IX - Fiscal Compact

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 Cyprus 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 government’s (at the time AKEL – leftish/communist party) agreement to the Fiscal Compact was often contradicted by AKEL’s sporadic criticism of the ‘Europe of austerity and fiscal discipline’ in the parliament of Cyprus and public speeches.[1] The Fiscal Compact was not brought for discussion before the Parliament as it was ratified through a governmental decree without the involvement of the Parliament.

How has the Fiscal Compact been ratified in Cyprus and on what legal basis/argumentation?

The Fiscal Compact was approved and agreed under Article 169(1) of the Cypriot Constitution, by an Act of the Council of Ministers (governmental decree) on 20 April 2012, without a vote in the Parliament. It was later ratified and published in the Official Journal of the Republic of Cyprus (Official Journal of the Republic of Cyprus 4157/ 29 June 2012) upon the Cypriot Council of Ministers’ decision, in accordance with Article 169 (3) of the Constitution, in Greek and in English. The ratification was completed by the notification to the Council of the EU on 3 July 2012.

Article 169 of the Cypriot Constitution stipulates that :

Subject to the provisions of Article 50 and paragraph 3 of Article 57-(1) every international agreement with a foreign State or any International Organisation relating to commercial matters, economic co-operation (including payments and credit) and modus vivendi shall be concluded under a decision of the Council of Ministers; 

(2) any other treaty, convention or international agreement shall be negotiated and signed under a decision of the Council of Ministers and shall only be operative and binding on the Republic when approved by a law made by the House of Representatives whereupon it shall be concluded; 

(3) treaties, conventions and agreements concluded in accordance with the foregoing provisions of this Article shall have, as from their publication in the official Gazette of the Republic, superior force to any municipal law on condition that such treaties, conventions and agreements are applied by the other party thereto.[2]  

Ratification difficulties    
What political/legal difficulties
did Cyprus encounter during the ratification of the Fiscal Compact?

Neither political nor legal difficulties were encountered as the Fiscal Compact was agreed and approved by an Act of the Council of Ministers and was later ratified by the Cypriot Council of Ministers’ decision, and thus without the involvement of the Parliament in accordance with Art. 169 (1) of the Constitution of the Republic of Cyprus (see also questions VII.1 and VII.2).

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 Cyprus? 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 previous government, led by the AKEL party,[3] has been contemplating already since April 2012 a constitutional amendment in order to comply with the implementing ‘constitutional provision’ the Fiscal Compact prescribes.

Currently the balanced budget rule is incorporated in the Law 194 (I) of 2012 on the regulation of the Medium Budgetary Framework and Budgetary Rules, under Art. 13 (5) – (9) (see also under Question 57 on the discussion of the Constitutional amendment).

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.

The main issue debated in the Parliament in relation to the Fiscal Compact and the Balanced Budget Rule was the need to proceed to a constitutional amendment in order to transpose the Balanced Budget Rule.

Before the discussion in the Parliament, in the Parliamentary Committee of Finance and Budget the same issue arose.[4] During the discussion of the Draft Bill (eventually Law 194(I) of 2012) in the Parliamentarian Committee on 11 December 2012 the president of the Committee, Nikolas Papadopoulos, and some members noted that the supremacy of the relevant law over any other laws should be safeguarded. For that reason it should be vested with constitutional power. Such a power would function, in these members of the Committee’s view, as a shield against any potential pressures to the Parliament that would be exercised before the examination and discussion of each Budget Bill. The delegate of the Ministry of Finance noted that he had been informed by the representative of the Republic’s Legal Service (also present at the discussion) that such an inclusion in the Constitution could result in constitutional problems.  The representative, following also the Legal Service representative’s suggestion, added that the Parliament maintains its alienable right to reject any budget (bill) that does not comply with the provisions and aims of the Draft Bill and as such prescribing constitutional status to the Bill not only would it create constitutional problems, but it would also be redundant.[5]

The representative of the Legal Service continued in the framework of the discussion on the Draft Bill before the Parliamentarian Committee that any immediate attempt to amend the Constitution in such a tight time framework might lead to mistakes, as has happened in the past. As such the plenary session concluded that any constitutional amendment remains a highly political issue that has to be preceded by serious and long discussion and should be left for the future.

In the plenary session of 12 December 2012, in the House of Parliament,[6] it was noted that the representative of the Legal Service of the Republic of Cyprus (whose opinion is not publically available, but was referred to during the discussion) suggested that the Troika gave more emphasis to the immediate enactment of the Draft Bill (i.e. eventually Law 194 (I) of 2012 transposing the Balanced Budget rule and the Fiscal Compact) – which was sent to both the European Commission and the IMF for observations, and not to an immediate constitutional amendment. A constitutional amendment, according to the Legal Service of the Republic of Cyprus, does not constitute a condition by the Troika for a (later) financial assistance to Cyprus.

The fact that the ratification of the Fiscal Compact was a prerequisite for a Member State to be considered eligible to apply for financial assistance from the European Stability Mechanism in conjunction with the fact that Cyprus was already contemplating such assistance from mid-2012, facilitated the implementation of the Fiscal Compact/Balanced Budget Rule.

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 V.10)?

Not applicable.          

Case law          
Is there a (constitutional) court judgment on the Fiscal Compact/implementation of the Balanced Budget Rule?

No such judgment exists so far.

Non-Eurozone and binding force    
Has Cyprus 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?

Cyprus is a Eurozone Member State.


What other information is relevant with regard to Cyprus and the Fiscal Compact?

Not applicable.

[1] See also G. Charalambous, European Integration and the Communist Dilemma: Communist Party Responses to Europe in Greece, Cyprus and Italy (Ashgate 2013), p. 110 ff.

[2] Translation from:$file/CY_Constitution.pdf)

[3] AKEL was succeeded in government by the party ‘Democratic Rally/Democratikos Synagermos’ on 28 February 2013.

[4] For the report of the Parliamentarian Committee’s discussion see:

[5] Free translation from the report of the Parliamentarian Committee’s discussion:

[6], under the plenary session of 12-12-12.