Germany

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 Germany 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.

Since the German Constitution already contained a balanced budget rule (see question IX.4), the introduction of such a rule was not seen as a difficulty per se. However, there was some criticism regarding the ratification of the treaty outside the EU law framework. At the negotiation stage, this was rather a discussion about the conformity of this Treaty with EU law but not about national (constitutional) law. Nonetheless, the way in which the German parliament ratified the Fiscal Compact raised some constitutional concerns (see question IX.3).

The Social Democrats (SPD) from the opposition criticized that the government had failed to let the German Bundestag participate early enough and in a comprehensive manner in the negotiations of the Fiscal Compact.[1] They accused the government of breaching the German Constitution because the negatiations of the Fiscal Compact have led to rules which are partly contradictory to the rules of the debt brake on the national level which would have made the participation of the parliament mandatory at the negotiation stage. Since this had not been made possible by the Federal government, the constitutionally guaranteed participation rights of the Bundestag had been infringed.

In the view of the parliamentary group the Left (Die Linke), the ratification of the Fiscal Compact had been a violation of the principle of democracy as laid down in Article 20 (2) GG.[2] The parliament was not allowed to adopt the law approving the German participation in the Fiscal Compact because Article 79 (3) GG prohibits that the principle of democracy is eliminated, even by the parliament. Binding the Federal Republic of Germany by treaties of international public law to a contract which contains strict rules about the new indebtedness limits the decision-making authority of the Bundestag and as a consequence its role as a democratically elected institution. In addition, the social state principle had been infringed by the parliamentary approval to the Fiscal Compact because the consequences resulting from the Fiscal Compact will have negative consequences for the social system in Germany.

 

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

On 29 June 2012 the Bundestag adopted the ‘Law to the Contract on March 2, 2012 on Stability, Coordination and Governance in the Economic and Monetary Union’ (Fiscal Compact Law)[3] in order to ratify the Fiscal Compact.

 

The German ratification is based on two provisions of the German Constitition. First, Article 59 (2) sentence 1 GG is applied which requires that the competent authorities of the federal legislature (Bundestag and Bundesrat) have to adopt a federal law approving the German participation in the Fiscal Compact. Second, Article 23 (1) sentence 3 GG in conjunction with Article 79 (2) GG was applied which further requires the approval by a two-third majority of the Bundestag and the Bundesrat. From the point of view of the Bundestag, the reason for this was that the Fiscal Compact modifies the contractual foundations of the European Union which obliges the Federal Republic of Germany under international law not to change the German Constitution (in particular Article 109, Article 115 and Article 143d GG) that could conflict with the Fiscal Compact.[4] This leads to the application of Article 23 (1) sentence 3 GG.

 

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

In addition to the difficulties already mentioned in question V.3 above, there was a discussion about the appropriate legal basis in the German constitution for the ratification. The Fiscal Compact was adopted on the basis of Article 59 (2) GG and Article 23 GG. In general, these two constitutional provisions contain procedures for different types of ratification. Article 59 (2) GG is the appropriate legal basis for contracts of public international law while Article 23 GG determines specific obligations for the amendment of Treaties of the European Union. The parliament decided to base the ratification on both norms because of the ambiguous nature of the Fiscal Compact located somewhere in between EU law and public international law. The combination of both norms was seen as a practical approach of the parliament which safeguarded that there is a two-third majority to approve the ratification, but it raised some legal questions resulting from the parallel application of both norms.[5]

The second parliamentary chamber (Bundesrat) which represents the German Länder on the federal level mentioned that proposals of the European Commission implementing the Fiscal Compact (Article 3 (1), (2) TSCG) are not known at the time of the German ratification. It declares it necessary that the Federal Government undertakes every effort on the European level to make sure that the balanced budget rule in the German constitution and the budget autonomy of the Länder is not affected by future Commission proposals.[6] In addition, the Bundesrat highlights that it acts on the assumption that the Federal government will make sure that the automatic correction mechanism (Article 3 (1) letter e) TSCG) is concretised in a way that the budget autonomy of the Länder is respected.[7]

 

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 Germany? 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.

At the point of time of the adoption of the Fiscal Compact, the German Constitution already contained a balanced budget rule which had been incorporated in 2009. Article 109 (3) GG states that the budgets of the Federation and of the Länder shall in principle be balanced without revenue from credits. Article 115 GG adds the limits of borrowing which are not completely identical with the one defined in the Fiscal Compact. The balanced budget rule of the Fiscal Compact and the one of the German Grundgesetz contain further differences. In contrast to the Fiscal Compact, the German balanced budget rule is limited to the budgets of the Federal Republic and the Länder and does not include the budgets of the municipalities and the social security system. This is why it had been seen necessary to amend several federal laws in order to implement the balanced budget rule.

This was realized by the adoption of the ‘Law on the domestic implementation of the Fiscal Compact’ from 15 July 2013.[8] Therewith, Article 51 (2) of the German Law on the principles of the budget (“Haushaltsgrundsätzegesetz”) got a new formulation which transposed the Fiscal Compact balanced budget rule into German law, however, on the level of a federal law and not on the constitutional level. The Fiscal Compact implementation law also changed the German Law on the Stability Council (“Stabilitätsratsgesetz”). The Stability Council was given the competence to control whether the upper limit of the structural budgetary deficit laid down in Article 51 (2) of the “Haushaltsgrundsätzegesetz” is respected. The Stability Council only has the competence to make proposals in case of a breach of the upper limit of the structural budgetary deficit. The third important amendment caused by the Fiscal Compact implementation law concerned the distribution of payments of the Federal Republic of Germany relating to an infringement of the budgetary rules of the Growth and Stability Pact.

