VI - Euro Plus Pact

On March 11, 2011 the Heads of State or Government of the Eurozone endorsed the Pact for the Euro. At the 24/25 March 2011 European Council, the same Heads of State or Government agreed on the Euro Plus Pact and were joined – hence the ‘Plus’ – by six others: Bulgaria, Denmark, Latvia, Lithuania, Poland, Romania (leaving only the UK, Czech Republic, Sweden and Hungary out).    
The objective of the pact is to foster competitiveness, foster employment, contribute to the sustainability of public finances and reinforce financial stability. In the Euro-Plus-Pact the Heads of State or Government have entered into commitments on a number of policy areas, in which member states are competent.          

What political/legal difficulties
did Bulgaria encounter in the negotiation of the Euro-Plus-Pact, in particular in relation to the implications of the Pact for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process.

From the little available information on the negotiations, it appears that the difficulties encountered during the negotiations at the EU level were mainly related to preserving the right of the Member States to independently conduct their tax policies. The position of the Government on the Euro-Plus Pact was never presented in a consolidated fashion and one needs to look at the different debates in order to extract parts of it. The position can be summarised in the following way. The Government supported the Pact as part of the measures designed to manage the Euro crisis and was keen for the Pact to include non-Eurozone Member States, in order to be able to participate in the creation of the solutions. However, an important cornerstone of the Bulgarian position was the abovementioned difficulty that issues of common taxation must be left out of the Pact. The Government supported the predominance of the measures in the Pact because they overlapped to a great extent with the measures the Government wanted to take anyway.

There are several main points of discussion that transpire from the numerous occasions that the Euro-Plus Pact was discussed at the National Assembly. While all of them are discussed in detail below a short summary is in order. A major point that was discussed was Bulgaria’s participation in the EU integration, generally. The Pact was presented as an important political opportunity and a gateway for Bulgaria to strengthen its role in the integration process. In that regard, a certain part of the discussion dealt with the issue of a two-speed Europe, which Bulgaria wanted to prevent or, failing that, not to be left in the ‘second speed Europe’. A more specific, but equally important, part of the integration-related debate was the point on Bulgaria’s Eurozone membership. In that regard, the debate focused on how the Pact would or should relate politically as well as legally to that membership. Another major point that appeared in the debates was taxation. Constantly, during the debates, the national representatives expressed concerns about a possible effect of the Pact on the sovereign power of the National Assembly to set the taxes within Bulgaria. The Government, in turn, repeatedly assured the national representatives that this fundamental interest of Bulgaria was protected. The third major point of discussion was focused on the prudence of the decision to limit, even if only politically, the freedom of manoeuvre of Bulgaria. The main question in that regard was why Bulgaria should be too strict in its policies when its economy needs to grow bigger and faster and this necessarily involves at some point greater spending.

The fourth major point was the political/legal nature as well as content of the commitments Bulgaria made under the Pact. On the nature of the commitments, the Government repeated time and again that the Pact was a political act containing political commitments and that the Government did not bound Bulgaria for which the approval of the National Assembly is required. On the content of the commitments, there was a great deal of controversy. The Government held that its actions in the scope of the Pact were stemming from its own policy and were not required by the Pact. However, the opposition insisted on its view that the Government’s actions such as increasing the retirement age were adopted in order to fulfil commitments the Government made at the EU level, that were hidden from the public. The fifth major point of discussion, relating to the previous one, was on the issue of transparency. On various occasions, national representatives from the opposition criticised the Government for the lack of transparency during the negotiation of the Pact and for the actual commitments made. Keeping this general overview in mind, it is now necessary to consider the Euro-Plus Pact discussions in detail.

The Euro-Plus Pact created a lot of controversies ever since the first time it was mentioned in the plenary hall of the National Assembly. This happened on 24 March 2011 when the Prime Minister Boyko Borissov introduced the Pact, shortly before he flew to Brussels to attend the European Council meeting adopting it. Following this statement, the Euro-Plus Pact was discussed several times. An overview of all of the discussions is needed to better understand and contextualise the debates relating to the Euro-Plus Pact.

The discussion on 24 March 2011,[1] as already indicated, was the first mentioning of the Euro-Plus Pact at the National Assembly, right before the European Council meeting. The Prime Minister started with an explanation of when is the Council of Ministers obliged to inform the National Assembly of its actions at the EU level. In sum, he said that there is no such legal obligation when it comes to the actions of the European Council, as it does not adopt legislative acts. However, the Prime Minister stated that he will explain the position which he will present at the European Council with respect to the Euro-Plus Pact. As such this is the only publicly available record of anything close to a negotiation position of the Government for the Euro-Plus Pact before its adoption.

The statement of the Prime Minister covered four main points. The first point was the significance of the Euro-Plus Pact as a key process of integration within the EU framework. The Euro-Plus Pact was seen as the way in which Bulgaria can become “an active participant in the European community and in the European economic family”. The support of Bulgaria for the Pact was seen as crucial in order to avoid the dangerous consequences of a two-speed Europe and of being left outside the general integration processes in the EU. The political support was seen as securing a place for Bulgaria on the table for discussions and as making Bulgaria part of the decision-making for the completion of the internal market and the future economic policies in Europe.

