EU member states that fail to live up the European Union’s democratic values could find parts of their EU subsidies being “frozen” until they mend their ways, The Telegraph understands.

Under proposals to be unveiled in Brussels this week by Guenther Oettinger, the EU’s budget commissioner, Eastern EU states like Poland and Hungary could feel a financial squeeze if they were deemed to have failed to live up to the founding values of the EU.

The move comes after pressure from liberal groups in the European Parliament and leading western powers like France and Germany, who want to find a mechanism to put pressure on recalcitrant member states.

“The precise details are still to be worked out, but the proposal will include the temporary freezing of funds in order to motivate a change of behaviour among states,” said an EU source briefed on the document.

Poland and Hungary are both major recipients of EU ‘structural funds’ which are designed to narrow the gap between rich and poor member states, each receiving €5.5bn and €2.7bn respectively a year.