The Fiscal Compact (Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) was signed on March 2, 2012. Negotiations on this Treaty began between 26 member states of the EU (all but the UK) after the 8/9 December 2011 European Council. 25 contracting parties eventually decided to sign the Treaty (not the Czech Republic).
After ratification by the twelfth Eurozone member state (Finland) in December 2012, the Fiscal Compact entered into force on 1 January 2013. For several contracting parties the ratification is still on-going.
What political/legal difficulties did Bulgaria encounter in the negotiation of the Fiscal Compact, in particular in relation to the implications of the treaty for (budgetary) sovereignty, constitutional law and the budgetary process.
The difficulties encountered during the negotiations at the EU level were related to the topics of tax harmonisation and the participation of Bulgaria, as a non-Eurozone Member State observer, in the Euro Summits. The position of the Government was generally supportive of the Fiscal Compact as it has been generally with the other Euro-crisis measures. However, the support was not unequivocal. It was subject to retaining the competence to determine the taxes at the national level, that is – no tax harmonisation. Another important point for Bulgaria was the participation of the non-Eurozone Member States in the decision-making under the Fiscal Compact. The compliance with EU law and the inclusion of the EU institutions to the highest extent possible was yet another important point for the Government. Furthermore, the Government wanted to make sure that the Fiscal Compact will not involve financial obligations. Finally, a major part of the position of the Government was opting out of Title IV of the Fiscal Compact.
The main issues that were debated in the National Assembly overlapped to a great extent with the position of the Government. This overlap related to the issues of tax harmonisation, participation in Title IV and its added value, financial obligations stemming from the Fiscal Compact and Bulgaria’s status of participation in the Euro Summit. An additional point of discussion that was not very prominent was on transparency and the level of consultation with and accountability to the National Assembly during the negotiation process.
The position of the Government, unlike in the case of the Euro-Plus Pact, was constructed with increased participation of the National Assembly. This can be explained with, first, the heavy criticisms on the exclusion of the National Assembly before Bulgaria joined the Pact and, second, the fact that the Fiscal Compact was going to take the form of an international agreement, which required a ratification. Nevertheless, the Government was still criticised for not consulting the National Assembly before the meeting on 9 December 2011 when the Eurozone Member States decided to adopt further measures through an international agreement. This criticism was to a certain extent related to the fact that, even though the Prime Minister explicitly stated at the European Council meeting that the decision on participation in the Compact will be taken only after consultations with the National Assembly, he expressed support for the new rules and measures that were discussed.
The criticisms were expressed from representatives of the Blue Coalition, ATAKA and the Coalition for Bulgaria. The leitmotif was that if the National Assembly was consulted beforehand and it gave a clear mandate to the Government to discuss those issues, Bulgaria would have had a stronger position during the discussions. Ivan Kostov (the Blue Coalition) called upon the Government to present a framework position to the National Assembly stating its negotiation position. Otherwise, the Blue Coalition was going to propose a draft Decision which will set out the mandate. The Minister underlined that the process for discussions of the Compact was just beginning and that no decisions were taken for which the National Assembly had to be consulted.
At the 28 December 2011 meeting of the Council of Ministers, a Decision was taken with respect to the participation of Bulgaria in the negotiations. According to this Decision the Council of Ministers (1) approved the expressed intention by the Prime Minister for Bulgaria to participate in the process of preparing a draft International Agreement for Stronger Economic Union after consultations with the National Assembly; (2) approved the draft for the International Agreement as basis for negotiations; and (3) proposed to the National Assembly to approve the participation of Bulgaria in the negotiations on the International Agreement on the basis of Article 86(1) CRB. The verbatim record of the meeting sheds some more light on the Decision. The draft Decision was presented by the Foreign Affairs Minister. He referred to (and as such the Decision was referring to) the version of the draft Agreement that was communicated by the General Secretariat of the Council on 16 December 2011. The Minister also included a preliminary position of Bulgaria. The preliminary position was along two main lines. First, Bulgaria considered that there is a need to further elaborate on the powers and competences of the European Court of Justice (ECJ) under Article 8, Title III of the Agreement. Second, with respect to Title IV it was a priority to have guaranteed the right of the Member States to adopt independently their tax policies. Accordingly, it was going to be insisted that tax harmonisation was expressly excluded from the economic convergence. The Finance Minister added that in the draft agreement there was no mentioning of tax harmonisation which was due to express insistence of Bulgaria and of six other Member States.