The second point was related to a great extent to the first one in that it dealt with a specific area of integration in which Bulgaria did not want to be left behind – the Eurozone. In particular, the view of the Prime Minister was that expressing support for the Euro-Plus Pact was an important stepping stone in view of Bulgaria’s desire for future participation in the Eurozone. The support for the Pact was said to be an opportunity “which will make the possibility for the future membership in the Eurozone a real one”.

The last two points concerned the non-politically-opportunistic reasons for supporting the Pact. In the view of the Prime Minister, in terms of interests, the “political declaration”, as he called it, will not be controversial for Bulgaria because the things that are expected to be included are either in part already achieved by Bulgaria or, with respect to the other part, the views of Bulgaria and the other Member States on how to proceed are similar. On the already achieved points, reference was made to the fact that Bulgaria was among the States with the lowest debts within the EU. On the similar views, the Prime Minster referred to the proposals that Bulgaria was going to make in the negotiations of the Euro-Plus Pact. In that regard, the Prime Minister stated that the Government has prepared a National Plan for Financial Stability in the context of its governance strategy. Part of the measures envisioned in this Plan was going to be proposed at the European Council meeting. The Prime Minister referred to eight general measures: (1) increase in the competition and limiting of the influence of monopolised structures; (2) modernisation of the education and science systems; (3) increase in innovations; (4) improvements in the regulatory framework and in the business environment; (5) a reform in the labour market;[2] (6) realisation of a pension reform;[3] (7) improvement of the fiscal frameworks; and (8) better and more transparent governance of the financial sector.

The fourth and last point in the statement of the Prime Minister dealt with the basic interest of Bulgaria in the negotiations. This basic interest is the independence in the area of tax policy. The low levels of taxation in Bulgaria are seen as the main competitive advantage of Bulgaria. The Prime Minister reassured the national representatives that the national interests of Bulgaria will be defended strongly and direct or indirect increase in taxation will not be allowed.

The statement of the Prime Minister attracted the comments of only one national representative who pointed out that even if the Euro-Plus Pact was a political declaration the other points on the agenda of the European Council such as the amendment of Article 136 TFEU and the Six-Pack are of a different character. Thus, it was pointed out that according to Article 105(4) CRB[4] the Prime Minister was obliged to inform the National Assembly of the results (sic!) of the European Council meeting. This last-moment briefing of the National Assembly on the Euro-Plus Pact became a main critique later-on against the Government with respect to its involvement in the Euro-crisis measures.

A few days later, on 30 March 2011, in the joint session of the Committees on European Affairs and Oversight of the European Funds and on Budget and Finance, the Euro-Plus Pact was discussed in the context of the discussion on the position of Bulgaria on the Six-Pack.[5] On the Euro-Plus Pact, the Deputy Minister for Finances gave a short overview and highlighted the main reasons for Bulgaria to participate in the Euro-Plus Pact. According to her, the main goals of the Pact overlap with the goals of the Government – increased competitiveness, employment, stability of the public finances and strengthening of the fiscal stability. It was also considered that the Pact was going to be an additional incentive for the economic reforms in Bulgaria – free competition and limiting the monopolies, more innovations, improved education and science, regulatory framework, reforms of the labour market and the pension reform. There were several questions asked on the Pact in the meeting. Those were (1) what would be the relationship between the Euro-Plus Pact and the SGP to the extent that there is no complete overlap of the Member States; (2) what would be the relationship between the Euro-Plus Pact and the Stability Fund; (3) is a common corporate taxation going to be adopted with the Pact; (4) was there going to be enforcement mechanism for the rules in the Pact; (5) how was the decision made to join the Pact? With respect to the last question, a critique was made by a representative from the Blue Coalition that such a solid and sovereignty-limiting instrument[6] was accepted without the prior agreement of the National Assembly, without debates in the plenary hall and without open consultations.

In her answers the Deputy Minister started by saying that the Euro-Plus Pact was a political commitment which does not contain specific commitments prescribing a particular course of action or financial commitments and that the ESM was a completely different document and the two were not connected. The explanations with respect to the ESM are included in the answer to Question VIII.2. As regards the taxation question, the answer was that, indeed, in the beginning there was such a provision on common taxation. However, at the moment of talking, the text was referring to coordination of tax policies which was completely different. The Deputy Minister continued by saying that it was against the interest of Bulgaria to support external models which would force it to increase its taxes and that Bulgaria had made this clear. At that time the question of harmonising tax rates was not even being discussed. With respect to the enforcement mechanisms, such were not included in the Pact as it was a political commitment and the enforcement was to be dealt with in the Six-Pack.

