Czech Republic

VII - Six-Pack

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 the Czech Republic 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?

Regulations 1173/2011 and 1174/2011 do not apply to CR and the two measures were not discussed in the Parliament. During the vote in the Council, CR, however, supported both acts. For Regulations 1175/2011 and 1177/2011 see the answer to question VII.9. Regarding the Directive: Main arguments were laid down during the negotiations. The Parliament supported the position of the Government,[1] which adopted a negative opinion towards the Directive stating that national fiscal frameworks should not be regulated at all on the EU level, even if EU legislation aims to set up minimal requirements only.[2] Particularly, the limitation of regional and municipal fiscal autonomy in favour of the central government was found troubling.[3] In my view, the level of interference of the central government into the regional and municipal self-governance that the Directive presupposed requires a transposition through a constitutional amendment. CR further stated that it agreed to the principles on which the Directive was based – the requirements for higher transparency, rules on budgetary process, statistics and data collection. However, CR believed that maximal fiscal freedom had to be retained and therefore was principally against the Directive. CR considered an adoption of non-binding guidelines with the similar content to be a more appropriate solution. When the Directive passed the Council, CR urged for “a balance between the benefits for effective, holistic, and transparent management of fiscal policy and administrative burden connected with full implementation of the directive and [sought] to postpone the transposition deadline” (the deadline was originally set for Jan. 1, 2013).[4]

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)?

Implementation was foreseen through the adoption of a constitutional law on fiscal responsibility (Fiscal Constitution)[5] and two ordinary laws – law on fiscal responsibility and another law amending a number of laws regarding the budgetary processes and competences, mainly the Law No. 218/2000 Coll. on Budgetary Rules and the Law No. 250/2000 Coll. on Budgetary Rules of Regional and Municipal Budgets. Further legislative changes regarding obligations of social security funds and government institutions that are not included in the treasury such as public universities and public research institutions were also envisaged. No measures have been adopted yet (see question VII.3). The Government report on the Directive states that in general the current budgetary legislation and practice is in compliance with the requirements set in the Directive. “The Law on budgetary rules introduced in 2003 a system of fiscal targeting and required that medium-term fiscal frameworks and medium-term budgetary outlook are prepared for the state budget and state funds, including a numerical fiscal rule for their preparation. This results from the adoption of a medium-term fiscal target for the entire government sector expressed as a share on GDP following the ESA 95 methodology, which is further detailed during the preparation of the said medium-term documents.”[6] According to the Government report, the problems of the current budgetary frameworks in CR rest in non-compliance with the medium-term objectives, where the central government lacks, with an exemption of the state budget and state funds, competence and tools to monitor the development and to enforce the objectives on the level of regions and municipalities. Under the current situation, there is no independent fiscal council and independent evaluation of the forecasts prepared by the Government.

Accounting and statistics

On Jan. 1, 2010 the accounting reform came into force, which means Arts. 3/1 and 10 have been already implemented, as well as the emphasis on the inclusion of potential risks and benefits (Art. 14/3). Also the necessary changes regarding data submissions (cash-based data monthly and quarterly and the reconciliation table) will be realized before the end of 2013 (Art. 3/2a and 2b – for the reconciliation table, the Government requires further specifications of the obligations).[7]

Macro-economic and fiscal forecasts

“Budgetary practice of CR has been for a long time using a macroeconomic and fiscal projection of the Ministry of Finance (MF), which disposes of its own expert capacity. Forecasts of MF take into account the most probable economic development using prudently chosen characteristics; they are prepared based on the most current data and take into account to a certain extent (given the time incongruity) past forecasts of the Commission (Art. 4/1 of the Directive). Forecasts of MF nonetheless do not contain alternative scenarios of economic development (Art. 4/2 of the Dir.). An independent body does not audit these regular forecasts. Although it is not expressly required by the Directive [to establish such independent body], the long-term practice of MF has been such that the forecasts are scrutinized by a panel of independent economists (Art. 4/4 of the Dir.). Currently CR compares its forecasts with a panel of around 15 recognized Czech and foreign institutions, in which the Commission is represented as well. The comparison is made four times a year, out of which twice CR asks the institutions to prepare forecasts. Evaluation of the forecast of MF by way of comparison with the forecasts of the panel participants is published by MF alongside with quarterly forecasts, which encompass methodology, assumptions, and chosen characteristics (Art. 4/3 of the Dir.). The [Nečas] Government based on its political program intends to establish a national fiscal council. When such council is established, the Government may consider enlarging the council’s competences to encompass alongside an assessment of fiscal impacts also an evaluation of the forecasts of MF, although the Directive does not expressly require this. The system of preparation and the quality of forecasts of MF are sufficient; the forecasts of MF have high reputation.”[8]