The different draft versions of the Fiscal Compact have been discussed with the National Assembly on three occasions behind closed doors – 14 December 2011, 12 and 25 January 2012 but no results from these discussions are publicly available. During the negotiations of the Fiscal Compact, national representatives inquired on Bulgaria’s position on two occasions. The first time, on 13 January 2012, the questions were addressed to the Prime Minister by Martin Dimitrov (the Blue Coalition). Those questions were (1) whether the increased economic coordination meant tax harmonisation; (2) whether guarantees were put in place for Bulgaria not to be bound to pay for the debts of the other Member States; (3) why the draft agreement included an entry-into-force clause which required only 12 ratifications, which was seen to lead to Europe on three speeds. The Prime Minister reiterated that tax harmonisation was never something to which Bulgaria would agree and that Bulgaria was not going to agree to contribute financially to solving the debt problems of richer Member States. No answer to the third question was identified in the statement. The second time, on 20 January 2012, the questions were addressed to the Finance Minister by Georgi Pirinski (Coalition for Bulgaria). Effectively, there was only one question expressing critiques for an alleged lack of consultation with the National Assembly. The point was why the Minister did not consult the National Assembly before sending his letter on 16 January 2012 to the other ECOFIN members in which he expressed position on inter alia Title IV. The answer of the Minister was that the letter was part of the negotiation process with the aim to identify supporters for strengthening the Bulgarian position, nothing else.
Finally, a draft Decision of the National Assembly was indeed proposed by three national representatives from GERB on 24 January 2012. On 25 January the draft Decision was considered by the Committee on European Affairs and Oversight of the European Funds, the Committee on External Policy and Defence and the Committee on Budget and Finance in a joint session. The Report from the joint session approved the participation of Bulgaria in the Fiscal Compact. The operative part of the approved draft Decision contained three cumulative conditions for the participation of Bulgaria in the Compact: (1) Bulgaria will apply the provisions of Title III after the National Assembly ratified the Fiscal Compact; (2) Bulgaria’s participation in the Fiscal Compact does not amount to financial obligations and commitments for harmonisation of tax policies; (3) the Compact will be applied in full only after Bulgaria joins the Eurozone and the derogation under Article 5 of the Act of Accession of Bulgaria and Romania to the European Union is terminated.
The verbatim record again gives further crucial insights. When the draft Decision was presented, it was emphasised that the participation of Bulgaria in the Compact was a historical moment for Bulgaria and Europe. The working version at the time was the version of 19 January 2011. It was mentioned that during the few weeks preceding the Report there were several sessions behind closed doors of the Committees involved discussing the different versions. The Foreign Affairs Minister highlighted that the basic elements of the position of Bulgaria were already fulfilled during the negotiations of the Compact and were reflected in the 19 January working version. Thus, while the draft Decision was meant to set out Bulgaria’s position and mandate in the negotiations of the Fiscal Compact, it becomes clear from the Minister’s statement that the actual negotiation position of Bulgaria had already been formed beforehand.
This position can, to a certain extent, be distilled from the demands that the Foreign Affairs Minister discussed and held to be reflected in the text of the draft Agreement. Several of these demands were related to aligning the Fiscal Compact to EU law and, specifically, preserving the right to follow an independent tax policy and preserving the functioning of the internal market due to its importance for the Bulgarian economy. The other demands were (1) the inclusion of EU institutions, in particular the Commission and the European Parliament; (2) building a clear framework for decision-making within the Compact itself; (3) the exclusion of additional financial obligations for Bulgaria; (4) the inclusion of the possibility for non-Eurozone Member States to participate in the Compact; (5) the assurance that non-Eurozone Member States will be able to participate in meetings of the Eurozone group if new mechanisms were being created, which was rated as a key question for Bulgaria so that it is not excluded from the making of decisions which could influence the rest of the EU.