The main discussion of the Euro-Plus Pact was on 4 May 2011[7] where all parties joined the debates. The Prime Minister started the discussion by reintroducing the Pact and giving more explanations about it as well as more details on the reasons for supporting it. He heavily emphasised that it was a political act which Bulgaria needed to support in order not jeopardise its European development. After briefly explaining the history of the Pact, the Prime Minister clarified the concrete consequences stemming from it with respect to Bulgaria.

The Prime Minister focused on six main points. On the first point, with respect to the obligations of Bulgaria flowing from the Pact, the Prime Minister stated that it should be clear that what was at hand was a set of measures which Bulgaria had to adopt anyway in order to break away from the bottom of the competitiveness and innovativeness charts in Europe and join the Eurozone. This meant promoting competitiveness and employment opportunities and increasing the stability of the public finances and strengthening the financial stability in general.

The next three points related to salary increases and labour productivity and will be considered together. On the second point, with respect to the obligation to stop wage indexation – the Prime Minister state that there was no such formulation in the Pact. According to the Prime Minister, this option was abandoned in the first drafts of the Pact. The final version left much more room for interpretation and expressly stated that any reconsideration of the salary-setting arrangements must respect the national traditions of social dialogue and collective bargaining. On the third point, with respect to the requirement that salaries should not be increased at a higher rate than the increase in productivity – in the words of the Prime Minister, such requirement was also lacking. According to the Prime Minister, due to the low salaries in Bulgaria, the rate of increasing the salaries was to be higher than the one of the increase in productivity for the years to come. However, he continued, the difference in the rates should not be too big as this would lead to the ‘Greek scenario’ and was contrary to the Eurozone ambitions of Bulgaria. On the fourth point, with respect to the labour productivity, the Prime Minister explained that notwithstanding the low labour productivity in Bulgaria, at that time Bulgaria was not facing big problems due to the low current-account and trade balance deficits. This meant that the Euro-Plus Pact did not preclude increases in the salaries. What it did, however, was to prevent such increases from happening in an arbitrary way – that is, being paid more than the value of the actual work done.

On the fifth point, with respect to the concerns that Bulgaria will be obliged to increase the retirement age, the Prime Minister stated that this was a possibility but not a mandatory requirement of the Pact. Irrespective of the Euro-Plus Pact, the increase of the retirement age was a possible response by the Government in the case of a lack of funds to support the pension scheme.

On the sixth and final point, with respect to the tax policy, the Prime Minister repeated to the national representatives that the text of the Pact stated “Direct taxation remains a national competence”.[8] He reassured the national representatives that the tax policy of Bulgaria will be decided by Bulgaria alone. The Prime Minister concluded by stating that clear principles that are backed by legislative measures are needed to deal with the crisis and prevent its reoccurrence. The introduction of such measures was suggested by the Government even before the decision to join the Pact and it was, thus, not provoked by the Pact. The floor was consequently open for statements and questions by the national representatives.

Ivan Kostov (the Blue Coalition) expressed a position evolving around the relationship between the Euro-Plus Pact and the future membership of Bulgaria in the Eurozone. In particular, he asked whether the political support for the Pact on behalf of Bulgaria was tied to an assurance that it will be invited to join the Exchange Rate Mechanism (ERMII). According to Mr Kostov, the Blue Coalition insisted for a policy that will lead to the membership of Bulgaria in the Eurozone and not for a policy that burdens Bulgaria with extra criteria which are not a necessary precondition for joining the ERMII.

Plamen Oresharski (Coalition for Bulgaria) focused on the perception that the Euro-Plus Pact was tailored to address to a great extent the issues of the old and developed economies and to a much lesser extent the issues concerning the newly-formed market economies in the new Member States. Mr Oresharski referred to four issues to show how the new market economies were at a disadvantage. Those were: (1) the mechanism for common corporate tax base, (2) limitations in whatever form on the salaries, (3) the significance of the current-account and trade balance deficit indicators and (4) the system of contributions to the ESM. According to Mr Oresharski, the first three issues have different significance for the developed economies and for the new market economies. In the case of the latter, in his opinion, more discretion and freedom should be given in order to reach the level of development of the latter. The fourth issue related to the question whether the relative future share of Bulgaria in the ESM would be disproportionate, considering the low debt of Bulgaria, and, thus, force Bulgaria to indirectly finance the debts of other Member States

Aliosman Imamov (DPS) expressed support for the place of Bulgaria in the Euro-Plus Pact. However, this support was coupled with a number of concerns as well. The first and main concern was, as with Mr Kostov, the membership in the Eurozone. The position that was expressed was that the participation of Bulgaria in the Pact must in every possible way be connected with or otherwise subjected to guarantees for joining the EMRII. The other concerns were put forward in the form of questions. In particular, what would be the advantages and disadvantages for Bulgaria flowing from the Pact, before and after the eventual membership in the Eurozone; what would be the impact on the changes in the salaries in Bulgaria; to what extent would the economic growth be impacted by the Pact; what are the advantages and disadvantages for Bulgaria that are stemming from the attempts for partial regulation of the corporate tax bases? Finally, Mr Imamov concluded by focusing the attention to the new, at that time, developments increasingly regulating financial aspects, such as the European Semester, which, according to him, are purely national issues. As such Mr Imamov, indirectly, raised certain subsidiarity concerns but without elaborating further on them.