Numerical fiscal rules

The Nečas Government aimed to introduce the fiscal numerical rules of the SGP into a Fiscal Constitution (Art. 5(a) and (b) of the Dir.). It recognized that the fiscal frameworks for 2013 and after must be set in such a way, that the fiscal consolidation leads to the MTO, which the Czech Republic set as a structural deficit of 1% of GDP. CR has already introduced into its budgetary practice the so called fiscal targeting that implicitly contains a numerical fiscal rule (Art. 5(a) of the Dir.).[9]

Medium-term budgetary frameworks

CR has already established medium-term budgetary frameworks (Art. 9/1,2(a) of the Dir.) and it supports the directive’s emphasis on medium-term fiscal frameworks. However, their enforcement is low and depends on political support. CR has not considered introducing a sanction mechanism directly into the budgetary rules; yet, an introduction of certain non-financial sanctions beyond the budgetary rules is considered desirable, e.g. systemic publishing of instances of non-compliance with procedural rules and of breaches of the frameworks. Medium-term expenditures frameworks are adopted in the form of a resolution by the Chamber of Deputies of the Parliament, however, as I have already mentioned, there is no sanction mechanism in the case of non-compliance (Art. 6(c) of the Dir.). Moreover, the Parliament’s Rules of Procedure does not guarantee a discussion on the frameworks by the Parliament. The medium-term expenditures frameworks of the MF strictly state exemptions, under which the frameworks do not need to be followed in the preparation of state budget. The medium-term expenditures frameworks currently encompass state budget and state funds only. To fully comply with the Directive, that is to enlarge the frameworks to cover the entire general government, is currently unachievable. The frameworks are based on realistic prudent economic forecasts (Art. 9/3 of the Dir.). In order to make the frameworks to cover all government institutions, a constitutional law is needed. CR plans to enlarge the current system of enhanced budgetary surveillance of municipalities and organizations paid from their budgets onto an entire sub-sector of local governmental institutions. Instead of direct management of municipal debts development, CR prefers setting up clear rules on excessive debt or insolvency and a controlled bankruptcy of a municipality. CR also considers a constitutional law that would limit options of deficit financing, e.g. through the golden rule.[10]

As of February 2014, the Directive has not been implemented yet. Pending legislative changes includes Fiscal Constitution Bill, bill on fiscal responsibility and bill that would amend numerous other laws to be in compliance with a new fiscal framework, in particular Law No. 320/2001 Coll., on financial supervision of central government, Law No. 420/2004 Coll., on review of fiscal management of territorial self-government units and voluntary associations of municipalities, Law No. 551/1991 Coll., on health insurance companies, Law No. 362/2010 Coll., on fiscal information duties of health insurance companies. In addition an amendment to the Constitution extending competences of the Supreme Auditing Office and a Bill on management and control system in central government are envisaged. Furthermore, several bylaws shall be updated: bylaws of the Ministry of Finance to the Law No. 563/1991 Coll., on accounting, and bylaws of the Ministry of Finance to the Law No. 218/2000 Coll., on budgetary rules.

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

The Government drafted and submitted to the Parliament a proposal for constitutional law – Fiscal Constitution on Oct. 10, 2012. Although the proposal reached the second reading in the Chamber of Deputies of the Parliament, June 2013 political crisis (resignation of the Nečas Government) and new elections in October 2013 prevented further progress with the bill. After October 2013 general elections, former government party, now in opposition, TOP 09 reintroduced the Fiscal Constitution Bill. However, the new centre-left Sobotka Government do not plan to support the current version as the status quo gives him more fiscal room for manoeuvring in order to implement his social agenda and investment plans. The new government, however, announced to discuss two, in their view, interconnected issues – accession to the Fiscal Compact and some form of a Fiscal Constitution. See more in the answers to the questions on the Fiscal Compact and to III.2 in fine).

