Czech Republic

IX - Fiscal Compact

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.  
(
http://www.european-council.europa.eu/eurozone-governance/treaty-on-stability?lang=it)

Negotiation
IX.1
What political/legal difficulties
did the Czech Republic 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.

When the U.K. vetoed the original Franco-German proposal to include a fiscal compact into the Treaties during the December 8-9, 2011 European Council, the Czech Republic alongside Sweden and Hungary appeared to initially back the UK. However, instead of supporting the U.K. veto, the Czech Republic and the two other countries only made a reservation to the summit results stating they would have to consult their parliaments first.[1] The Czech Republic continued in the negotiations and decided finally not to sign the Fiscal Compact early in February 2012. In a press release, the Government explained: “Prime Minister Petr Nečas clearly declared that he will not commit to signing the compact before he can be confident that he will be able to fulfill this commitment… According to the Czech Prime Minister there has also been a form of abuse in that [the text was modified] directly at the meeting of the heads of state or government of the EU Member States, which they then immediately afterwards bindingly vote on, without the possibility for proper reading, analysis and evaluation.”[2] Two content-based issues were raised at this stage: on Article 7 (the commitment to support proposals of the Commission was considered as “a massive change in the operation of the EU”, which must be refused in principle, although it applies to Eurozone members only) and on inadequate conditions for participation at the Eurozone summits.[3] Legal memorandum of the Government (prepared, however, later, in April 2012) raised concerns on the chosen form of international treaty (“highly problematic and unprecedented”), the use of EU institutions (Treaty that stays outside the EU framework cannot extend powers of the EU institutions), the transfers of sovereign powers (the government concluded that the Treaty transfers new powers to a special “international institutions” created by the Treaty; with a result that constitutional majority is needed for its ratification), and the extent in which the Treaty changes the original commitment of the CR given in the Accession Treaty of 2003 to join the Eurozone).[4]

The internal political dynamics was once again affected by a strong opposition from then President Klaus towards the Fiscal Compact. While TOP 09 (junior government party, represented by Foreign Minister Karel Schwarzenberg and Minister of Finance Miroslav Kalousek) backed the Fiscal Compact (almost unconditionally[5] ) already during the negotiations, the Civic Democrats (represented by then Prime Minister Petr Nečas) were rather sceptical towards the idea.[6] Eurosceptic fraction in the Civic Democrats (among others, MEP for the Civic Democrats and chairman of the European Conservatives and Reformists group in the European Parliament Jan Zahradil) connected to the founder of the party and then President Václav Klaus, exercised a strong influence over the Party in EU matters incited by strong announcement of President Klaus that he would block any such move. On Jan. 11, 2012, President Klaus sent an official letter to the Prime Minister “informing him that he will refuse to sign any legislation that would relinquish any Czech sovereign powers over budgetary and fiscal policy to the EU.”[7] While PM Nečas attempted to gain time, TOP 09 threatened to leave the government if the Czech Republic does not participate in the Fiscal Compact. A government crisis in April 2012 (see the overview of the Czech politics during the period this study covers in the answer to question I.1) pushed the disagreements on the Fiscal Compact on the side lines.

The major opposition party (Social Democrats) supported the Fiscal Compact and was furious that the Government did not discuss its intention not to sign it with the Parliament. The parliamentary rules of procedure adopted in connection with the Lisbon Treaty, however, requires the Government to ask for preliminary consent for its position at the European Council only, first, when the EC acts within the EU Treaties, and second when the Government aims to give consent to a measure (the rules do not provide for a situation when the Government intents to disagree with a proposal at the EC).[8]

Ratification
IX.2
How has the Fiscal Compact been ratified in the Czech Republic and on what legal basis/argumentation?

CR is not a party to the Fiscal Compact. Before CR decided not to sign the Fiscal Compact, Civic Democrats supported ratification in a referendum, while TOP 09 would most probably urge for a Parliamentary ratification only. Then President Klaus clearly stated he would not ratify the Compact. In February 2014, PM Sobotka pledged to sign the Fiscal Compact with President Zeman supporting the move.

The Czech legal academic discussion focused on whether the Fiscal Compact means a (i) transfer of competences on (ii) an international organization or international institution. The Fiscal Compact has been found to create new competences, in particular the commitment of contracting parties to supporting the proposals and recommendations of the Commission prepared within the excessive deficit procedure (Article 7).[9] At this same time, the Fiscal Compact contains decision-making rules that as consequence create a specific international institution consisting in cooperation between the Commission and the contracting parties. The conclusion is that the Fiscal Compact creates some new competences to an international institution within the excessive deficit procedure that goes beyond the mandate of the TFEU, the Protocol on the Excessive Deficit, and the Stability and the Growth Pact[10] , rather than implementing competences already transferred to the EU by the Czech Republic by its ratification of the 2003 Accession Treaty and the Lisbon Treaty. As a consequence, the Fiscal Compact requires ratification by the three-fifth majority of both chambers of the Parliament or in a referendum.[11]

Ratification difficulties    
IX.3
What political/legal difficulties
did the Czech Republic encounter during the ratification of the Fiscal Compact?