Pavel Shopov (ATAKA) expressed unequivocal and unreserved support for the participation of Bulgaria in the Euro-Plus Pact. The support was based on three points. First, the Pact was seen, with respect to other States that speculated and created the crisis, as a guarantee that such crisis will not repeat. Second, the Pact did not entail that Bulgaria was going to pay for the debts of the other States. Third, it was high time that Bulgaria left the currency board and the Pact was seen as helping in that regard.

Menda Stoqnova (GERB) expressed full support for the participation of Bulgaria in the Euro-Plus Pact. She stated that the questions that were already asked dealt with details relating to EU measures that are on the agenda of the Committee on European Affairs and Oversight of the European Funds, such as the Directive on the common tax base. In her opinion the issue at hand was weather Bulgaria wants to be part of the European family and be member of the Eurozone. Since the answer to this is in the positive, Bulgaria’s place is in the Pact in order to participate in the discussions relating to the new policies and the texts of the new legislative initiatives. The position of GERB was, therefore, one of supporting the participation of Bulgaria in the Pact because of the desire to be true Europeans.

Then the Prime Minister gave a few short answers before leaving the floor to the Ministers to elaborate in further details on the questions and comments that were made. Firstly, with respect to the Eurozone, the Prime Minister stated that the desire the join it has not wavered and that the participation in the Pact was necessary in that respect. This participation was also needed in order to know first-hand what are the developments in Europe and not to learn about them from the media. Secondly, with respect to the tax policy, he referred to the ‘battle’ that the Finance Minister fought for two months, side by side with his Slovak colleague, to have the mentioning that the tax policy was a national competence. Finally, the Prime Minister concluded with the created understanding that no obligations for making financial contributions flow from the Pact.

Next, the Minister of Finances, Simeon Djankov, took the stand and addressed four questions. First, with respect to the issue whether participation in the Euro-Plus Pact was negotiated as a precondition to entering the ERMII, the answer of the Minister was – no. This was not considered appropriate by the Government as a condition at that point. It was considered that Bulgaria had to show to its partners that it had done its job of keeping low deficits and debt and then the political decision to enter the ERMII was to be made. Second, and connected to the first point, with respect to the current-account deficits, the Minister stated that Bulgaria has shown that it can balance its deficits during the crisis. As such the current-account deficits were not posing a problem for Bulgaria to join ERMII. However, the outstanding issue in that regard was how to make sure that the future Governments was going to be strict and follow this discipline? The answer to this challenge the Minister referred to Bulgaria’s own initiative to adopt its own financial stability pact which would include various measures including amendment in the Constitution (see the answer to Question III.2). Only after reaching this goal the Minister thought it appropriate to call on the other Member States to act in the direction of Bulgaria entering ERMII.

Third, with respect to tax base, the Minister made references to earlier drafts of the Pact. In particular, he reminded the national representatives that in the first draft it was spoken of common tax rates. The Minister and his Slovak colleague completely rejected this. Minister Djankov said that the only way he could have supported this was if the Bulgarian tax rate was adopted as the EU level. Then, the negotiations turned to a common tax base which was the object of heated discussions and abandoned in the end with the result that the Pact expressly reserves the tax policy to the Member States’ competences. Fourth, with respect to the contributions to the ESM, the Minister restated to a great extent what was said in the joint session of the two Committees on 30 March (further discussed in Question VIII.2).

Finally, the Minister of Foreign Affairs, Nikolay Mladenov, completed the debate with a few comments. First, the Minister reminded that the opening of the Pact for non-Eurozone Member States was done after States, such as Bulgaria, insisted on it. This was done because a two-speed Europe should be avoided as much as possible and Bulgaria should not be a reason for a two-speed Europe. Second, the attention was focused on the issue of the rate with which salaries are increased. The Minister referred to the aftermaths of Bulgaria’s 1996 economic crisis and stated that it would not be serious to maintain in the National Assembly that salaries should grow faster than the labour productivity. He referred Hungary’s decision to do exactly this some years ago and that the Hungarian economy was still trying to recover from it. Then, the Minister quoted a statement of the Prime Minister during the European Council meeting in March saying that Bulgaria will participate in the coordination of policies only insofar as it does not slow down its economic growth. Finally, the Foreign Affairs Minister commented on the preparation of Bulgaria to join the Eurozone and stated that the participation in the Euro-Plus Pact was an important step in that regard. Although the participation was not a formal (legal) requirement to enter ERMII, and consequently the Eurozone, it was practically a mandatory requirement. With this the central debate on the Euro-Plus Pact was concluded.

