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 Estonia 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.

No difficulties were encountered.

In the negotiations, the Estonian delegation proceeded from the Government’s political agenda for the years 2011-2015, as well as the mandate given for the European Council of December 2011 and the meetings of the Eurozone heads of states and governments. The position of the Government was presented in the Government White Book of January 2012.[1] The White Book was submitted to the Riigikogu for an opinion and approval under § 1521 subsection 2 of the Riigikogu Rules of Procedure and Internal Rules Act.

Pursuant to the White Book, the Conclusions of the European Council of December 2011 as regards strengthening the euro and concluding a new fiscal compact treaty, are in conformity with the EU policy principles and objectives of the Government as laid out in the framework document “Estonia’s European Union Policy 2011-2015”. According to the framework document, Estonia is open to the deepening of EU’s competences along with the strengthening of the Community method. A strong and well-functioning eurozone is necessary for securing Estonia’s economic development and economic security. Estonia supports a speedy introduction of the fiscal compact treaty into the EU legal framework, including primary law.

Estonia supports adopting a balanced budget rule in all EU Member States. Estonia wishes that the margin of allowed structural deficit of 5% of the GDP were interpreted as a maximum. In addition, Estonia supports fixing sovereign debt level to 60% and setting a more ambitious debt reduction rate to countries with a higher level of debt (faster than 1/20th of debt that exceeds the 60% margin). Estonia prefers the balanced budget requirement to be inserted in the base legislation on national budgets that is binding and of a stable nature (i.e. not an annual state budget act. The coalition party Pro Patria and Res Publica Union made a proposal in 2010 to include a budgetary balance requirement into the Constitution but the other coalition party, the Reform Party preferred a solution in which the balanced budget rule would be inserted into the State Budget Act.[2]

Estonia supports granting the Court of Justice competence to review whether the Member States have fulfilled the obligation of adopting in their legal orders the requirement of a balanced budget.

Already in the reform of the stability and growth pact, Estonia has supported (more) automatic decision-making in budgetary deficit and sovereign debt cases, and more severe surveillance procedures.

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

According to Foreign Relations Act § 20 clauses 2 and 6 and Constitution § 121 sub-subsections 2 and 5, if the implementation of the treaty requires the passage, amendment or repeal of Acts of the Republic of Estonia and if ratification is prescribed in the treaty the treaty needs to be ratified by the Riigikogu. The ratification of the Fiscal Compact requires amendments to be made to the State Budget Act and ratification is also foreseen in the Fiscal Compact Treaty. A simple majority of votes in the Riigikogu is required.

The Fiscal Compact was ratified by the Riigikogu on 17 October 2012 by 63 votes in favour, none against, no abstentions.

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

No political or legal difficulties were encountered during the ratification procedure in the Riigikogu.

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 Estonia? 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 provisions of the Fiscal Compact Treaty as concerns conditions on the state budget will be introduced into the State Budget Act rather than the Constitution.

The amendment is being prepared by the Ministry of Finance and is planned to be adopted in 2014.[3]

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 principle of budgetary balance has been one of the foundations of Estonia’s economic policy already before joining the European Union. A deficit-free budget should be an objective of economic policy in itself and where necessary, future occurrences of a deficit should be hindered by legal means. At the beginning of 2012, Estonian laws did not provide for a balanced budget rule but the Government recognises the need for it in order to secure stability in economic growth and long-term budgetary balance with sufficient reserves.[4]

According to the chairman of the Finance Committee of the Riigikogu, the ESM Treaty is in compliance with the Constitution as a balanced budget requirement does not impede the functioning of sovereignty as a fundamental principle of the Constitution.[5] There was no debate in Parliament on whether an amendment of the Constitution would be more appropriate.

Relationship BBR and MTO     
What positions, if any, are taken in the national debate about the relationship between the Balanced Budget Rule of article 3(1)(b) Fiscal Compact and the Medium-term Budgetary Objective (MTO) rule in the Six-Pack (section 1A, article 2a Regulation 1466/97, on which see above question VII.10)?


No positions.

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


Non-Eurozone and binding force  
Has Estonia 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?

Not applicable, Estonia is a member of the Eurozone.

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

Not applicable.

[1] White Book: Overview of the suggestions on strengthening the eurozone and the positions of Estonia, 19 January 2012.

[2] “Tasakaalunõue jõuab baasseadusesse”, ERR News, 13.09.2010.

[3] Riigikogu debate on 17 October 2012.

[4] White book, supra note 6, p. 10.

[5] Second reading of the Bill on Ratification of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (249 SE) Riigikogu, 17 October 2012.