 

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.

A difference between the German constitution and the Fiscal compact regarding the implementation procedure of the balanced budget rule was discussed. Article 143d GG contains rules on how to implement the national balanced budget rule. In its first paragraph the provision lays down the following: Articles 109 and 115 GG in the version in force as from 1 August 2009 shall apply for the first time to the 2011 budget; debt authorisations existing on 31 December 2010 for special trusts already established shall remain untouched. In the period from 1 January 2011 to 31 December 2019, the Länder may, in accordance with their applicable legal regulations, deviate from the provisions of paragraph (3) of Article 109 GG. The budgets of the Länder are to be planned in such a way that the 2020 budget fulfils the requirements of the fifth sentence of paragraph (3) of Article 109 GG. In the period from 1 January 2011 to 31 December 2015, the Federation may deviate from the provisions of the second sentence of paragraph (2) of Article 115 GG. The reduction of the existing deficits should begin with the 2011 budget. The annual budgets are to be planned in such a way that the 2016 budget satisfies the requirement of the second sentence of paragraph 2 of Article 115 GG; details shall be regulated by federal law.

This provision is complemented by the second paragraph of Article 143d GG which states: As assistance for compliance with the provisions of paragraph 3 of Article 109 GG after 1 January 2020, the Länder of Berlin, Bremen, Saarland, Saxony-Anhalt, and Schleswig-Holstein may receive, for the period 2011 to 2019, consolidation assistance from the federal budget in the global amount of Euro 800 million annually. The respective amounts are Euro 300 million for Bremen, Euro 260 million for Saarland, and Euro 80 million each for Berlin, Saxony-Anhalt, and Schleswig-Holstein. The assistance payments shall be allocated on the basis of an administrative agreement under the terms of a federal law requiring the consent of the Bundesrat. These grants require a complete reduction of financial deficits by the end of 2020. The details, especially the annual steps to be taken to reduce financial deficits, the supervision of the reduction of financial deficits by the Stability Council, along with the consequences entailed in case of failure to carry out the step-by-step reduction, shall be regulated by a federal law requiring the consent of the Bundesrat and by an administrative agreement. There shall be no simultaneous granting of consolidation assistance and redevelopment assistance on the grounds of an extreme budgetary emergency. In contrast, the Fiscal Compact cedes the competence to decide about the implementation of the balanced budget rule to the Commission.

Furthermore, it was emphasized that the participation of the German Bundestag must also be guaranteed in relation to the Fiscal Compact. Even if the Fiscal Compact was concluded outside the EU institutional framework, its close relation with EU law makes it necessary to apply Article 23 GG which is important regarding the participation of the German parliament. It has to be safeguarded that the so-called “integration responsibility” of the Parliament is respected. This could make a participation in Article 7 TSCG-procedures necessary.

 

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 vii.10)?

There is no debate known concerning the relationship between the Medium-term budgetary objective (MTO) in the Six-Pack and the balanced budget rule of the Fiscal Compact.

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

See question V.4.

 

Non-Eurozone and binding force       
IX.8
Has Germany 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.

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

The amendments to the Fiscal Compact Law implementing the Fiscal Compact mainly concerned the involvement of the Bundestag. In reference to the Judgment of the Bundesverfassungsgericht from 19 June 2012 (see also question V.3), the Bundestag parties decided that the ‘Law on the Cooperation between the Federal Government and the German Bundestag in Matters concerning the European Union’ (EUZBBG) has to be adapted to the Fiscal Compact Law. The original version of the EUZBBG was adopted in 1993 with the ratification of the Maastricht Treaty. In the end, all parliamentary groups in the Budget Committee (except the parliamentary group the Left (Die Linke)) agreed to amend the Fiscal Compact Law through an adaption of the EUZBBG.

 

[1] Bundestag, 17/10171, p. 4, http://dipbt.bundestag.de/dip21/btd/17/101/1710171.pdf

[2] Bundestag, 17/10171, p. 5, http://dipbt.bundestag.de/dip21/btd/17/101/1710171.pdf

[3] http://www.bgbl.de/xaver/bgbl/stArticlexav?start=%2F%2F*[%40attr_id%3D%27bgbl212s1006.pdf%27]#__bgbl__%2F%2F*[%40attr_id%3D%27bgbl212s1006.pdf%27]__1444167259156

[4] See Deutscher Bundestag. Gesetzesentwurf der Fraktionen der CDU/CSU und FDP. Entwurf eines Gesetzes zu dem Vertrag vom 2. März 2012 über Stabilität  Koordinierung und Steuerung in der Wirtschafts- und Währungsunion . Drucksache 17/9046. 20.03.2012. p. 6.

[5] Möllers/Reinhardt, Verfassungsrechtliche Probleme bei der Umsetzung des Europäischen Fiskalvertrages, Juristenzeitung 2012, p. 693 et seq.

[6] Bundesrat, Stellungnahme, 11 May 2012, 130/12, p. 2, http://dipbt.bundestag.de/dip21/brd/2012/0130-12B.pdf

[7] Bundesrat, Stellungnahme, 11 May 2012, 130/12, p. 2, http://dipbt.bundestag.de/dip21/brd/2012/0130-12B.pdf

[8] http://www.bgbl.de/xaver/bgbl/stArticlexav?start=%2F%2F*[%40attr_id%3D%27bgbl113s2398.pdf%27]#__bgbl__%2F%2F*[%40attr_id%3D%27bgbl113s2398.pdf%27]__1444162600202