Bulgaria

VII - Six-Pack

The ‘Six-Pack’ is a package of six legislative measures (five regulations and one directive) improving the Economic governance in the EU. The Commission made the original proposals in September 2010. After negotiations between the Council and the European Parliament, the package was adopted in November 2011 and entered into force on December 13, 2011. Part of the ‘Six-Pack’ measures applies only to the Eurozone member states (see the individual titles below).    
The ‘Six-Pack’ measures reinforce the Stability and Growth Pact (SGP), among others by introducing a new Macroeconomic Imbalances Procedure, new sanctions (for Eurozone member states) and reversed qualified majority voting. Also, there is more attention for the debt-criterion.         
(
http://ec.europa.eu/economy_finance/economic_governance/index_en.htm)

Negotiation       
VII.1
What positions did Bulgaria adopt in the negotiation of the ‘Six-Pack’, in particular in relation to the implications of the ‘Six-Pack’ for (budgetary) sovereignty, constitutional law
, socio-economic fundamental rights, and the budgetary process?

The difficulties encountered during the negotiations at the EU level were mainly related to the topics of the set-up of the Alert Mechanism and publicising Commission’s analysis before it was voted upon in the Council. The position of the Government has been generally supportive of the Six Pack. However, the Government was insisting on the rules being drafted in a way that accommodates the differences in the economic development of the richer and the poorer Member States. Furthermore, the Government generally sought an increased role for the Member States at the expense of the Commission. The Six Pack was not discussed by the National Assembly in a plenary session but only a few times in a Committee setting. Generally, the Committees did not express views conflicting with the position of the Government and did not consider the Six Pack to be problematic for the budgetary sovereignty of Bulgaria. The Six Pack was rather seen as providing useful rules for reflection during the formation of the budget.

Compared to the Euro-Plus Pact, the discussion and the transparency in general surrounding the negotiation position of Bulgaria on the Six-Pack were much better and more straightforward. The first public record of the negotiation position can be found in the Decision of the Council of Ministers of 17 January 2011.[1] The position that was outlined there was that Bulgaria supports the strict observance of the SGP criteria as well as the ambition to apply the Pact with the view of securing the continuous and coordinated recovery of the stable and sustainable growth in the EU. While Bulgaria supported four out of the six instruments proposed by the Commission, it expressed considerable reservations and did not support the current (at the time) versions of two of the proposals. These two were, first, the Regulation on the prevention and correction of macroeconomic imbalances (COD/2010/0281) and, second, the Regulation on enforcement measures to correct excessive macroeconomic imbalances in the Eurozone (COD/2010/0279). The reasons for rejecting these two instruments and supporting the other four were further elaborated in the framework position that the Council of Ministers presented to the National Assembly on 18 March 2011.[2]

On the proposal of (today) Regulation 1177/2011, the position of Bulgaria was that it supported the changes, especially, with respect to the increased weight given to the debt criterion. It was considered that “the introduction of additional fiscal discipline rules was needed in order to stick to the Medium-term Budgetary Objectives (MTO) and the reduction of the “moral hazard” in case of the creation of a permanent European Stability Mechanism”.

On the proposal of (today) Regulation 1175/2011, Bulgaria’s position was generally supportive of the changes while having some remarks, which were presented in a special non-paper.[3] First, Bulgaria was supportive of the initial proposal of the Commission that “next to the trajectory for adopting the structural deficit to the MTO an account is to be made of the expenditure developments net of the discretionary expenditures”. In that regard, Bulgaria made a proposal for the evaluation of the expenditure developments to be made in consideration of the trajectory of these developments. The support for this initial negotiating proposal was in response to the developments in the negotiations, which deviated from it.[4] The framework position pointed to a wide consensus on this Regulation with the exception of France’s proposal for three-year transitional period and Italy’s numerous reservations and insistence of inclusion private debt in the evaluation of a Member State’s debt which was in turn opposed by the other Member States, especially by the Netherlands. Second, a potential problem was identified by Bulgaria with “providing certain flexibility to the States for increasing the expenditures above the determined medium-term growth rate if the excess over the recommended growth is compensated with discretionary measures for the increase of the revenue”.[5] Third, Bulgaria considered that “the evaluation of the deviations of the real exchange rate and excessive fluctuations of the nominal currency rate (Article10) for the States outside of the Eurozone should be  made on the base of the deviation of the currency rates from the medium-term/long-term trend”.

On the proposal of (today) Directive 2011/85, Bulgaria’s position was in principle supportive. However, it was considered that certain aspects, mainly in Chapter III, Forecasts, were in need of further clarification. In particular, in that Chapter “the leading role of the national authorities in the preparation of realistic macroeconomic and budgetary forecast was to be underlined as they have greater resources and expertise with respect to the economic processes unfolding within the State concerned”.

On the proposal of (today) Regulation 1173/2011, the position of Bulgaria was that it supports the effective enforcement of budgetary surveillance in the Eurozone. Although the provisions relate only to the Eurozone Member States, they are important for Bulgaria as it has the obligation to join the Eurozone.

On the proposal of (today) Regulation 1176/2011 the position of Bulgaria was that it did not support the proposal. The main concern was the application of the proposed Alert Mechanism. It was considered that the set of indicators on which the mechanism was based was overly simplistic and could have often given misleading signals for the condition of a given economy. Another issue was the publication of the indicators and their thresholds, irrespective of the degree of convergence of the particular Member State. The mechanism was seen to be putting every State under the threat to be inappropriately identified as a State with macroeconomic imbalances, which would cost greatly to that State. Bulgaria had several proposals in that respect.