Then the Minister identified five issues which were still open and provided Bulgaria’s position on some of them. The first issue was on Article 7 and the commitment to support the recommendations of the Commission for finding a violation of the deficit criterion in the framework of the excessive deficit procedure. The position of Bulgaria was in support of the inclusion of the debt criterion as a basis for an infringement procedure. The second issue was on Article 8 concerning the powers of the ECJ to rule on the transposition of the Balanced Budget Rule and the possibility of imposing a sanction of up to 0.1% GDP. The position of Bulgaria was in support of the imposition of sanctions by the ECJ. The third issue was whether there should be an explicit reference in the Compact to the Euro-Plus Pact. The position of Bulgaria was that there should not be any reference. The fourth issue was of the exact participation status (observer, active observer, etc.) of the non-Eurozone Member States and the President of the European Parliament. The fifth issue was on how many and which Member States need to ratify the Compact in order for it to enter into force. Bulgaria’s position was not mentioned on the last two points.
Next, the Finance Minister joined the discussion with several updates from the ECOFIN meeting that took place during the preceding two days (23 and 24 January 2012). The Minister started by saying that the new, seventh, version of the draft agreement was expected the following day and that his comments are about what was to be seen in that new version. With respect to references to the Euro-Plus Pact and harmonisation of direct taxation – those were finally left out as Bulgaria had insisted. With respect to the participation of non-Eurozone Member States, a provision was included saying that they would be invited to all such meetings. With respect to the active observer status of non-Eurozone Member States, Bulgaria strongly insisted on this and did not face opposition from the other Member States. With respect to Article 7, Bulgaria shared the position of Germany, Sweden, the Netherlands and Finland that automatic sanctions should be included which was countered by the position of France, Spain, Belgium, Portugal and Malta.
Consequently, the floor was opened for questions by the Committees’ members. The substantive questions can be grouped as follows: (1) why Bulgaria was going to agree to Title III but not Title IV; (2) what was the idea and the added value of Title IV; (3) did the reference to the ESM in the preamble create financial obligations; (4) what was going to be the impact on the Bulgarian Fiscal Pact? The answers were given by the two Ministers and were the following.
The answer to the first group of questions was that, although the provisions of Title IV seemed general and harmless, for this exact same reason, they could be ‘slippery’. It was unnecessary for Bulgaria to commit to things which could become burdensome in the future. On the second group, the answer was that the idea of Title IV was that it was building upon the so-called Six Pack. It was based on the possibility in the Lisbon Treaty for increased cooperation by allowing the Eurozone Member States to begin an increased cooperation in the coordination of their economic policies. However, the exact added value was not clear as the provisions in the Title IV were changed many times, including the deletion of the tax harmonisation rules. On the third group of questions, the answer was that the reference to the ESM in the preamble did not create financial obligations. On the last group of questions, the answer was that the Bulgarian Fiscal Pact was in part already adopted through the amendment of the LPSB. As regards the other part, which included an amendment to the Constitution, it was stated that the process for the amendment was intentionally slowed down in order to see the end result of the Fiscal Compact and to decide whether the proposed amendment would need to be changed.
After the answers, there were several exchanges with regard to minor changes in the wording of the draft Decision and it was consequently voted upon. The voting was as follows: for the Committee on the European Affairs 11 ‘for’ and 5 ‘abstaining’ for the External Policy Committee 12 ‘for’ and 3 ‘abstaining’ and for the Budgetary Committee 13 ‘for’ and 6 ‘abstaining’. No explanations of the abstaining votes were provided.
The draft Decision was discussed and adopted in the plenary session of the National Assembly on 27 January 2012. After the draft Decision was presented, the Foreign Affairs Minister focused on six points: (1) aligning the Compact to EU law has been a key issue in order to guarantee the rights as well as the obligations of the Member States and to preserve the community method in the areas of interest for Bulgaria; (2) it was important to preserve the role of the existing institutions without allowing the creation of parallel structures in Europe and this was achieved to a large extent through the inclusion of the Commission and the European Parliament; (3) another key issue was reaching a consensus on the participation of non-Eurozone Member States which will conclude the Compact, such as Bulgaria, in the Euro Summit meetings; (4) the effective functioning of the internal market was guaranteed in the realisation of the increased cooperation; (5) provisions limiting the right to independently set the taxes were excluded; (6) the accession to the Compact was not going to imply financial commitments for Bulgaria. Then the floor was open for questions.