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)?

The Ministry of Finance currently prepares macroeconomic and budgetary forecasts and there has been no intention to change this practice. An explicit competence in order to implement the Directive is included in the draft implementing law to the Fiscal Constitution Bill.[11]

Implementing laws to the Fiscal Constitution Bill, which were submitted to the Parliament on June 27, 2013, provides for an independent Committee for budgetary forecasts (Výbor pro rozpočtové prognózy), which evaluates economic and budgetary forecasts of central government and territorial self-governments. Forecasts evaluated as realistic or conservative would represent the basis for the preparation of the annual budget. Due to a political crisis and early elections in October 2013, the legislative process for both the Fiscal Constitution Bill and the implementing laws was terminated. The Social Democrats, who head the new coalition government appointed in January 2014, will most probably come up with their own drafts.

Fiscal Council 
VII.5
Does the Czech Republic 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 Czech Republic have to create (or adapt) a Fiscal Council in order to implement Directive 2011/85/EU?

Not yet. See answer to question VII.3. According to current version of the Fiscal Constitution Bill (resubmitted to the Chamber of Deputies of the Parliament by an opposition party in December 2013), Art. 3 creates National Fiscal Council (NFC) as “an independent organ that has a competence in the area of fiscal and budgetary policy, surveys the budgetary management of public institutions and observation of the rules on fiscal responsibility and evaluates them” (para 1). A detailed implementation will be left to ordinary law (para 3). The NFC has five members. The Chairman, Vice-Chairmen, and other Members of the NFC are elected by the Chamber of Deputies of the Parliament (para 2) for six-year term by simple majority (Sec. 30 of the draft implementing law). [12] The Government nominates the Chairman, the Senate nominates the first Vice-Chairman, the Czech National Bank nominates the second Vice-Chairman, the remaining two members are nominated by the Ministry of Finance and by at least 7 heads of regional self-government units, respectively (Sec. 27 of the draft implementing law). The NFC calculates the debt and publishes its calculations in the same way the laws are published (Art. 5).[13] The NFC gives an opinion on expenditure framework of annual budget and state funds, which the Finance Ministry publishes. If the Ministry does not agree with the NFC’s opinion, it shall substantiate and publish its objections (Sec. 12/3 of the draft implementing law). The opinion of NFC is thus not binding. The NFC further evaluates whether the fiscal numerical rules are observed and submits a report to the Chamber of Deputies of the Parliament before the annual budget is agreed; and prepares and submits to the Chamber of Deputies of the Parliament a report on the long-term sustainability of public finance, including an evaluation on how the Government-planned policies would effect the sustainability (Sec. 23 of the draft implementing law).

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 the Czech Republic 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?

No changes on the budgetary process have been introduced.[14] Sanctions do not apply to CR and hence there was little debate. The Senate in its resolution to the draft Six Pack considered the MIP in general beneficial for functioning of the EMU, however, it opined that for “preparation of the comparative survey and evaluation of indicators the degree of integration into the Economic and Monetary Union as well as the degree of actual convergence of a given economy in relation to the EU average must be taken into account.”[15] The Senate further fundamentally disagreed with the symmetrical approach to some of the indicators and complained that the set of indicators is not part of the draft and so the national parliaments could not fully evaluate the effectiveness of the control mechanism for macroeconomic stability. Finally, the Senate pointed to the fact that the Government had only indirect influence, through its measures supporting competitiveness, on the development of macroeconomic indicators, such as actual effective exchange rate or balance of payments current account, and that these measures had effect with considerable delay only.[16]

Finally, as for imbalances, in 2012 the Commission report concluded that there was no need of in-depth analysis in the context of the MIP. Also, in the previous round of the MIP, the Czech Republic had not been identified as experiencing imbalances.[17]

Given the positive result of the 2012 report, no policy changes were made in connection with the report. The identified problems have been known in CR and have been an object of long-term policies. The Nečas Government regularly implemented the policy recommendation of either the biannual Commission Convergence Reports (the last published in May 2012)[18] or the annual Council Recommendation on the National Reform Programme and the Convergence Programme (the last published on July 9, 2013).[19] These recommendations were reflected in the main programming document, the Programme Declaration of the Nečas Coalition Government for the 2010 vote of confidence.[20]

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?