First, Bulgaria proposed that the detailed and in-depth analysis should become the first phase of the monitoring and assessment of the risks of macroeconomic imbalances. It was considered that this analysis was to be done by the Commission together with the national authorities. This was supported by most of the new Member States as well as Germany, France and Spain but was opposed by the Netherlands, Italy and Finland and to a certain extent Greece. Second, Bulgaria considered that the arguments of the State concerned should be objectively presented in the Commission report. Third, as this report would contain sensitive information for the State concerned it was not to be made public without the consent of the State in question. On this point Bulgaria was strongly supported by Romania and to a certain extent by Belgium. However, a strong opposition was presented by the Commission and the big Member States. Fourth, in the prevention phase, the recommendations of the Council should not require a change in the applied general framework of macroeconomic policy – the supervisory framework, the monetary policy framework or the tax policy. With respect to the third phase – the adoption of correction measures – Bulgaria did not have objections as such. However, it considered that even in that phase the Council recommendations should not require a change in the general framework of macroeconomic policy that is applied in the particular State. The aim of the proposals and the objections on this Regulation was said to be the prevention of creating unfounded tensions in the markets. It was also pointed out that it was important for Bulgaria to have the characteristics of the catching-up States taken into account during the evaluation of the macroeconomic balances in view of the dynamics in their economic processes and the continuous restructuring of their economies.

On the proposal of (today) Regulation 1174/2011 the position of Bulgaria was that the discussion on the adoption of a Regulation for almost automatic imposition of fines should come after reaching a consensus on the identification and the prevention of the macroeconomic imbalances. The main concern was connected to the base for the imposition of the fines. In particular, it was seen as problematic that the base was a newly-created mechanism for assessing macroeconomic imbalances with vague scope of the eventual recommendations for corrective actions. Another thing that was part of the position of the Government, which appeared in a discussion in one of the National Assembly Committees, was related to the Cohesion Fund.[6] In particular, the Finance Ministry official stated that Bulgaria’s position was to include the principle of equal treatment in the imposition of sanctions with respect to the Cohesion Fund. According to the version of the relevant Regulation at that time, it was provided that sanctions will be imposed only from the Fund. That meant that the Member States that were not beneficiaries of the Fund were not going to be subjected to such a sanction, irrespective of their SGP compliance. On this position, most of the new Member States supported Bulgaria.

The hitherto discussed framework position clearly took under consideration the view of the Committee on European Affairs and Oversight of the European Funds when, a month and a half earlier, on 9 February 2011, the Committee answered the questions of the European Parliament Special Committee on the Financial, Economic and Social Crisis (CRIS).[7] In that questionnaire Question 5 concerned the economic governance in general and the Six-Pack in particular. It should be noted that taking into account the Committee’s views in the framework position was not very problematic for the Government because these views strongly resonated the Government’s initial position of 17 January.

The Committee criticised the proposal to automatically make public the results of the Alert Mechanism and the accompanying economic analysis and called for the Alert Mechanism to be an inseparable part of the In-depth review. It also focused on the table with indicators and considered that it should be drafted by the Council and not by the Commission. This point was supported mainly by the new Member States and Denmark and was opposed by the old Member States, in particular Germany, France, the Netherlands and Portugal. The Committee considered that there should be differentiation on the critical thresholds of the indicators between Eurozone and non-Eurozone Member States as well as between developed and catching-up economies. According to the framework position, this differentiation was supported by the Slovak Republic and Latvia. The Committee’s formulation of its twofold critique, concerning the base on which the fines were to be imposed, was included word by word in the framework position.

In the verbatim record of the meeting interesting points came up. There were questions on (1) why the Bulgarian position supports the criteria for the deficit and expenditure rules equally and is not arguing for the latter to be secondary and (2) why the debt rule is not put forward by Bulgaria? The answer was that this was, indeed, Bulgaria’s initial position. However, the leading Member-States[8] took out completely the expenditure rule and included the MTO as the primary rule and the macroeconomic imbalances as the supporting rule, which was the worst option for Bulgaria. Thus, Bulgaria insisted for bringing back the initial proposal as a compromise solution. It was stated that indeed the debt rule would be the best case scenario fur Bulgaria. However, it met vehement opposition by Italy.

The Government’s framework position was later discussed at the National Assembly on 30 March 2011 in a joint session of the Committee on European Affairs and Oversight of the European Funds and on the Committee on Budget and Finance, without being further discussed in a plenary session. In its Report, the Committee on European Affairs referred to its proposals from its 9 February meeting and expressed its support in general for the proposed Six-Pack. Together with the Committee on Budget and Finance, it was considered that the principles of subsidiarity and proportionality were observed in the Six-Pack. With respect to budgetary sovereignty the two Committees considered that

“the proposed rules create an opportunity for a useful preliminary discussion between the European Institutions and the Member States before the latter decide on their national budgets without provoking concerns that the sovereignty in one of the most sensitive areas – the formation of the budget – is being taken away”.[9]

However, it was still highlighted that there must be differentiation between the different growth models in the Member States and the catching-up nature of the economies of the new Member States was to be carefully analysed and took under consideration in order to avoid the threat of a two-speed Europe. In its Report, the Committee on Budget and Finance summarised the already discussed framework position and did not provide new insights. In the verbatim record from the joint session there was not much of a debate on the framework position as such, which indicates an agreement between the National Assembly and the Government on Bulgaria’s negotiating position. The voting on the Reports was as follows: for the Committee on the European Affairs 8 ‘for’ and 3 ‘abstaining’ and for the Budgetary Committee 13 ‘for’ and 6 ‘abstaining’. No explanations of the abstaining votes were provided.

Directive 2011/85/EU       
Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States

Implementation
VII.2
What measures are being taken to implement Directive 2011/85/EU on requirements for budgetary frameworks (required before 31 December 2013, article 15 Directive 2011/85/EU)?