Ivan Kostov (the Blue Coalition) supported the Decision and the progress made during the negotiations. However, he suggested that Bulgaria should push further on two points. First, to dispose of the requirement for coordination of major reforms, that was included in Title IV. Mr Kostov suggested that the imposition of this requirement was redundant when talking about the observance of the rules for the stability of the Euro. Secondly, Bulgaria must become an observer at the Euro Summit. Martin Dimitrov (the Blue Coalition) made an interesting statement on the observance of the rules in the Compact. In particular, he suggested that the creation of an organ within the National Assembly that is operated by the opposition with the task to keep track on whether the rules were observed. However, this suggestion was not substantiated at all and was not even considered by the other participants in the debates.
Rumen Ovcharov (Coalition for Bulgaria) expressed several criticisms. He criticised the Compact for not putting the responsibility to the Member States that were responsible for the crisis and for not giving preferences to Member States, like Bulgaria, which followed strict fiscal discipline. Mr Ovcharov also repeated his question from the Committees’ meeting – why Bulgaria rejects Title IV if the tax harmonisation provisions were deleted and even if they were not? The last statement on tax harmonisation spurred a lot of criticisms against Mr Ovcharov stating that the tax harmonisation could be the worst possible scenario for Bulgaria. During those criticisms, the issue of three-speed Europe (see supra) was raised again. Mr Ovcharov insisted that it was an illusion that not accepting Title IV was better and was going to give a lot more freedom for action to Bulgaria. Plamen Oresharski (Coalition for Bulgaria) stated that the Fiscal Compact was not going to solve anything and as such it was redundant. Mr Ovcharov’s opinion that Bulgaria had to accept Title IV was voiced also by Sergei Stanishev (Coalition for Bulgaria).
Aliosman Imamov (DPS) started by pointing out the advantages of the Fiscal Compact – the enforcement mechanisms for the non-complying Member States. He also suggested that Bulgaria should accept Title IV as well and proposed the deletion of the limitation to the possible negotiated positions included in the draft Decision. Ventsislav Lakov (ATAKA), effectively, also proposed the removal of the limitations for negotiations but for different reasons. In his opinion, the idea of the Fiscal Compact was that the people of Europe pay for the deals of the rich. He also said that that with the draft Decision the Bulgarian tax system is getting carved in stone, which also means that the poor Bulgarian citizens pay instead of the rich. Nevertheless, he still supported the first point of the draft Decision which was approving the participation of Bulgaria in the negotiations.
Several other statements were made by national representatives but no substantively new points were introduced and, after a few minor editing proposals were made, the draft was put to a vote. The voting en bloque was 129 ‘for’ 1 ‘against’ and 48 ‘abstaining’. It is interesting to note, however, that when the draft Decision was voted part by part, all 181 present and voting voted ‘for’ on the point of the Decision approving the Bulgarian participation in the negotiations. No explanations of the negative or abstaining votes were provided. After this the draft of the Compact was mentioned a few times during the report of the Prime Minister on10 February 2012 to the National Assembly on the development of the priority topics and files during the Polish and Danish Presidencies. However, no substantive debate on that point was made. Finally, in view of the reached consensus on the text of the Fiscal Compact within the European Council meeting on 30 January, the Council of Ministers decided on 29 February 2012 to empower the Prime Minister to sign the Fiscal Compact.
How has the Fiscal Compact been ratified in Bulgaria and on what legal basis/argumentation?
After looking at the debates on the negotiation of the Fiscal Compact one is left with the feeling that the ratification was going to follow soon after the agreement was concluded. However, this did not happen and no particular reason for this was found during the research. The ratification process started at the Council of Ministers. With reference to Article 15(1) LIA, the Council of Ministers adopted a Decision in which it approved the Fiscal Compact and proposed to the National Assembly to ratify the agreement with a Declaration under Article 14(5) of the Fiscal Compact. The ratification was proposed on the basis of Article 85(1) subparagraphs 5, 7 and 8 CRB. Those provisions relate to the mandatory ratification powers of the National Assembly to ratify international agreements which “envisage the state’s participation in international arbitration or legal proceedings”, “affect the action of the law or require new legislation in order to be enforced” and “expressly require ratification”, respectively.
