The European Commission said on July 27 it is giving Warsaw three months to fix Poland's constitutional crisis, as Brussels moved one step closer to unprecedented sanctions.

The European Commission has been investigating since January whether Warsaw's actions over the country's Constitutional Tribunal (TK) comply with the EU’s principles of the rule of law. The probe was triggered by the ruling Law and Justice (PiS) party’s new rules on the functioning of the court, which the government said was an attempt to prevent the TK from interfering with reforms. The court has been virtually frozen since.

Commission Vice President Frans Timmermans stated on July 27 that Poland has three months to tackle the problem. Like the US, Brussels made it clear that it rejects as cosmetic Poland's recent attempt to solve the impasse. Poland passed a new law on the TK shortly before the Nato summit in early July, in apparent attempt to silence criticism, but it was did little to convince the US and EU.

“The commission has assessed the [new] law and reaches the conclusion that a number of important issues of concern remain,” Timmermans told a news conference in Brussels.

The key unresolved issue remains the government’s refusal to publish a TK ruling in March that PiS’ first attempt to regulate the tribunal to its liking was unconstitutional. PiS has refused to accept that verdict, which constitutionally means the court has all but ceased to function as a brake on the government. The ruling party’s subsequent attempts to end the crisis have made sure not to acknowledge the March ruling.

The commission also said Poland must respect TK rulings on any future attempts to reform the tribunal, as well as “refrain from actions and public statements which could undermine the legitimacy and efficiency of the Constitutional Tribunal.”

The recommendations and deadline mean the EU moves another step closer to sanctioning Poland in line with the Article 7 of the Treaty of the European Union. The 'nuclear option' under that article is to suspend a member state’s voting rights in the bloc, but it has never been used before.

Given the euroscepticism and crises currently tearing at the EU, it seems unlikely such a step could be seriously contemplated now either. Poland appears convinced, and continues to stick to its guns. In response to the European Commission's latest statement, Warsaw claims that the EU executive itself is perhaps in violation of the bloc's laws.

“This decision [to issue the recommendations] raises questions about the [commission’s] adherence to the principle of sincere cooperation with the governments of the member states, referred to in the Treaty," the foreign affairs ministry said in a statement.

The ministry also insists the commission is in danger of losing its authority and that its actions are "premature,“ coming, as they have, before the latest bill on the TK has gone through the legislative process. That said, the legislation now only waits the signature of the president, and is not expected to undergo any changes.

While PiS likes to present the constitutional crisis as an internal affair over which the EU should have no say, Warsaw is likely to continue to suffer economic repercussions while the crisis persists, Erste analysts suggest.

“Underlying political risks are likely to keep the [bonds] spread vs. Bunds at elevated level," they write. "In case of persistence of the conflict, we cannot rule out further rating agency actions, especially if Poland proceeds with implementing elections promises such as FX loan conversion plan or lowering retirement age."