The need for transposition of Directive 2011/85 was identified as early as the time when the framework position on the Six-Pack was formed as it noted that the existing legislation in Bulgaria did not provide a basis for the provisions of the Directive. The Directive, or at least most of it, was transposed in the newly-adopted LPF. This is evident from the explanations to the draft law, the Reports of the Committees that considered the draft law as well as from certain provisions of the LPF itself.[10] The LPF also aimed at setting the foundations for the implementation of the Six-Pack Regulations.[11] In the LPF, explicit references were made to Directive 2011/85 twice – that the LPF was implementing the requirements of the Directive and that the implementation of Article 6 thereof on the Fiscal Council was going to be the subject of another law. In the verbatim record from the 14 November 2012 session of the Committee on Labour and Social Policy, while discussing the LPF, a question relating to the transposition of the Directive was asked: why the Fiscal Council, which is provided for in Article 6 of the Directive, was mentioned only once in the concluding provisions?[12] Furthermore, even if the Fiscal Council was going to be set up by another law, why the relationship between that organ and the other actors involved in the drafting and implementing of the budget was not further elaborated in the LPF? Unfortunately, these questions were not answered by the representative of the Government presenting the LPF.

Implementation difficulties
VII.3
What political/legal difficulties
did Bulgaria encounter in the implementation process, in particular in relation to implications of the directive for (budgetary) sovereignty, constitutional law and the budgetary process?

The transposition and implementation of the Directive in Bulgaria did not create political or legal difficulties in and of itself. The debates that arose with respect to the LPF neither comment on, nor criticise the implications of the Directive in terms of the sovereignty, the constitutional law or the budgetary process. This was even the case when the draft law was on a second reading and was voted provision by provision. This is to a certain extent because, as it was mentioned during the discussions in the different Committees, the draft law has been in the process of preparation for ten years and many of the changes are not predicated upon the Directive but are the process of the internal drafting. The Six-Pack, in a way, served as a catalyser for the changes that were already prepared. However, keep in mind the considerable delay in setting-up the Fiscal Council, explained in the answer to Question VII.5.

Macroeconomic and budgetary forecasts     
VII.4
What institution will be responsible for producing macroeconomic and budgetary forecasts (article 4(5) Directive 2011/85/EU)? What institution will conduct an unbiased and comprehensive evaluation of these forecasts (article 4(6) Directive 2011/85/EU)?

According to Article 68 LPF, the macroeconomic forecasts are being prepared by the Minister of Finances. The first one is to be prepared until 25 March and the second until 25 September. The budgetary forecasts are being prepared in a decentralised manner, according to Article 69 LPF. In particular, they are drafted:

“1. By the authorising officers on budgets of the budgetary organisations including the municipalities – by using indicators of the common budgetary classification;

2. By the primary authorising officers that apply programme-based budgetary format – by including also divisions according to policy areas and budgetary programmes;

3. By the primary authorising officer on the National Assembly budget – by including also divisions according to operational areas and budgetary programmes;

4. For the budget of the judiciary – by including also divisions according to the different organs of the judiciary;

5. For public higher education institutions and for the Bulgarian Academy of Sciences – through the respective primary authorising officer by also consolidating the forecast with respect to separate budgets using indicators of the common budgetary classification.”[13]

Within the LPF, there is no institution tasked with conducting an unbiased and comprehensive evaluation of the forecasts. The only provision coming anywhere close to this is Article 75, which states that:

“1. When drafting the medium-term budgetary forecast and the State Budget, the Ministry of Finance compares its current macroeconomic forecast under Article 68 with the one of the European Commission and gives a justification in the case of significant differences.

2. The macroeconomic forecasts under Article 68 can be compared with the forecasts of other independent organisations.”[14]

However, since the Minister of Finance is very much involved in the drafting of the Budget, paragraph 1 does not really provide for independent and unbiased evaluation. As for paragraph 2, it simply provides for the possibility for the forecasts to be compared with the forecasts of other independent organisations, which also does not really correspond to Article 4(6) of the Directive. The answer to the following Question may shed some light in that regard.

Fiscal Council  
VII.5
Does Bulgaria have in place an independent Fiscal Council (article 6(1) Directive 2011/85/EU: ‘independent bodies or bodies endowed with functional autonomy vis-à-vis the fiscal authorities of the Member States’)? What are its main characteristics? Does Bulgaria have to create (or adapt) a Fiscal Council in order to implement Directive 2011/85/EU?

Bulgaria did not have a Fiscal Council in place before Directive 2011/85. The LPF explicitly provides that within six months of the promulgation of the LPF the Council of Ministers must submit a proposal for the designation of an independent organ in accordance with Article 6 of the Directive.[15] On 25 November 2013 the Council of Ministers did submit to the National Assembly a draft Law for Fiscal Council. It was discussed in the Committees on European Affairs and Oversight of the European Funds and on Budget and Finance, where the latter was the leading one. The Reports of the two Committees went along similar lines and included an overview of the proposed Fiscal Council’s goals, operating principles, basic functions, composition and budgetary implications.[16]

The goals (Article 2) were: (1) the independent monitoring and analysis of the budgetary framework with the view to maintain sustainable public finances; (2) increasing the quality of the official macroeconomic and budgetary forecasts by carrying out an unbiased assessment based on objective criteria; and (3) increasing the transparency and the awareness of the society of the fiscal governance of the country. The operating principles (Article 3) were: (1) independence and publicity; (2) objectivity and transparency; and (3) equality of its members. The basic functions (Article 4) were mainly: (1) monitoring of the compliance with the numerical fiscal rules that are set out in the LPF; (2) adopting reasoned opinions and recommendations on the spring and autumn macroeconomic forecasts; (3) adopting reasoned opinions and recommendations on the medium-term budgetary forecast, the draft Law of the State Budget and its amendments, and on the draft Laws for the budgets of the State Social Security and the National Health Insurance Fund; (4) adopting reasoned opinions on the reports on the implementation of the State budget and the budgets of the State Social Security, the National Health Insurance Fund and other Social Security Funds that are administered by the National Insurance Institute. The proposed composition of the Council (Article 5) was of five members, appointed by the National Assembly with a mandate of six years. The budgetary implications provisions (Articles 13 and 14) provided that the Council’s activity and remuneration was to be covered by the budget of the National Assembly.

