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 Finland 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 Finnish Government informed the Parliament about the Treaty on 22 December 2011 (E 122/2011 vp, memorandum, followed by four additional memoranda informing about the negotiations and possible alternatives). In principle, the Government positively welcomed the new Treaty even if (and because) it was considered that it included many provisions which were already part of Union legislation. The development of automatic mechanisms was deemed necessary. The Government underlined the need for new strengthened governance structures and the importance of greater supervision as regards the achievement of economic policy goals. These features, it was believed, would contribute to the introduction of a more credible coordination of the economic policies of the Member States. The Government stressed the importance of as many Member States as possible joining the new Treaty. It was also considered important that the Commission formed a part of the supervision system under the Treaty. The Government did however express concern relating to the relationship of the Treaty with the Union Treaty system and stressed that this relationship should be coherent.

In the debates concerning the Treaty, it was argued that the Fiscal Compact underlines the Member States’ own responsibility for their fiscal and budgetary politics within the EMU framework. Although the provisions of the Fiscal Compact limit the budgetary powers of the Parliament, and these limitations were considered significant as such by the Constitutional Law Committee of the Parliament (PeVL 37/2012 vp of 4 of December 2012), when comparing these obligations with those previously contained in the Treaties and the Growth and Stability Pact, the Fiscal Compact was not considered by the Committee to result in constitutionally significant, additional limitations to the budgetary powers of the Parliament. The argument was that the contribution of the Fiscal Compact is to provide greater guarantees for the implementation of the duties which already existed based on earlier commitments.

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

The Government proposal relating to the ratification and for the adoption of relevant legislation which was deemed necessary for its application (No 155/2012 vp, talous- ja rahaliiton vakaudesta, yhteensovittamisesta sekä ohjauksesta ja hallinnasta tehdyn sopimuksen hyväksymisestä sekä laiksi sopimuksen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta ja sopimuksen soveltamisesta sekä julkisen talouden monivuotisia kehyksiä koskevista vaatimuksista) was presented to the Parliament on 9 November 2012. It was announced in the Parliament on the same day and sent to the Committees of the Parliament on 13 November 2012. After the Committee consideration it was returned to the Plenary following the relevant procedures, and was discussed there on 13–14 and 17–18 December. The included acts were approved on 18 December 2012 (aye 139 – no 38). The President signed the laws Laki talous- ja rahaliiton vakaudesta, yhteensovittamisesta sekä ohjauksesta ja hallinnasta tehdyn sopimuksen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta ja sopimuksen soveltamisesta sekä julkisen talouden monivuotisia kehyksiä koskevista vaatimuksista (No. 869/2012 and Laki valtiontalouden tarkastusvirastosta annetun lain 1 §:n muuttamisesta No 870/2012) on 21 December 2012 and they entered into force on 1 January 2013 based on a Decree of the Government (No 1030/2012). The same legislative package also included amendments to the act on the National Audit Office (No 870/2012).

The Treaty was approved by the Parliament according to Section 94.1 of the Constitution of Finland. (Sec. 94.1, first sentence: “The acceptance of the Parliament is required for such treaties and other international obligations that contain provisions of a legislative nature, are otherwise significant, or otherwise require approval by the Parliament under this Constitution.) The provisions of the Treaty, in so far as they were considered to be of a legislative nature, were brought into force through an Act (Nos. 869/2012 and 870/2012) and the remaining parts through a Government Decree (No 1030/2012).

As the Treaty did not confer any significant new competences to the Union, it could be brought into force by a simple majority of votes.

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

As was anticipated, the True Finns opposed the Treaty categorically. However, they were also joined by voices on the Government side, most notably the Foreign Minister, who described the Treaty to be negotiated both as unnecessary and harmful and argued that the plans for a fiscal, economic and political union drafted by the heads of the Commission, Council, European Central Bank and Euro group were not to be trusted (see Euobserver, ‘Finland: We Have to Prepare for Euro Breakup’, 17 Aug. 2012, <>). This was major news in Finland.

Such opposition was linked to general anti-Union feelings, and concerns relating to the further integration and tightening of the EMU, in particular fears relating to budgetary discipline forced on the Member States from the outside. It is unclear to what extent such concerns were perceived as involving also Finland – in no way an unrealistic alternative – or whether they were seen to link exclusively to ‘other’ Member States namely those considered being under more severe distress.

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 Finland? 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 requirement included in some previous drafts of the Fiscal Compact to include the guarantees included in the Constitution would have caused serious difficulties in Finland: a provision in an international agreement specifically obligating a State to amend its constitution certainly appeared as an extremely foreign idea. Instead, in Finland, the aim of the Fiscal Compact was not seen to require an amendment to the Constitution. The balanced budget rules of the Treaty were introduced in a regular Act of the Parliament (Law on talous- ja rahaliiton vakaudesta, yhteensovittamisesta sekä ohjauksesta ja hallinnasta tehdyn sopimuksen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta ja sopimuksen soveltamisesta sekä julkisen talouden monivuotisia kehyksiä koskevista vaatimuksista, No. 869/2012), which is of course substantively linked to the international law governed Treaty relating to the European Union, which can be seen as offering it more importance.

Therefore, instead of a constitutional amendment, the correction mechanism was built on duties of reporting and informing between the Government and the Parliament (Section 4 in above mentioned Law), including a plan for how the deviations will be corrected by the end of the following year. The mechanism includes three stages. The Government first has the choice of adopting pre-emptive corrective measures at its own initiative. If the problem persists and Finland receives a recommendation by the Council, the Government needs to consider giving a report to the Parliament. If the Council establishes that Finland has not taken sufficient measures, a statement must be given to the Parliament. The procedure builds on Section 44 of the Constitution, which enables the Government to present a statement or report to the Parliament ’on a matter relating to the governance of the country or its international relations’. The consideration of the statement always ends with a vote of confidence in the Parliament. The Finnish version of the correction mechanism exceptionally limits the discretion of the Government to choose between a statement and a report. Since the constitutional system provided no relevant alternative, this was deemed possible, and was further justified by how the Section 44 procedure enables the participation of the Parliament in a significant debate and decision-making on economic politics.

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.

Since the obligation was deemed possible to fulfil through the adoption of an ordinary Act of Parliament and the prerogatives of the Parliament were supposedly not affected, the Parliament ultimately approved the adoption of a mechanism, chosen on the basis of considerations relating to the widening of the jurisdiction of the Court of Justice of the European Union, the supervision of the obligations in the Treaty and thus a slight widening of the Court’s competence in the area of economic policy. These were not deemed significant enough by the Constitutional Law Committee (PeVL 37/2012 vp) to affect the choice of national procedure for approving and bringing the agreement into force.

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)?

In the national debate, it was stressed that the Treaty builds on and contributes to the previously adopted six-pack legislation by making the supervision of budgetary commitments more effective. For the considerations relating to the Finnish ratification of the Treaty it was important that the European Union had already exercised competence by regulating these matters through the six-pack. There has been no public debate about the relationship between the balanced budget rule of the Fiscal Compact and the Medium term budgetary objective in the six-pack.

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

See in general about the absence of a constitutional court in Finland and about the ex ante consideration of crisis measures by the Constitutional Law Committee of parliament, question IV.5. For the Constitutional Law Committee’s findings on the Fiscal Compact, see questions IX.1.

Non-Eurozone and binding force 
Has Finland 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, since Finland is a member of the Eurozone.

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

Not applicable.