The ratification proposal was submitted to the National Assembly on 11 November 2013 and the draft ratification law was discussed in the Committees on Foreign Policy, on the Committee on European Affairs and Oversight of the European Funds and on Budget and Finance of which the latter was the leading one. All three Committees in their reports proposed to the National Assembly to ratify the Fiscal Compact. The National Assembly considered the proposed draft law in its plenary session on 28 November 2013. The National Assembly approved the proposal and ratified the Fiscal Compact. It conjoined the two voting procedures within the same session, on the basis of Article 76(2) of the then applicable version of the Rules, as there were no amendments proposed to the draft law. Finally, the law ratifying the Fiscal Compact was promulgated in the SG by the President on the basis of Article 98(4) CRB on 3 December 2013, as is the procedure for any other law.
There was no involvement of the BCC during the ratification process or after it. Furthermore, no referendum was convened, although during the debates on 27 January 2012 Sergei Stanishev, after referring to a statement by the Czech Republic, stated that this option should not be ruled out as this was a serious issue. Considering that the Government during the ratification was composed of a minority coalition, the bigger part of which was from the party of Mr Stanishev, who was also still its leader at the time, if he and his party considered the matter so important, there were all the preconditions for convening a referendum. However, considering the raging protests against that Government at that very same time this would have been ‘the last nail in the coffin’, which inevitably came during the European Parliament elections in the spring of 2014.
What political/legal difficulties did Bulgaria encounter during the ratification of the Fiscal Compact?
The ratification of the Fiscal Compact took place on 28 November 2013 and went through fairly easy and straightforward without encountering particular political or legal difficulties. However, there were a few things this author finds interesting to note. Firstly, in the verbatim record of the Council of Ministers meeting on 6 November 2013, when the ratification was proposed, a comment was made on why Bulgaria had not already ratified, with an accusatory rhetoric to the previous Government. It is interesting because it was again Mr Stanishev who, in his 27 January 2012 comment, suggested that Bulgaria should not be swift with the ratification after the Compact was concluded.
In the Committees, it is interesting to note that in the Report of the Committee on the European Affairs the provisions of the CRB cited were Article 85(1) subparagraphs 1, 5, 7 and 8 thereof. That is, Article 85(1)(1) was included and it was replicated in the Report when presented in the National Assembly. This provision refers to international agreements which are of a political or military nature. However, the fact that there was no mentioning whatsoever on the constitutional basis in that regard seems to suggest that it was a typo. As regards the voting, it shows as well the lack of difficulties with 17 ‘for’ and 1 ‘abstaining’ in the Committee on the European Affairs, 14 ‘for’ and 2 ‘abstaining’ in the Committee on Foreign Policy and 16 ‘for’ without negative or abstaining votes in the Committee on Budget and Finances. No explanations of the abstaining votes were provided.
In the National Assembly, an interesting comment was made by the President of the Committee on Foreign Policy after he presented the Report. He suggested that the Government formally sought a greater (than simple) majority for the ratification of the agreement. He referred to Article 85(1)(9) CRB which provides for a qualified two-thirds majority for transfer-of-competence agreements to the EU. The Government did not base the ratification on that provision because it was not required since Bulgaria preserved the right to form its own tax policy. However, the Committee President suggested that with this agreement the National Assembly lost powers with respect to adopting the State budget and its implementation. Be that as it may, he clarified that he was not making a formal proposal for changing the ratification procedure. Instead, he was focusing the attention on the importance of the agreement being ratified and its implications on the powers of the Government and the National Assembly. In the absence of other statements the ratification went to a vote. The voting was 114 ‘for’ and 9 ‘abstaining’ on the first reading and 109 ‘for’ and 5 ‘abstaining’ on the second reading. No explanations of the abstaining votes were provided.
Balanced Budget Rule
Article 3(2) Fiscal Compact prescribes that the Balanced Budget Rules shall take effect in national law through “provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.” How is the Balanced Budget Rule (intended to be) implemented in Bulgaria? Will there be an amendment of the constitution? If not, describe the relation between the law implementing the Balanced Budget Rule and the constitution. If the constitution already contained a Balanced Budget Rule, describe the possible changes made/required, if any.