The discussion on 20 May 2011[9] was in the form of questions from Georgi Pirinski (Coalition for Bulgaria) to the Foreign Affairs Minister, which were based on the position of Bulgaria at the European Council meeting on 24 and 25 March 2011. The discussions relating to the Euro-Plus Pact following this one, referred to the Pact only in the context of debates on different points. Mr Pirinski’s questions dealt with (1) the lack of debate in the National Assembly before the Prime Minister announced that Bulgaria will join the Euro-Plus Pact, (2) the argument that joining the Pact was in order to prevent a two-speed Europe, (3) the relationship between the Pact and the membership in the Eurozone.

In particular, on the first question, Mr Pirinski criticised the last-minute approach of the Government in informing the National Assembly. He stated that Bulgaria’s position at the European Council meeting would have been stronger and more comprehensive if the National Assembly was consulted earlier-on and a clear mandate was given for the negotiations of the Euro-Plus Pact. Even more, the critique was that by proceeding this way the Government, instead of looking for the support of the National Assembly, was creating unnecessary division and politicisation. On the second question Mr Pirinski emphasised that a two-speed Europe is not only about willingness to participate but also about ability to participate. The differences between the stronger and the weaker economies created the two-speed Europe in that case. Mr Pirinski also pointed to the divergence in the statements of the Prime Minister and the Finance Minister on 4 May 2011 when it came down to the rate of salary increases. On the third question, Mr Pirinski pointed once again to the fact that Bulgaria was not a Member States with irresponsible budget. According to him, Bulgaria’s conservative budgetary policy was a capital that the society accumulated with great sacrifices. Mr Pirinski saw it natural to respond to the invitation to participate in the Pact by requesting commitments for entering into the ERMII, where, in his opinion, it was not about meeting the Maastricht criteria but about making a political decision.

On the first question the Minister disagreed that the Government was confrontational towards the National Assembly. He reminded that the Prime Minister went to the National Assembly right after the decision was made to participate in the political declaration called the Euro-Plus Pact. It was emphasised that the Pact was a political declaration and not an international agreement in need of ratification. Thus, the Government fully observed its legal obligations.[10] The Minister stated that when the Pact was initially reviewed, three options were considered with respect to the participation in it. The first one was not joining, but since the Pact was going to be mandatory to Eurozone Member States and Bulgaria wanted to join the Eurozone, this option was not considered viable. The second one was to join the Pact at a later stage but it was also considered not viable because it would have prevented Bulgaria from expressing and protecting its positions at the crucial discussions that were to be made in that circle. Thus, the last option was accepted, which was joining from the very beginning and protecting the Bulgarian interests from the onset.

On the second question, the Minister agreed that there are different ways in which a two-speed Europe could be formed. One of them is when States, such as Bulgaria, decline to participate in initiatives aimed at further integration. This was considered as a mistake and against the Bulgarian interests. The Minister also said that the existence of richer and poorer States was a reality with which Bulgaria has to deal and not to ignore and that the poorer States have different tools to deal with this problem. The main tool for Bulgaria is the low tax rate and it was vigorously fought over at the European level.

On the third question, the Minister answered that he is convinced that Bulgaria should not attempt making political trade-offs in areas where there are clear criteria that are set out in the Treaties and that must be fulfilled. In the case of joining the ERMII, the Minister stated, the criteria were clear and the Ministry of Finance and the whole Government was working for their fulfilment.

The discussion on 15 June 2011[11] was in the context of the debates on the amendments of the LPSB.[12] The proposed amendments were mainly including rules for 2% deficit and limiting the State’s redistribution role at a level of up to 40% of the GDP. Interestingly, while Bulgaria’s Euro-Plus Pact commitments, according to the Commission included the strengthening of the domestic fiscal framework by adopting a Financial Stability Pact including binding numerical fiscal rules,[13] the explanations to the LPSB amendments did not make reference to the Pact. Instead, reference was made to the SGP, which is something different. Nevertheless, some of the national representatives connected the proposed amendments with the Pact in their comments without elaborating on this connection.

Mihail Mikov (Coalition for Bulgaria) heavily criticised the proposed amendments and referred to the Euro-Plus Pact by questioning its legal/political nature. According to him, if the LPSB amendments under consideration were in the context of the Euro-Plus Pact, what exactly were the commitments made – purely political or maybe the Prime Minister lied to the National Assembly. He asked whether they were commitments relating to changes in the legislation; to what extent are they binding on Bulgaria, while it is not within the Eurozone; and what are the possibilities that these changes in the LPSB will benefit Bulgaria with respect to its relationship with its European partners?

Martin Dimitrov (the Blue Coalition) started by referring to proposed amendments to the LPSB, that he and other national representatives had initiated in September 2010, which also called for stricter budgetary discipline. While supporting the amendments that were tabled, Mr Dimitrov expressed concerns with respect to the Euro-Plus Pact and even called for adopting a formal position on the Pact, which did not happen eventually. Substantively, the critiques related to the allegations that, through the Pact, the EU was determining the taxation in Bulgaria and the level of the salaries in Bulgaria; that the Pact required Bulgaria to give €3 billion in guarantees and €6 more billion in potential loans – that is to pay for bankrupting States, which even have a higher level of average wages. The Finance Minister, however, did not respond to the statements of these two national representatives.