The Reports of the two Committees also referred to the Fiscal Compact and its requirement in Article 3(2) for independent institutions that are responsible at the national level for monitoring the compliance with the rules set out in Article 3(1). A rather interesting network of cross-references can be observed at this point. First, in the Section on final and transitional provisions of the LPF it is stated that (as observed supra) the Council of Ministers was supposed to submit to the National Assembly a draft law for the determination of an independent organ in the sense of Article 6 of Directive 2011/85 and Article 23(3) LPF for automatic corrective mechanisms. In that Article 23(3) (which states that in certain cases automatic corrective mechanisms should be activated) there is a reference to Article 10 of Regulation 1466/97. As such one is given the understanding that, with the Law on the Fiscal Council, Article 6 of the Directive and Article 10 of the Regulation will be implemented. However, in the explanations to the draft Law for the Fiscal Council it appears that what was being implemented was Articles 4 and 6 of the Directive and part of Title III of the Fiscal Compact, in particular, one of the requirements in Article 3(2) thereof.[17]

With respect to the Articles of the Directive that were being implemented, the explanations to the draft Law seem more plausible than the provisions in the LPF. This also explains the incomplete answer to Question VII.4 with respect to Article 4(6) of the Directive. The issues discussed during the sessions of both Committees were relating only to the points of the necessary qualification of the eventual members (whether only economists or also jurists) and of the amount of the remuneration. The voting on the Reports was as follows: for the Committee on the European Affairs 13‘for’ and 2 ‘abstaining’ and for the Budgetary Committee 10 ‘for’ and no ‘negative’ or ‘abstaining’. No explanations of the abstaining votes were provided.

The first reading of the draft in the National Assembly was on 7 March 2014[18] and it was voted upon and adopted on 11 March 2014 first reading with 91 ‘for’ 11 ‘against’ and 30 ‘abstaining.[19] It should be noted that there were literally no discussions during the first reading and the voting at the National Assembly. The Law was then read for a second time in the Committee on Budget and Finance on 3 April 2014. It was voted article by article and numerous minor amendments were made to the initial draft but none of them presented a critical deviation from what was previously discussed. As such the draft Law was just waiting to be adopted. Since then, however, no progress had been made as it appears from the file of the Law on the National Assembly’s web-site. Thus, Bulgaria is also in clear violation of its EU law obligation to fully transpose Directive 2011/85, which should have happened by 31 December 2013, according to Article 15(1) of the Directive.

This clear violation of EU law did not go unnoticed by the Commission and it initiated infringement proceedings against Bulgaria. At the moment the proceedings are at the stage of a letter of formal notice (№ 2014/0025). This has prompted action on the Bulgarian side and a draft Law for Fiscal Council and Corrective Mechanisms was resubmitted to the National Assembly on 9 February 2015. In the explanations to the draft law it is stated that it creates conditions for the suspension of the infringement proceedings.[20] This was also mentioned in the verbatim records from the meeting of the Council of Ministers on 4 February 2015, when the Decision approving the draft law was adopted. It was also noted by the Finance Minister that the failure to complete the procedure for the adoption of the Fiscal Council law by the previous Government (sic) was probably because it was worried that the creation of such a Council would have limited its freedom of action and its budgetary planning would not have been the same as the one it did in 2014.[21]

The draft law was discussed on 18 February 2015 in the Committees on European Affairs and Oversight of the European Funds and on Budget and Finance where the latter was the leading one. The Reports of the two Committees are quite short and restate what has already been said in a more succinct manner.[22] The verbatim records of the meetings of the two Committees are also lacking any new points of discussion. Both Committees adopted the draft law and the results of the voting were as follows: for the Committee on the European Affairs 9 ‘for’, 1 ‘against’ and 1 ‘abstaining’ and for the Budgetary Committee 14 ‘for’ and 1 ‘abstaining’. No explanations of the negative or abstaining votes were provided. The draft law went through its first reading in the plenary session of the National Assembly on 6 March 2015.[23] Only Slavcho Binev (Patriotic Front) commented on the proposal. First, he asked why it had to get to infringement proceedings for Bulgaria to adopt this law. Then, Mr Binev asked three questions on the substance of the proposed law: (1) how is the Council going to be supervised; (2) which organisations can assess the Council’s performance and ensure that it is fulfilling its duties; (3) why is the Council going to be assessed only once every three years if its members have a six year mandate? In Mr Binev’s opinion these point must be discussed if the law is to be effective. The draft law was then put to a vote and the result was 116 ‘for’ and 1 ‘abstaining’.[24] The draft law is now to undergo its second reading.

After comparing the old and the new draft laws, a significant difference appears. The new draft law, as its name indicates, has a broader scope and includes provisions on the corrective mechanisms in the sense of Article 23(3) LPF, which aim at correcting the occurrences of significant divergence from the MTO, in accordance with Regulation 1466/97. Its broader scope is also reflected by the fact that it explicitly states in its miscellaneous provision that it also implements requirements under Title III of the Fiscal Compact. Before looking at the whole new section with provisions on the corrective mechanisms, it is worth looking at the more substantive changes in the provisions that were borrowed from the old draft law, which was used as a basis for the new one.