See answer to question VII.2. In 2001, an institution of medium-term expenditures frameworks was introduced, however without sanctions. With an annual budget bill, government presents to parliament expenditures limits for two years following the upcoming budgetary year. Chamber of Deputies approves the expenditures framework by a resolution. Through expenditures framework, government binds itself not to spend in two years following the budgetary year more than stated in the expenditures frameworks and in case the revenues are greater than expected, the difference ought to be used to lower the deficit.[21] However, because two-year expenditures frameworks are presented to parliament with every annual budget bill, they are in fact binding only for a following budget bill (that is for the first year of their application). Moreover, the fact that expenditures framework are adopted in the form of parliament’s resolution only, they are legally unenforceable and represent at the end merely a political commitment.[22]

The Draft Fiscal Constitution creates an obligation for all public institutions to prepare medium-term budgetary outlook for at least two years following the annual budget (that is, in fact, three years). The draft implementing laws aims to replace the current quasi deficit rule of the fiscal objective by an expenditure rule. That means an expenditure ceiling will be created (maximum growth of corrected nominal expenditures) for public institutions. The amount of consolidated expenditures of the state budget and state funds, set according to the expenditure rule for the following budgetary year and two subsequent years, will be submitted to the Chamber of Deputies of the Parliament for its approval, while the amount of consolidated expenditures of public institutions’ budget will be submitted to the Chamber of Deputies of the Parliament for information only. The construction of the expenditure rule is based on the reference medium-term rate of expenditure growth (expenditure benchmark).

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)?

The European Semester was first introduced into practice in January 2011. Before the European Semester, preliminary results of macroeconomic forecasts were published in January and March of a current year. On their basis, medium-term expenditures frameworks were prepared and updated. Thus the period from February till April was crucial. The European Semester meant to incorporate into the first phase the data and documents collected between February and April that are submitted to the Commission and the Council (convergence programme and national reform programme). Preparation of these documents is in the competence of the Office of the Government and they reflect all chapters of the budget. Given that the Government discusses and approves the medium-term expenditures frameworks objectives in April, that is at the time when the convergence programme and national reform programme must be submitted to the Union, the process of the preparation of the two documents needed to be speeded up – a material on medium-term expenditures frameworks will therefore not be submitted to the high meeting of the Ministry of Finance and will not be subject to external comment procedure.

The subsequent steps within a budgetary process in CR following the European Semester are as follows – during July, the Ministry of Finance evaluates recommendations of the European Council in line with government-approved limits on budget expenditures and revenues. In August, the Ministry incorporates the recommendations preliminarily into a draft budget, so that the Government may discuss and pass a draft budget including the expenditures frameworks and medium-term outlook. At this time the Government and Ministry of Finance are given opportunity to react on the Council recommendations; whether they are beneficial and acceptable. Subsequently, the Ministry of Finance works with the recommendations in detail, assesses their feasibility, and incorporates them into a budget bill in September. Subsequently, a budget bill is submitted to the Parliament.[23]

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

CR voted (as all other MS) for the Regulation in the Council.[24] During the parliamentary debate, Finance Minister Kalousek stated that the Czech Republic “generally supports the changes that would lead to the most possibly strict fiscal discipline, enhance credibility and enforcement of the budgetary outlook; however, the primary responsibility for the budgetary policy must remain with the national governments.”[25] The position of the Government touched also upon the reverse QMV voting – CR supports this scheme, unless it is extended to other voting of the Council in the area, e.g. recommendation of the Commission in the corrective part. CR is of opinion, that reverse QMV will enhance equality between big and small MS. [26] Minister Kalousek emphasized that, although the “sanction” in the form of interest-bearing deposit is not applicable to CR as a non-Eurozone MS, CR must observe the development in this area closely given the obligation resulting from the convergence programme (future Eurozone membership). He also warned that in the next stage, the Commission plans to enlarge the sanction mechanism to non-Eurozone MS, where conditionality clauses would be introduced into expenditure programmes of the EU. Finally, he stated that the aim of CR was to support such system that would sanction every MS equally, where small or new MS would not be discriminated.[27] The only criticism came from the Communist Party, who denied SGP as such, called for more flexibility and solidarity, individual focus (giving more weight to different structural problems and given stage in the economic cycle in a MS) and warned that these new rules may substantially limit options for such important reforms in CR such as a pension reform or a health-care reform.[28] The Parliament gave to the Government a mandate to support the Regulation by a vote 84:4 (132 out of 200 deputies present).[29]