The discussion on 22 July 2011[14] was in the context of the debates on the adoption of a Decision of the National Assembly. There were actually two draft Decisions proposed – one by the majority and one by the minority. Naturally, the one of the majority was eventually adopted. Nevertheless, it is worth looking at the debates that the proposals spurred. The draft Decisions were to a great extent a reaction to the Commission’s Recommendation to Bulgaria of 7 June 2011.[15] Kornelia Ninova (Coalition for Bulgaria) presented the draft Decision of the minority. In her presentation she pointed out all negative observations of the Commission and blamed them on the policies of GERB. More specifically, for the Euro-Plus Pact, Ms Ninova highlighted the part of the Commission Recommendation stating that some of Bulgaria’s commitments under the Pact included the suspension of pension indexations and salary increases, the eventual increase of taxes and the retirement age. Sergei Stanishev (Coalition for Bulgaria) made the same comments on the Pact. While the debate was quite long on the draft Decisions, very little was said constructively. It is worth noting with respect to transparency that Ms Ninova and Mr Stanishev said that it was through the Recommendation that the National Assembly learned what the Bulgarian commitments under the Pact were.

The discussion on 28 July 2011[16] was in the context of the debates on the amendment of the CRB (see the answer to Question III.2). The Euro-Plus Pact received a brief but crucial mentioning. It was stated by a national representative of the majority that the measures of the Government to inter alia increase the stability of the public finances address the aims of the Euro-Plus Pact. Part of these measures is the Bulgarian Pact for Financial Stability which includes the proposed amendment to the Constitution.[17] As such, although in the explanations to the proposed constitutional amendment the Euro-Plus Pact was not mentioned but only the SGP was (as in the case of the LPSB amendment), the proposed amendment was to be seen as implementing the Euro-Plus Pact as well. During the debates, a reference was also made to the opinion of the governor of the BNB that was expressed in the constitutional Committee. According to him, the inclusion of the new budgetary rules was mandated by the Euro-Plus Pact and EU law in general. Furthermore, while he did not comment on whether the rules must be constitutionally entrenched or included in ordinary laws, according to him, the former option did not contradict the Euro-Plus Pact because the Pact gave freedom to the Member States as to the type of instruments used when implementing it.

The discussion on 14 December 2011[18] was in the context of the introduction by the Foreign Affairs Minister of the results of the meeting of the European Council on 9 December 2011, which discussed new measures for dealing with the Euro crisis. In particular, the focus was on the decision that was taken to conclude, what would become known as, the “Fiscal Compact” in the beginning of 2012 as an international agreement and not as an act within the EU framework due to the UK’s veto. Here again it was emphasised that in all EU discussions Bulgaria underlines the importance to have the right to follow its own tax policy guaranteed, as it was highlighted in the Euro-Plus Pact. This discussion of the 9 December meeting again sparked the debate on the Pact but new arguments were lacking. 

The criticisms relating to the Euro-Plus Pact were delivered by Meglena Plugchieva (Coalition for Bulgaria). She focused on the issues of transparency and Bulgaria’s commitments under the Pact. On the issue of transparency, she argued that the Government had to consult with the National Assembly before the 9 December meeting. In her view, this lack of debates before the 9 December meeting contradicted not only the national Parliaments’ rights under the Lisbon Treaty but also the CRB.[19] In that regard, she also referred to the way the Euro-Plus Pact was presented earlier that same year, right before the Pact was agreed upon in Brussels. Ms Plugchieva said that no one in the National Assembly understood, at the time, what was that Pact all about and, months later, one had to consult the European Council’s website to understand the commitments. She expressed the concern that this was repeating. Then, Ms Plugchieva turned to the commitments. Firstly, she referred to the pension reform and the increase of the retirement age. In her words this was done just a few weeks before exactly because Bulgaria had to ‘report’ on its commitments at the EU level.[20] Secondly, Ms Plugchieva, again, opened the question of corporate taxation and said that the Euro-Plus Member States had to ‘report’ in the following year (2012) on unification or common base for a common tax policy in terms of increase of the corporate taxes, as required by the Pact.

The Foreign Affairs Minister responded that the criticisms were unfounded. In particular, as regards the transparency criticisms, the Minister underlined that the process was just beginning and that a decision, for which the National Assembly was not consulted, had not been made. According to him, the legal framework was unclear and if Protocols 13 and 14 to Lisbon Treaty were to be amended ratification would not have been needed. He called for understanding and patience and said that when there was more clarity the National Assembly was going to be informed. As regards the issue of taxation he repeated once again that nothing in the Euro-Plus Pact obliged the Member States that had agreed to it to harmonise their corporate taxes. For the first time, however, the determination of the taxes in Bulgaria by the National Assembly was referred to as an issue of sovereignty which the Government was not going to transfer.