First, the new draft law starts with the inclusion of two general provisions. These provisions state that this law (Article 1) regulates the creation, the functions, the formation and the activity of the Fiscal Council as well as the adoption and implementation of automatic corrective mechanisms; and (Article 2) that this law aims to provide conditions for the observance of the fiscal rules laid down in the LPF. Second, in Article 6(1)(3) it is added that the Fiscal Council adopts reasoned opinions and recommendations on other strategic documents of the Government which are relevant for the observance of the numerical fiscal rules in the LPF. Third, Article 6(4) makes an important clarification for the powers of the Council. While in the old draft it was stated that the Council members have the power to request and receive information from the State authorities, new draft adds that these authorities have the obligation to provide such information in accordance with the respective laws regulating the particular type of information.

The, new, Chapter three, which deals with the automatic corrective mechanisms, contains seven Articles. Article 17 states that automatic corrective mechanisms are created (in the sense of Article 23(3) LPF) which aim at correcting the occurrences of significant divergence from the MTO in accordance with Regulation 1466/97. These mechanisms include the development, adoption and application of corrective plans. Article 18 states that a significant divergence can be identified by one or more of the following bodies: the European Commission in accordance with Article 6 of Regulation 1466/97, the Minister of Finance in the framework of the budgetary process and the Fiscal Council. Article 19 states that in case of a significant deviation from the MTO or from the measures for its achievement, the Finance Minister prepares and submits to the Council of Ministers for approval a corrective plan within two months from the identification of the deviation. In case the corrective plan envisions measures concerning the powers of the National Assembly, the Council of Ministers submits the plan to the National Assembly for adoption.

Article 20 lays down three elements comprising the corrective plan under Article 19. First, the plan must include the period for correction, which can extend up to two consecutive budgetary years following the years in which the significant deviation has been identified. Second, the plan must include an average annual improvement of the structural balance amounting to at least 0.5% GDP for the corrective period. Third, the plan must include the corrective revenue and expenditure measures. These measures must be described in detail with respect to their type, size and quantitative impact assessment on the subsectors in the “State Governance” Sector. Article 21 states that the measures in the corrective plan must lead to achieving the MTO within the originally set deadline (before the identification of the divergence). Under Article 22, the corrective plan must take note of the recommendations made to Bulgaria under Regulation 1466/97 for overcoming the significant deviation. Article 23 states that the implementation of the corrective plan may be temporarily suspended in the case of emergency in the sense of Article 24(3) of the LPF. Such suspension must not risk the sustainability of the public finances in the mid-term. Once the emergency circumstances are terminated the Finance Minister, if necessary, submits for approval an updated corrective plan to the Council of Ministers. Where applicable, in accordance with Article 19(2) the Council of Ministers submits this plan to the National Assembly for approval.

Regulation No 1176/2011 on the prevention and correction of macroeconomic imbalances      
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1176:EN:NOT)

MEIP difficulties     
VII.6
What political/legal difficulties
did Bulgaria encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process?

Other than the discussions during the negotiations of the six-pack in general, no political or legal difficulties were encountered after the Regulation was adopted (see the answer to Question VII.3 mutatis mutandis).

No references to the MEIP as such have been found in the LPF or any other normative acts that are related to the budgetary process. That is, none of the budgetary process rules found accommodate that procedure.

In its Report on the Alert Mechanism in 2012 the Commission considered Bulgaria as one of the Member States for which further in-depth analysis is warranted to closer examine certain issues.[25] This was the outcome also of the application of the Alert Mechanism for 2013, 2014 and 2015.[26]

The conclusion of the Commission with respect to the in-depth review on Bulgaria was that:

Bulgaria is experiencing macroeconomic imbalances, which are not excessive but need to be addressed. In particular, the level of external indebtedness as well as certain macroeconomic developments related to corporate sector deleveraging and the adjustment process through labour markets deserve attention so as to reduce the risk of adverse effects on the functioning of the economy.

Possible policy responses should focus on reducing skills and regional labour market mismatches and on reviewing the minimum thresholds for social security contributions. Also, emphasis on boosting total factor productivity remains crucial given that the deleveraging of the corporate sector will probably dampen investment. As a small open catching-up economy with unfettered capital flows and a fixed exchange rate tends to be inherently volatile, macroeconomic policies and banking regulation in Bulgaria should focus on reducing the risks of repeating boom-cycles and on strengthening the risk absorption capacity of economic agents.”[27] (Original emphasis)

As it can be seen from the answer of the previous Question, Bulgaria did not manage to resolve the issues and has been subjected to an in-depth review for every consecutive year since.

The application of the Macroeconomic imbalances procedure in 2012 did not lead to any major policy changes in Bulgaria on its own. The 2012 Update of the NRP only mentions the fact that the Alert Mechanism resulted in an in-depth review for Bulgaria but no specific measures were outlined.[28] Furthermore, the measures addressing the CSR by the Council of 10 July 2012 included the ones relating the Macroeconomic Imbalances Procedure (MEIP). As such, unless they were earmarked it was impossible to identify them. In the 2013 Update only one such measure was earmarked. It was in response to an observation of the Commission in its 2013 in-depth report on Bulgaria.[29] The response was the setting up of an inter-institutional working group with the Ministry of Labour and Social Policy in January 2013 which included also representatives of the social partners. The aim of the working group was “to study the effect of the system of minimum social security thresholds on the employment”.[30]

In the 2014 Update only two measures were earmarked as addressing the MEIP for 2014. The first one was aimed at “the gradual decrease in the liabilities of the private sector”.[31] This measure consisted of a “[l]egal opportunity for rescheduling and deferral of tax liabilities and mandatory social security contributions at alleviated conditions for a longer period and in a greater amount”.[32] With this measure “liable persons facing temporary financial difficulties” can be provided with a chance to re-structure their liabilities. The second one was aimed at “reduction of intercompany indebtedness and improving liquidity of SMEs”.[33] This measure “provides individuals fulfilling certain conditions with the opportunity to use light regime for charging and paying the VAT owed on supplies, namely in cases of differed payment by their clients for performed supplies of goods and services”.[34]

Regulation No 1175/2011 on strengthening budgetary surveillance positions        
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1466:20111213:EN:PDF)

MTO procedure
VII.7
What changes to the rules on the budgetary process are made to accommodate the amended Medium-term Budgetary Objective (MTO) Procedure?