The Government Report on Reg. 1175/2011 and 1177/2011 further emphasizes that the government considers the introduction of principle of prudent fiscal policy to be the key innovation that will make governments respect the medium-term objective (mainly that accidental incomes, e.g. from privatization, will be used for deficit reduction), something that has been often neglected in the budgetary practise of CR. According to the Report, CR also supports the possibility to take into account expenses for a pension reform when deciding on the EDP.[30] It supports an extension of the period beyond five years.

CR has not changed any laws in connection to the Regulation, relying on its direct applicability (in the extent binding to CR).[31]

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)?

See the answer for question VII.12.

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

MTO is 1% and will be revised in 2016.

On 26 April 2013, the Czech Republic submitted its 2013 Convergence Programme covering the period 2013-2016 and, on 17 April 2013, its 2013 National Reform Programme. The Convergence Programme reads: “The government’s primary intention is to conclude the excessive deficit procedure based on the 2013 figures, and not to further deepen the procyclical effects of fiscal policy. At the same time, the government is intended, as soon as the situation permits it (probably in 2015 and 2016), to contribute to recovery of the Czech economy in the negative phase of the output gap by introducing a lower tax burden without exceeding the limit of 3 % deficit of GDP once again. The target to balance the total budget in 2016 and achieve the medium‐term objective this year at the level of 1 % of GDP of the structural deficit has therefore been postponed until confidence in the economy is restored and sustainable economic growth gets underway once more.”[32]

On July 9, 2013, the Council adopted its ‘Recommendation on the Czech Republic’s 2013 national reform programme and delivering a Council opinion on the Czech Republic’s convergence programme for 2012-2016’. The Council stated that “[t]he Convergence Programme confirms the previous medium-term objective (MTO) of a deficit of 1 % of GDP, which adequately reflects the requirements of the Stability and Growth Pact. The (recalculated) structural budget deficit is projected to increase by 0,3 %, 0,2 % and 0,5 % of GDP in 2014, 2015 and 2016 respectively; therefore no adjustment towards the MTO is foreseen in the Convergence Programme, which is not in line with the Stability and Growth Pact. The rate of growth of government expenditure complies with the expenditure benchmark of the Stability and Growth Pact in 2014 but deviates by 0,3 % and 0,5 % of GDP in 2015 and 2016 respectively, assuming improvements of 0,5 % of GDP towards the MTO judged as appropriate by the Commission. According to the Convergence Programme, the debt-to-GDP ratio is forecast to continue to increase over the programme period, albeit at a slowing pace, and to reach 51,9 % of GDP in 2016.”[33]

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

MTO is a political commitment, which is incorporated into the medium-term expenditures frameworks prepared by the Ministry of Finance in coordination with the guarantors of individual budgetary chapters. The frameworks contain revenues and expenditures for the next budgetary year and two subsequent years, including the anticipated deficit and its financing.[34] It is submitted to the Chamber of Deputies of the Parliament for information. The Chamber of Deputies adopts a resolution to an annual budget bill submitted by the Government. The resolution indicates medium-term expenditures for the year following the annual budget in the form of a single amount. Such medium-term expenditures amount is legally binding for an annual budget preparation.[35] However, as mentioned above, no sanction mechanism exists for a situation when an annual budget bill does not respect the expenditures frameworks. Because such annual budget bill, once enacted, has a superior legal force to parliament’s resolution on expenditures frameworks, there is no option for challenging budget bill at the courts. Finally, although expenditures frameworks are agreed for two years following an annual budget bill, only the expenditures frameworks for the first year matter, because expenditures frameworks for the second year can be always updated with the subsequent annual budget bill accompanied by new two-year expenditures frameworks. Convergence Programme, which explicitly sets the MTO, is adopted by Government and submitted to Parliament for information only.