The discussion on 10 February 2012[21] was in the context of questions by national representatives on the Statement of the Members of the European Council of 30 January 2012 and, in particular, the point stating that the Member States call for “progress in structured discussions on the coordination of tax policy issues and the prevention of harmful tax practices in the context of the Euro Plus Pact”.[22] Naturally, once again, the question of taxation was raised. First, the Prime Minister referred to the wording of the Pact which keeps the tax policy within the national competences. Second, he referred to the Decision of the National Assembly on Bulgaria’s participation in the Fiscal Compact,[23] which prohibited Bulgaria to make commitments for the harmonisation of tax policies. The Prime Minister reassured the national representatives that he clearly stated at the European Council meeting that Bulgaria shall not sign an agreement containing such commitments. This was the last time the Euro-Plus Pact was referred to somewhat more substantively before its place was taken by the Fiscal Compact and the new debates concerning its adoption and implementation. No other discussions were found in which the Pact was more than just mentioned.

What other information is relevant with regard to Bulgaria and the Euro-Plus-Pact?

The rules and practices of the budgetary process were slightly amended in 2011 (proposed on 26 May and adopted on 30 June). This amendment effectively included a budgetary discipline rule of 2% structural deficit and limiting the State’s redistribution role at a level of up to 40% of the GDP as well as the inclusion of a budgetary forecast for three years ahead in the LPSB (see the answer to Question VI.1). During that time there was also a pending proposal for an amendment of the CRB which is further explained in Question III.2. However, these changes were not made in the context of the Euro-Plus Pact, at least not explicitly.

It is not easy to find what measures specifically have been adopted in reaction to the Euro-Plus Pact because of the lower level of transparency surrounding them, which was most probably due to the highly politicised nature of those measures. In any event there are several measures that can be identified by consulting Bulgaria’s NRPs and the debates in the National Assembly.

According to Meglena Plugchieva (Coalition for Bulgaria), in her statement on 14 December 2011 in the National Assembly, the increase in the retirement age that was done a few weeks earlier was one of the Euro-Plus Pact commitments that the Government was hiding. According to her, the change was made because the Bulgarian delegation ‘was supposed to report’ on its fulfilment of the Euro-Plus Pact commitments. The reform, to which Ms Plugchieva was referring, was the amendment of certain provisions in the Social Security Code that were contained in the final and transitional provisions of the Law on the Budget for the Social Security for 2012.[24] The amended Article 68 of the Social Security Code provides that from 31 December 2011 onwards the retirement age will increase with four months every year until the age becomes 67 (used to be 65). In the explanations to the draft Law, with respect to the increase of the retirement age, there is no mentioning of the Euro-Plus Pact. There is only a reference to a Decision of the Council of Ministers adopting a Report on the results and the required improvements in response to the Council Recommendations from 2011.[25]

The amendment of the Social Security Code even attracted the veto of the President but it was overcome in the National Assembly. The increase in the retirement age was one of the four reasons the President pointed out for vetoing the Law. In his opinion, by doing this the State was being unpredictable and inconsistent in the determination of the rules in its social policy. In that regard the President referred to an agreement reached just a year ago on the pension reform which was being violated with these changes. However, in the reasons of the President, there was no mentioning of the EU and/or the Euro-crisis measures as being the ones to be blamed. Accordingly, while there were criticisms in the National Assembly that these measures were adopted in reaction to the Euro-Plus Pact, they were never officially earmarked as such.

The only earmarked measures as such were found in the NRP of Bulgaria and, more specifically, its 2012 and 2013 Updates. In the 2012 Update it is stated that the implementation of the measures set in the NRP also delivers on the country’s commitments under the Euro + Pact for fostering competitiveness, employment and public finance sustainability”.[26] However, specific measures were barely identified.

As regards competitiveness, the Report states that this Euro-Plus Pact commitment is being achieved through “the implementation of the measures under national target 2 for investments in R&D and national target 4 for education, as well as the measures for improving the business environment (GF 3)”. On this point in the Report a more specific explanation can be found. Under the heading Building and Improving the Scientific Research and Innovation Infrastructure one of the points is:

Two grant procedures for building and expanding the innovative infrastructure and fulfilling the country’s commitments under Euro+ Pact are underway − they are currently at the stage of evaluation of project proposals (as defined in NRP 2011−2015) – the procedure Establishing New and Strengthening the Existing Technology Transfer Offices in the amount of EUR 5 million, and Procedure Establishing New and Strengthening the Existing Technological Centres in the amount of EUR 20 million”.[27]

As regards employment, the Report states that this Euro-Plus Pact commitment is being achieved through “the implementation of the measures under national target 1 for employment and national target 4 for education”. However, by looking at the explanatory text to the measures again no specific measure appears. It is only stated that the “programmes and measures implemented in these areas will also contribute to delivering on the commitments undertaken under the Euro+ Pact and strengthen the operation of the factor to sustainable economic growth “Ensuring better and more efficient utilisation of the economy’s labour potential””.[28] The areas the quote is referring to are “unemployment and the social consequences of the crisis with a special focus on youth unemployment and long-term unemployment”.[29]

As regard strengthening fiscal consolidation, the Report states that this Euro-Plus Pact commitment is being achieved through actions included in the CP. In the CP of Bulgaria for 2011-2015, (the only CP where the Euro-Plus Pact was mentioned) it was just stated that the policies presented therein for “further enhancing the sustainability of public finances, as well as the policies for promoting the competitiveness of the economy” also address the Pact’s objectives.[30] Again, no further identification of measures was made.