The CRB did not contain a Balanced Budget Rule before the Euro crisis. There was, however, a proposal for the amendment of the CRB in that respect which failed to attract the support it needed. This is further explained in Question III.2. In order to comply with the provisions of Article 3(2) of the Fiscal Compact Balanced Budget Rules were nevertheless introduced in the Bulgarian legal order. The first round of these rules was introduced in the amendments to the LPSB, discussed above. However, with the Fiscal Compact a further amendment was needed. Considering the need for implementation of the Six-Pack, which is also discussed above, a new law was made (the LPF, discussed in the answers to the Six-Pack Questions). The LPF, next to implementing the Six-Pack, implemented also Title III of the Fiscal Compact, as it transpires from its explanations. In particular, the Balanced Budget Rules are contained mainly in Article 23 and to a certain extent in Article 25 LPF. Article 23 implements the 0.5% and 1% structural deficit rules but by putting a 40% limitation on the debt, as it was included in the LPSB. Article 25 LPF implements Article 3(1)(a) of the Fiscal Compact as well as the 3% deficit rule, which is mentioned in the preamble of the Fiscal Compact. The draft law on the Fiscal Council (see the answer to Question VII.5) elaborates further on the adoption and implementation of corrective mechanisms and explicitly states in its miscellaneous provision that it also implements requirements under Title III of the Fiscal Compact.
Accordingly, considering the wording of Article 3(2) of the Fiscal Compact it is barely respected. The laws discussed supra are not of constitutional character. They are permanent only in the sense that there is no temporal limitation put on them ab initio but they can be changed by another majority in the National Assembly. The Balanced Budget Rules being laid down in the LPF are, indeed, at the moment guaranteed “to be fully respected and adhered to throughout the national budgetary process”. However, time will show, considering the volatile political situation in Bulgaria which is explained in Question I.1, for how long Bulgaria will keep its part of the bargain.
Debate balanced Budget Rule
Describe the national debate on the implementation of the Fiscal Compact/Balanced Budget Rule, in particular in relation to the implications of the treaty for (budgetary) sovereignty, constitutional law and the budgetary process.
One of the arguments for the participation of Bulgaria in the Fiscal Compact was that the Balanced Budget Rule is not going to negatively affect Bulgaria. It was stated that Bulgaria can participate without the need to make cardinal changes in its policy or additional sacrifices. As such the position of the Government was that the Balanced Budget Rule will continue the already established practice in Bulgaria; will indicate stability of the Bulgarian economy to the markets; and will be an opportunity for Bulgaria to be among the best performing Member States within the EU. The implementation of the Balanced Budget Rule through the LPF was the object of certain critiques from the opposition – Coalition for Bulgaria and DPS – during the first reading of the draft Law in the National Assembly on 15 November 2012. The resulting critique was that these numerical indicators should not be included in the law that lays down the fundamentals for the creation of the State Budget. Firstly, it was argued, that Bulgaria never went beyond the 40% debt so there was no need to include it. Secondly, it was argued that the economic environment should dictate the fiscal policy and not the other way around. Those fiscal indicators, it was argued, should be determined by the Government depending on the economic and social environment. These critiques were not commented on by the majority.
relationship BBR and MTO
What positions, if any, are taken in the national debate about the relationship between the Balanced Budget Rule of article 3(1)(b) Fiscal Compact and the Medium-term Budgetary Objective (MTO) rule in the Six-Pack (section 1A, article 2a Regulation 1466/97, on which see above question vii.10)?
The relationship between the Balanced Budget Rule of Article 3(1)(b) of the Fiscal Compact and the MTO rule in the Six-Pack was not discussed at the National Assembly. While there were certain discussions on the Balanced Budget Rule and the soundness of its numerical expression in the Bulgarian legislation, there were no references to the MTO.
Is there a (constitutional) court judgment on the Fiscal Compact/implementation of the Balanced Budget Rule?
Neither of the two has been litigated at the BCC.
Non-Eurozone and binding force
Has Bulgaria decided to be bound by parts of the Fiscal Compact on the basis of article 14(5) Fiscal Compact already before joining the Euro area, or has this option been debated?
Bulgaria is not bound by Title IV of the Fiscal Compact until it joins the Eurozone. See the answers to Questions IX.1 and IX.2.
What other information is relevant with regard to Bulgaria and the Fiscal Compact?
No other relevant information.