CR is not a party to the Fiscal Compact. For the discussion on constitutional basis for ratification see above.

Balanced Budget Rule      
IX.4
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 the Czech Republic? 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.

CR is not a party to the Fiscal Compact. However, the Government agreed to a constitutional amendment on fiscal responsibility (Fiscal Constitution), the legislative process currently stayed.

Debate Balanced Budget Rule 
IX.5
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.

CR is not a party to the Fiscal Compact.

Relationship BBR and MTO     
IX.6
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)?

CR is not a party to the Fiscal Compact. Based on the current MTO, the balanced budget shall be reached by 2017. However, recent debates suggest that this target is too ambitious and it will be revised. The predicted deficit for 2014-16 is 2.9, 2.8, and 2.8% GDP respectively and so to reach balanced budget in 2017 (that is to decrease the deficit from 2.8 to 0.5%) is improbable.

Case law  
IX.7
Is there a (constitutional) court judgment on the Fiscal Compact/implementation of the Balanced Budget Rule?

No.

Non-Eurozone and binding force  
IX.8
Has the Czech Republic 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?

No.

Miscellaneous
IX.9
What other information is relevant with regard to the Czech Republic and the Fiscal Compact?

Not applicable            .

[1] Europe’s great divorce, Charlemagne, The Economist, Dec. 9, 2011, http://www.economist.com/blogs/charlemagne/2011/12/britain-and-eu-summit. David Cameron blocks EU treaty with veto, casting Britain adrift in Europe, The Guardian, Dec. 9, 2011, http://www.theguardian.com/world/2011/dec/09/david-cameron-blocks-eu-treaty.

[2] Government of the Czech Republic, The main arguments of Prime Minister Petr Nečas regarding why the Czech Republic has not committed to ratification of the fiscal compact, Press release, Feb. 6, 2012, http://www.vlada.cz/en/media-centrum/tiskove-zpravy/the-main-arguments-of-prime-minister-petr-necas-regarding-why-the-czech-republic-has-not-committed-to-ratification-of-the-fiscal-compact-92710/ (in English).

[3] The text only ensures restricted participation for non-eurozone members at summits on specific subjects. It of course does not say who will stipulate and interpret the subjects in advance. It is the opinion of the Prime Minister that all the countries that have committed to adopting the euro should, as standard, be invited as observers (of course without voting rights) to all summits if their commitment is to be valid.” Ibid.

[4] Memorandum of the Department for European Affairs of the Office of the Government of the Czech Republic, that is a leading analysis for the Government legal position, April 2012, http://www.vlada.cz/assets/evropske-zalezitosti/dokumenty/Analyza-UV-final.pdf.

[5] Given their strong support even before the final text emerged.

[6] TOP 09 leader Schwarzenberg declared “We will position ourselves as a clearly pro-European party, which adheres to deeper European integration, and will try to lead the country into the mainstream [of the integration process]. We are no EU-grovelers, but with our position towards Europe we are fundamentally different from the euro-hesitant go euroskeptic Civic Democrats (ODS).” Česká pozice (Czech Position), EU budgetary integration threatens to topple Czech coalition, Jan. 12, 2012, quoting Czech daily Lidové noviny, available at: http://www.ceskapozice.cz/en/news/politics-policy/eu-budgetary-integration-threatens-topple-czech-coalition.

[7] Ibid.

[8] Sec. 109i of the Act No. 90/1995 Coll. on the Rules of Procedure of the Chamber of Deputies of the Parliament. Available at: http://www.zakonyprolidi.cz/cs/1995-90#cast15A.

[9] Arts. 3, 4 and 5, on the other hand, do not create new competences beyond what is mandated by the existing EU Treaties. Gerloch, A., Povaha Smlouvy o stabilitě, koordinaci a správě v Hospodářské a měnové unii sjednávané mezi zeměmi Eurozóny z hlediska požadavků stanovených ústavním pořádkem České republiky na proces její ratifikace, Acta Universitatis Carolinae – Iuridica, 2012, 99-108,

[10] See the conclusions of the Memorandum of the Department for European Affairs of the Office of the Government of the Czech Republic, that is a leading analysis for the Government legal position, April 2012, http://www.vlada.cz/assets/evropske-zalezitosti/dokumenty/Analyza-UV-final.pdf.

[11] Gerloch, A., Povaha Smlouvy o stabilitě, koordinaci a správě v Hospodářské a měnové unii sjednávané mezi zeměmi Eurozóny z hlediska požadavků stanovených ústavním pořádkem České republiky na proces její ratifikace, Acta Universitatis Carolinae – Iuridica, 2012, 99-108, at 104.