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 the Czech Republic encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

Sanctions do not apply to CR. The Czech Republic was subject to EDP in 2004 and again in 2009 and so the practice of Ministry of Finance is adapted to this process. Hence the effect for CR is minimal and the debate was limited. The Government supported the proposed changes and the Parliament agreed to Government’s position. No legislative changes made (according to the Government report no legislative changes are needed as the Regulation is directly applicable).[36]

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 the Czech Republic encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

The Regulation is not applicable to the Czech Republic (Art. 1/2 of the Regulation).

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?

Nothing to add to what was answered in the previous questions.

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

No other information

[1] Given the consensus between the Government and both chambers of the Parliament, I refer to “CR position”.

[2] Finance Minister Miroslav Kalousek, stenographic protocol, Chamber of Deputies of the Parliament of the Czech Republic, Feb. 3, 2011. Available at: http://www.psp.cz/eknih/2010ps/stenprot/013schuz/s013173.htm#r1.

[3] MP Dana Váhalová, ibid.

[4] See “Czech Government and Parliament position on Dir. 2011-85 within the Six-Pack”, p. 3.

[5] The changes on the constitutional level must include the part on the executive power, on the Supreme Auditing Office, and on the territorial self-government. Ibid. 14-15.

[6] Ibid. at 10.

[7] Ibid. at 11-12.

[8] Ibid. at 12.

[9] Ibid.

[10] Ibid. at 13-14.

[11] The draft implementing law amends the Competence Law (Sec. 4/1). Chamber of Deputies of the Parliament Document No. 1098/0, 6th Parliamentary Term.

[12] Chamber of Deputies of the Parliament Document No. 1097/0, 6th Parliamentary Term.

[13] See “Government proposal for a constitutional law on fiscal responsibility”.

[14] The macroeconomic forecasts are prepared by the Ministry of Finance. The macroeconomic scenario of the Convergence Programme and macroeconomic framework of state budget and budgetary outlook are regularly compared with forecasts of relevant institutions that forms so called Colloquium composed of several ministries, Czech National Bank, major banks, major think tanks, and trade associations, plus with the forecasts of the Commission and the IMF.

[15] The Resolution of the Senate of the Parliament No. 76, 8th Senate term, Jan. 26, 2011, available at: http://www.senat.cz/xqw/xervlet/pssenat/htmlhled?action=doc&value=58637.

[16] Ibid.

[17] “In the previous round of the MIP, the Czech Republic was not identified as experiencing imbalances. In the updated scoreboard, the net international investment position is above the indicative threshold. The net international investment position has deteriorated because of sustained, albeit moderate, deficits in the current account balance of around 3 per cent of GDP over the last three years: these are mainly driven by the outflow of dividends on the high stock of foreign direct investment. Overall, the risk of external vulnerabilities is limited because of the relatively low value of gross external debt liabilities. The trade balance recorded a robust surplus in 2011 but gains in export market shares are gradually easing, reflecting the falling share of new green-field projects in foreign direct investment. At the same time import growth is also expected to ease. As domestic demand remains weak, the current account deficit is projected to continue to improve in the coming years and this is expected to contribute to stabilising the net international investment position around the current level. Contrary to the appreciation trend observed before the global financial crisis, the real effective exchange rate has remained broadly stable since 2009. The inflow of capital to the Czech Republic went hand-in-hand with considerable wage growth in all sectors of the economy, even though productivity increases were limited mostly to the tradable sector. While the aggregate nominal unit labour cost growth decreased to close to 3 per cent over the past three years, and is expected to remain subdued in the near future, the cumulative productivity gap in the non-tradable sector may weigh on the competitiveness of the economy: first, because the non-tradable sector provides inputs to other sectors, thus directly affecting their competitiveness of the latter; and second, since higher wage growth in the non-tradable sector may hinder shifts in labour towards export-oriented industries that have more scope for productivity growth. Adjustment, accompanied by falling real house prices, is underway in construction and real-estate activities, which had been boosted by relatively easy lending conditions before the crisis: the share of bank loans to value added in these industries doubled in 2005-8. The largely foreign-owned banking sector in the Czech Republic has remained resilient, and the moderate levels of private- and public-sector indebtedness have prevented the emergence of any negative feedback loops. Overall, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.” Report from the Commission. Alert Mechanism Report – 2013, COM(2012) 751 final, p. 7-8. Available at: http://ec.europa.eu/economy_finance/articles/governance/pdf/alert_mechanism_report_2012-11_en.pdf.