In the 2013 Update only one measure was identified that was meant to implement Bulgaria’s commitments under the Euro-Plus Pact. This was a draft for a Law on Innovations, under national target 2.[31] According to the explanation in the Update, the law envisages to set up “an Innovations Agency the chief task of which would be to provide advice to businesses on developing their innovation activities and administer public funds in the capacity of second-level spender of budget appropriations. Grant financing will be provided on a competitive basis under national and international programmes”.[32] However, as it was pointed out in the Update, the early parliamentary elections in 2013 may delay the adoption of the Law[33] and they did to the extent that the draft Law is still not properly submitted to the National Assembly for consideration. That is, the only measure that was openly promoted as an implementation of the Euro-Plus Pact is yet to be adopted. There was no mentioning of the Euro-Plus Pact in the 2014 Update and it is unlikely that there will be a mentioning of it in the future Updates either.

[1] National Assembly, Stenographic records of the 212th meeting, 24 March 2011.

[2] According to the Prime Minister, this reform was to be aimed at the introduction of the flexibility principle combined with security and maintenance of law taxes on labour to stimulate the employment.

[3] According to the Prime Minister, this reform was to be aimed at limiting the schemes for early retirement and at determining the age of retirement in accordance with the life expectancy

[4] The provisions states that:

“(4) When participating in the drafting and adoption of European Union instruments, the Council of Ministers shall inform the National Assembly in advance, and shall give detailed account for its actions.”

[5] National Assembly, Stenographic records of the 240th meeting, 30 March 2011.

[6] The concerns over the limitations on the sovereignty were not elaborated further.

[7] National Assembly, Stenographic records of the 225th meeting, 4 May 2011.

[8] European Council 24/25 March 2011, Conclusions, EUCO 10/1/11 REV 1, 20 April 2011, Annex I, The Euro Plus Pact Stronger Economic Policy Coordination for Competitiveness and Convergence 13, 20.

[9] National Assembly, Stenographic records of the 232nd meeting, 20 May 2011.

[10] It should be pointed out here that obviously the Minister and the national representative were talking about consulting the National Assembly from different points of view, the division being politico-legal.

[11] National Assembly, Stenographic records of the 242nd meeting, 15 June 2011.

[12] These amendments will be discussed in further detail in various answers infra. Only the statements of the national representatives relating specifically to the Euro-Plus Pact will be considered here.

[13] Commission Staff Working Paper, Assessment of the 2011 national reform programme and convergence programme for Bulgaria, SEC(2011) 711 final, 7.

[14] National Assembly, Stenographic records of the 259th meeting, 22 July 2011.

[15] Commission Recommendation for a Council Recommendation on the National Reform Programme 2011 of Bulgaria and delivering a Council opinion on the updated Convergence Programme of Bulgaria, 2011-2014, SEC(2011) 818 final, Brussels, 7 June 2011.

[16] National Assembly, Stenographic records of the 261st meeting, 28 July 2011.

[17] See the answers to Questions III.2 and III.7.

[18] National Assembly, Stenographic records of the 297th meeting, 14 December 2011.

[19] However, it is to be noted that no specific provisions were cited and the argument was rather political than legal.

[20] The reference, while not explicit, was mainly to the amendment of Art 68 of the Code for Social Security through the Law for the Budget for the State Social Security for 2012, SG 100 of 20 December 2011.

[21] National Assembly, Stenographic records of the 315th meeting, 10 February 2012.

[22] Statement of the Members of the European Council, Towards growth-friendly consolidation and job-friendly growth of 30 January 2012, 4.

[23] National Assembly, Decision for the Participation of the Republic of Bulgaria in the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, SG 10 of 3 February 2012.

[24] Law on the Budget for the Social Security for 2012, SG 100 of 20 December 2011.

[25] Council of Ministers, Decision № 605 for Approval of Report concerning the achieved results and the necessary follow-up actions in response to the Recommendations of the Council of the European Union concerning the National Reform Programme of the Republic of Bulgaria (2011-2015) and the Opinion of the Council of the European Union concerning the Convergence Programme of the Republic of Bulgaria (2011-2014) of 5 August 2011.

[26] Europe 2020: National Reform Programme, 2012 Update (Sofia, April 2012) 7.

[27] Ibid., 41.

[28] Ibid., 61.

[29] Ibid.

[30] Convergence Programme of the Republic of Bulgaria: (2011–2014), (Sofia April 2011), 7.

[31] Europe 2020: National Reform Programme, 2013Update (Sofia, April 2013), 24.

[32] Ibid.

[33] Ibid., 70.