundamental principles have been violated.

"For the first time, we have established a mechanism that enables the EU to stop funding governments that disrespect our values such as the rule of law,'' said Finnish EU lawmaker Petri Sarvamaa.

The agreement could help unlock the bloc's €1.1-trillion ($1.3 trillion) budget and another €750 billion in emergency coronavirus relief by the start of the year.

Concerns over Poland and Hungary

Member states already agreed to the principle of rule of law conditionality during July negotiations. EU parliament members, however, said the mechanism was too ambiguous to ensure that countries including Poland and Hungary adhered to democratic rules.

Both Poland and Hungary, ruled by right-wing populist governments, have prompted bloc-wide concerns over violations of European standards with practices that undermine judicial independence, rules on migration and the rights of journalists.

Hungarian Prime Minister Viktor Orban's government has also been accused of allegedly persecuting opposition media and for shutting down foreign-owned universities.

Both countries have opposed any attempts to condition their access to EU funds to the way their governments apply the rule of law.

"It is unacceptable that the European Parliament will not stop politically and ideologically blackmailing Hungary," Hungarian Justice Minister Judit Varga said of the accord.

Germany hails 'important milestone'

Germany, which holds the EU's rotating presidency,had expressed opposition to a block on the EU's virus relief package, especially due to concerns over a second COVID-19 wave.

Germany's envoy Michael Clauss called the agreement "an important milestone'' in efforts to finalizing the next long-term EU budget and recovery package.

"We have a historic €1.8-trillion financial package on the table. With the second wave of the pandemic hitting member states hard, there is no time to lose," he added.

Negotiations are still expected to take place regarding details of allocations within the budget.