[18] European Commission. Convergence Report 2012. Available at: http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-3_en.pdf.

[19] Council Recommendation of 9 July 2013 on the National Reform Programme 2013 of the Czech Republic and delivering a Council opinion on the Convergence Programme of the Czech Republic, 2012-2016. 2013/C 217/04. OJ C 217/14. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:217:0014:0017:EN:PDF.

[20] Programme Declaration of the Government of the Czech Republic. August 4, 2010. Available at: http://www.vlada.cz/assets/media-centrum/dulezite-dokumenty/Programove_prohlaseni_vlady.pdf. In particular: First, public finance reform with a view to stop the public debt growth and adopt such fiscal measures to achieve balanced budget in 2016; second, pension reform in view of changing demographic structure of Czech population; third, health care reform leading to modernization and higher effectiveness; fourth, tertiary education reform; and fourth, adoption of measures for higher transparency of public procurement and measures against corruption in public sector. Ibid. at p.3.

[21] Finance Minister Miroslav Kalousek, stenographic protocol, Chamber of Deputies of the Parliament of the Czech Republic, Dec. 15, 2010. Available at: http://www.psp.cz/eknih/2010ps/stenprot/009schuz/s009199.htm#r3.

[22] Since the introduction of expenditures frameworks, they have been ignored on several occasions, Finance Minister Kalousek during a Parliamentary debate on medium-term objectives for 2014 and 2015, stenographic protocol, Chamber of Deputies of the Parliament, Dec. 19, 2012, available at: http://www.psp.cz/eknih/2010ps/stenprot/049schuz/s049275.htm.

[23] See “Minutes from the 12th session of the Budgetary Committee of the Chamber of Deputies of the Parliament, March 1 and 3, 2011”, p. 9.

[24] Vote Watch Europe, Council vote on Nov. 8, 2011, available at: http://www.votewatch.eu/en/proposal-for-a-regulation-of-the-european-parliament-and-of-the-council-amending-regulation-ec-no-14.html.

[25] Finance Minister Miroslav Kalousek, stenographic protocol, Chamber of Deputies of the Parliament of the Czech Republic, Feb. 3, 2011. Available at: http://www.psp.cz/eknih/2010ps/stenprot/013schuz/s013077.htm

[26] The Government and the Parliament assessed Regs. 1175/2011 and 1177/2011 together. See “Czech Government and Parliament position on reg. 1175-2011 and 1177-2011 – amendments to SGP within the Six-Pack”, p. 4. The reverse QMV should be consider as an exemption and applied restrictively. Ibid. at 6.

[27] Ibid.

[28] MP Jiří Dolejš, ibid.

[29] Voting no. 72, ibid.

[30] CR particularly appreciated that a special regime was incorporated into the SGP in order to take into account, when assessing fiscal and budgetary position and activation of the EDP, a pension reform, which has been under preparation in the CR at the time.

[31] The Government and the Parliament assessed Regs. 1175/2011 and 1177/2011 together. See “Czech Government and Parliament position on Regs. 1175-2011 and 1177-2011 – amendments to SGP within the Six-Pack”, p. 6-7.

[32] Convergence Programme, April 2013, p. 4.

[33] Council Recommendation of 9 July 2013 on the National Reform Programme 2013 of the Czech Republic and delivering a Council opinion on the Convergence Programme of the Czech Republic, 2012-2016, OJ C 217/14, July 30, 2013, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:217:0014:0017:EN:PDF, preamble point 9, para 2.

[34] Sec. 4 of the Law No. 218/2000 Coll. as amended.

[35] Sec. 8 of the Law No. 218/2000 Coll. as amended.

[36] See “CZ_SGP reform within the Six Pack – Government and Parliament position”. Chamber of Deputies Document No. 237-E, 6th Parliamentary Term, 2011.