The MTO is currently included in the LPF (see the answer to Question VII.10). Before this Law was adopted, there was no mentioning of a MTO in the LPSB. There were only a few references to a medium-term budgetary forecast, which was basically an assessment prepared by the Finance Ministry of the envisaged parameters of the consolidated fiscal programme for the following three years which is revised and approved annually. That medium-term budgetary forecast is much further elaborated upon in the LPF and it actually corresponds to the medium-term budgetary framework laid down in Article 2(e) of Directive 2011/85. As such the MTO is part of the medium-term budgetary forecast but the two are not the same. Accordingly, no changes to the rules on the budgetary process were identified which accommodate the amended MTO Procedure. See also the answer to Question VII.12.

European semester 
VII.8
What changes have to be made to the rules and practices on the national budgetary timeline to implement the new rules on a European Semester for economic policy coordination (section 1-A, article 2-a consolidated Regulation 1466/97)?

On 21 January 2011 the Council of Ministers adopted the annual Decision on the budgetary procedure in which it is stated that “the budgetary procedure is made in accordance with the timeline for the implementation of the fundamental elements of the “European Semester” with the goal to achieve better coordination and governance of the economic policies in the European Union, strengthening of the economic governance and realisation of the fiscal monitoring of the macroeconomic imbalances”.[35]

On 15 April 2011 Bulgaria issued its CP for 2011-2014 and the Council of Ministers adopted Decision № 246 with which it adopted inter alia the budgetary forecast for 2012-2014.[36] In both instruments it is also stated that Bulgaria has integrated the European Semester into its budgetary procedure. In the budgetary forecast it is stated that with its adoption “Bulgaria starts the implementation of the commitments under the “European Semester” which aim at the EU level to realise early partners overview of the national budgets and preliminary coordination of policies”.[37] A figure depicting the European Semester’s implementation in the Bulgarian budgetary procedure is included in the budgetary forecast and reproduced in Bulgaria’s CP for 2011-2014 (p 59).

According to the CP, FLSU stands for first-level spending units[38] and TBF stands for Three-year Budget Forecast.

Since then, the changes in the LPSB did not bring about changes relating to the European Semester but this happened with the adoption of the LPF. The European Semester was rarely mentioned during the discussions of the LPF. It was only in the Committee on European Affairs and Oversight of the European Funds that it was elaborated on a bit further. According to the Report of the Committee on European Affairs the budgetary procedure is synchronised with and aligned to the timeline and the procedures of the European Semester.[39] In particular, with the LPF the procedure was now divided in two stages.

The first stage concludes in mid-April with the adoption of the medium-term budgetary forecast and the revision of the Strategy for the management of the State debt by the Council of Ministers.[40] By 25 March the Minister of Finance also has to prepare the spring macroeconomic forecast and compares it with the one of the European Commission and gives a justification in the case of significant differences.[41]

In the second stage, Bulgaria’s programme documents are being presented to the Commission and ECOFIN for approval and the CSR that are given to Bulgaria form part of the basis on which (1) the State Budget is being drafted[42] and (2) the medium-term budgetary forecasts is being revised[43]. The programme documents are also revised. This stage concludes on 31 October,[44] when the draft LSB is submitted to the National Assembly together with the revised medium-term budgetary forecast, which serves as the explanations to the draft Law.

MTO difficulties      
VII.9
What political/legal difficulties
did Bulgaria encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

Other than the discussions during the negotiations of the six-pack in general, no political or legal difficulties were encountered after the Regulation was adopted. See the answer to Question VII.3 mutatis mutandis.

Respect MTO     
VII.10
How is respect of the Medium-term Budgetary Objective included in the national budgetary framework (section 1A, article 2a consolidated Regulation 1466/97)?

The LPF incorporates the amended Regulation 1466/97 and its provisions on the MTO are contained in Articles 23 and 24. Article 23 sets out the numerical quantities of the MTO in its first two paragraphs – structural deficit should remain below 0.5% of the GDP and can go up to 1% as long as the consolidated debt is below 40% of the GDB and the threat for the long-term stability of the public finances is low. Article 23(3) provides that in case of significant deviation from the MTO or from the measures for its achievement, automatic corrective mechanisms shall be activated as determined by the National Assembly, in accordance with Article 10 of Regulation 1466/97. The draft law on the Fiscal Council (see the answer to Question VII.5) elaborates further on the adoption and implementation of corrective mechanisms. Article 23(4) states that the MTO for the annual structural deficit is to be revised every three years and that it can be further revised in the event of the implementation of a structural reform with a major impact on the sustainability of public finances as provided in Article 2a of Regulation 1466/97. Article 24 states that:

“1. Failure to reach the medium-term budgetary objective for the structural deficit on annual basis is allowed under extraordinary circumstances and under the condition that the failure does not amount to threatening the sustainability of the public finances in accordance with Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies in the medium-term.

2. Temporary divergence from the medium-term budgetary objective for the structural deficit on annual basis is allowed during the implementation of major structural reforms with great impact on the fiscal sustainability under the condition that the maximum allowed deficit under the “State Governance” sector under Article 25(2) is not surpassed.

3. Extraordinary circumstances is an unusual event outside the control of the Council of Ministers which has a major impact on the financial position of the “State Governance” sector in accordance with Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies or a period of economic downturn above 3% in real terms.”[45]

Current MTO    
VII.11
What is Bulgaria’s current Medium-term Budgetary Objective (section 1A, article 2a consolidated Regulation 1466/97)? When will it be revised?

The current MTO of Bulgaria for a structural deficit is 1% according to the CP of Bulgaria for 2014-2017, which was adopted in April 2014.[46] It was expected that this MTO was going to be achieved in 2016. However, considering the revised medium-term budgetary forecast for 2015-2017, in its part discussing the MTO, it becomes clear it will not be possible to achieve this goal even by the end of the three-year period. The forecasts for the following years were 2.8 % for 2015, 2.2 % for 2016 and 1.7 % for 2017.[47]  Having in mind the current banking crisis in Bulgaria (See the answer to Question I.1) it will take even longer to achieve the current MTO of Bulgaria.

Adoption MTO  
VII.12
By what institution and through what procedure is Bulgaria’s Medium-term Budgetary Objective adopted and incorporated in the stability programme (Eurozone, article 3(2)(a) consolidated Regulation 1466/97)?

The LPF does not provide for procedural rules for the adoption of the MTO as such. As it was stated above the MTO is included in the medium-term budgetary forecast. As such the general rules applicable to the forecast apply to the MTO as well. According to Article 66(1) of the LPF, the Council of Ministers, through the Minister of Finance organises the drafting of the medium-term budgetary forecast and the draft LSB. Under Article 67(1), annually, until 31 January, the Council of Ministers acting on a proposal of the Minister of Finance adopts a budgetary procedure for the drafting of the forecast and the draft Law. This procedure sets out the stages, the deadlines, the allocation of responsibilities and requirements for the drafting of the forecast and the draft Law. However, the Decision on the budgetary procedure does not provide for separate rules on the adoption of the MTO. Accordingly, the MTO of Bulgaria is prepared by the Ministry of Finance and adopted by the Council of Ministers as part of the medium-term budgetary forecast.

Regulation No 1177/2011 on the excessive deficit procedure
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1467:20111213:EN:PDF)


EDP difficulties
VII.13
What political/legal difficulties
did Bulgaria encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

Other than the discussions during the negotiations of the six-pack in general, no political or legal difficulties were encountered after the Regulation was adopted. See the answer to Question VII.3 mutatis mutandis.

With respect to the excessive deficit procedure, the LPF does not provide for changes in the rules on the budgetary process and does not make references to Regulation 1467/97 as such. However, the LPF does seem to implement Regulation 479/2009,[48] which is referred to on several occasions in the amending Regulation 1177/2011. The Law is implementing Regulation 479/2009 by mainly aligning its set of definitions in accordance with that Regulation. In particular, Regulation 479/2009 is mentioned eight times in total – once in Article 37, and seven times in the Section with final and transitional provisions. Six out of these seven are with respect to definitions[49] and the seventh is part of a small amendment to the Law on the Municipal Debt, which mirrors the Article 37 mentioning. In the relevant part, Article 37(1) of the LPF provides that the LSB, for any given year, shall set out the limit for an eventual new State debt that may be accrued by stating separately the total amounts under (a) the Law on the State Debt and (2) financial leasing and the other forms of debt in accordance with Regulation 479/2009.

Regulation No 1173/2011 on effective enforcement of budgetary surveillance
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1173:EN:NOT)


Sanctions
VII.14
What political/legal difficulties
did Bulgaria encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No changes have been introduced as Bulgaria is not a Eurozone member yet.

General changes     
VII.15
What further changes have to be made to the rules on the budgetary process in order to comply with the Six-Pack rules?

No changes have been introduced as Bulgaria is not a Eurozone member yet. According to the text of the LPF, its explanations and the explanations to the draft Law for the Fiscal Council, it is only the Fiscal Council that is yet to be set up. This also transpires from the above mentioned Council Recommendations to Bulgaria in 2013. Until Bulgaria joins the Eurozone no other changes in the rules on the budgetary process have been identified as required.

Miscellaneous
VII.16
What other information is relevant with regard to Bulgaria and the Six-Pack?

No other relevant information.

[1] Council of Ministers, Decision № 24 for adopting an Annual Programme for Participation of the Republic of Bulgaria in the Decision-Making Process of the European Union (2011) of 17 January 2011, 9-10.

[2] Council of Ministers, Framework Position on legislative proposals of the European Commission concerning the strengthening of the Stability and Growth Pact and improving the coordination of economic policies. The framework position is on file with the author. The translations provided are of the author.

[3] Special non-papers are types of documents used during negotiations expressing the opinions and proposals of the delegations. The special non-paper was referred to in the framework position (Ibid) but it is not available to the author.

[4] See the discussion on 9 February 2011in the meeting of the Committee on European Affairs infra.

[5] These fears/concerns can be linked to the economic crisis in Bulgaria in 1996. See the answer to Question III.3.

[6] Committee on Economic Policy, Energy and Tourism, Protocol № 3 of 2 February 2011. One of the guests in the meeting Marinela Petrova (Director for Economic and Financial Policy in the Finance Ministry at the time) provided a short summary of the position of Bulgaria.

[7] Committee on European Affairs and Oversight of the European Funds, Report on Examining the Resolution of the European Parliament of 20 October 2010 on the financial, economic and social crisis: Recommendations concerning the measures and initiatives to be taken of 9 February 2011.

[8] Reference to Germany and France was made in the framework position. It was also mentioned that Spain and Portugal were against Germany’s proposal because it diluted the meaning of the Regulation.

[9] Translation by the author.

[10] Explanations to the draft LPF, 3; Committee on Regional Policy, Committee on Legal Affairs, Committee on Budget and Finance, Committee on Labour and Social Policy; Law on the Public Finances (LPF), SG 15 of 15 February 2013, Additional Provisions, § 3 and Transitional and Concluding Provisions, §18.

[11] Ibid.

[12] Committee on Labour and Social Policy, Protocol of 14 November 2012.

[13] Translation by the author.

[14] Translation by the author.

[15] Law on the Public Finances (LPF), SG 15 of 15 February 2013, Transitional and Concluding Provisions, §18.

[16] Committee on Budget and Finance, Report of 12 December 2012; Committee on European Affairs and Oversight of the European Funds, Report of 4 December 2012.

[17] The explanations also state that the draft Law is in the context of the Recommendation of the Council from 9 July 2013 which recommends inter alia that Bulgaria establishes “an independent institution to monitor fiscal policy and provide analysis and advice”. Council Recommendation on the National Reform Programme 2013 of Bulgaria and delivering a Council opinion on the Convergence Programme of Bulgaria, 2012-2016 [2013] OJ C 217/10.

[18] National Assembly, Stenographic records of the 99th meeting, 7 March 2014.

[19] In favour – GERB (3), Coalition for Bulgaria (59), DPS (25), ATAKA (3) and independents (1); against GERB (8), ATAKA (3); abstaining GERB (30).

[20] Explanations to the draft Law for Fiscal Council and Corrective Mechanisms, 2.

[21] Council of Ministers, Stenographic record of the meeting on 4 February 2015, Agenda point 10.

[22] Committee on European Affairs and Oversight of the European Funds, Report of 18 February 2015; Committee on Budget and Finance, Report of 18 February 2015.

[23] National Assembly, Stenographic records of the 48th meeting, 6 March 2015.

[24] In favour – GERB (58), BSP – left Bulgaria (17), DPS (5), Reformist Bloc (14), Patriotic Front (6), Bulgarian Democratic Center, ABV (7) and independents (2); abstaining BSP – left Bulgaria (1).

[25] Commission, Alert Mechanism Report 2012, COM(2012) 68 final, 14 February 2012, 19.

[26] Commission, Alert Mechanism Report 2013, COM(2012) 751 final, 28 November 2012, 20; Commission, Alert Mechanism Report 2014, COM(2013) 790 final, 13 November 2013, 3-4; Commission, Alert Mechanism Report 2015, COM(2014) 904 final, 28 November 2014, 3-4.

[27] Commission, In-Depth Review for Bulgaria, SWD(2012) 151 final, 30 May 2013, 3.

[28] Europe 2020: National Reform Programme, 2012 Update (Sofia, April 2012) 13.

[29] Commission, In-Depth Review for Bulgaria, SWD(2012) 151 final, 30 May 2013.

[30] Europe 2020: National Reform Programme, 2013 Update (Sofia, April 2013) 18 and 55.

[31] Europe 2020: National Reform Programme, 2014 Update (Sofia, April 2014) 12.

[32] Law to amend and supplement the Tax and Social Insurance Procedure Code, promulgated, SG 109 of 2013.

[33] Europe 2020: National Reform Programme, 2014 Update (Sofia, April 2014) 31.

[34] Ibid.

[35] Council of Ministers, Decision № 40 for the Budgetary Procedure for 2012 of 21 January 2011 [1.5].

[36] CP 2011-2014; Council of Ministers Decision № 246 for Approving the Budgetary Forecast for the Period 2012-2014, Adopting the Expenditure Ceilings on the Primary Authorising Officers, without Municipalities, for the Period 2012-2014 and for Approval of the Update of the Strategy for the Management of the Sovereign Debt of 15 April 2011.

[37] Council of Ministers, Decision № 246, Annex I, 3.

[38] In this Report the same are referred to as primary authorising officers because in the author’s opinion it is a more suiting translation.

[39] Committee on European Affairs and Oversight of the European Funds, Report of 24 October 2012. This was also observed in the Convergence Programme of the Republic of Bulgaria: 2013-2016 (Ministry of Finance, Sofia, April 2013) 67.

[40] The LPF sets 20 April as a deadline for this. Law on the Public Finances (LPF), SG 15 of 15 February 2013.

[41] Ibid. art 75.

[42] This is set out in the annual Decision of the Council of Ministers which describes in detail the budgetary procedure. This annual Decision is adopted on the basis of Article 67 LPF. The annual Decision for the 2015 SBL includes a statement that the procedure is in accordance with the deadlines for the application of the mechanisms and measures that are included in the main stages of the European Semester. Council of Ministers, Decision № 57 for the Budgetary Procedure for 2015 of 4 February 2014, 3.

[43] Law on the Public Finances (LPF), SG 15 of 15 February 2013, art 79(1)(2).

[44] Ibid., art 79(5)(4).

[45] Translation by the author.

[46] Convergence Programme of the Republic of Bulgaria: 2014-2017 (Ministry of Finance, Sofia, April 2014).

[47] Revised Medium-term Forecast for the Period 2015-2017 (Explanations to draft LSB for 2015).

[48] Regulation (EC) No 479/2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community [2009] OJ L145/1.

[49] The definitions are of (1) Debt of sub-sector “Local governance”; (2) Debt of sub-sector “Central governance”; (3) Debt of “Social Security Funds”; (4) “State debt”; (5) Consolidated debt of “State Governance” sector; (6) “Municipal debt”.