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 Italy 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.
There is no clear evidence of particular obstacles encountered by Italy at the time of the negotiations, for the traditional bi-partisan support for European measures, especially after the change in the government after the resignation of the President Berlusconi in November 2011, and also for the critical situation the country was already experiencing in terms of budget.
The Government in charge, therefore, supported the Treaty, with a clear positive approach for stronger economic governance.
In the discussion on the 19th July 2012 in the lower house, the Minister for European Affairs Enzo Moavero Milanesi emphasized the following requests of the Government in charge during the negotiation of the Fiscal Compact:
· in front of the commitment to the onerous reduction of one-twentieth for every year of the public debt, the Italian Government asked – as recognized in the relevant article of the Treaty – that other factors «including elements such as the relationship between private debt and public debt, the business cycle and so on» were to be taken into account in this assessment, in coherence with the peculiarities of the Italian economy
· an involvement of the European Parliament not only as an observer in the negotiations on the Compact, but also later with an active role in its implementation
· a clear revision clause in the text of the Compact, to assess at a later stage its «full traceability to the ordinary system of the Treaty».
In the same context, the Minister also stressed the parallel position of the Government for a more robust approach and more focus on economic growth, and emphasized the parallel negotiation in the Council of other European (ordinary) legislation on matters «such as the completion of the digital single market for energy, or interventions to have a real European labor market, for instance the stimulus and the acceleration of the recognition of professional qualifications and diplomas (…) and project bonds, European bonds guaranteed at European Union level, the first of this kind, related to the implementation of European projects, infrastructure, also co-financed from European funds».
Probably because of the direct impact on the text of the Constitution, in Italy there were in any case relevant general debates on the Fiscal Compact, in particular pertaining to:
1. the legitimacy of a “forced”, or somehow imposed, constitutional reform
2. the desirability of similar impositions, in macroeconomic terms (Italy has a long, bi-partisan tradition also in terms of high public expenditure)
in academic terms, on the coherence of the new Balanced budget rule with the previous text of Art. 81 of the Constitution, which already dictated a formally strict rule on the coverage of the financial burden (art. 81.4, previous text: «all other laws implying new or additional expenditures must set out the means to cover them»), but was then relaxed by subsequent interpretations of the Constitutional Court.
It is also relevant to highlight that one can observe, in the context of the new European elections campaign of 2014, a late emergence of critical positions even by the early informal negotiators of the Compact (in particular some representatives of the Berlusconi IV government, in charge until November 2011, and including former PM Silvio Berlusconi). These include the statement of a first opposition of Italy in the Fiscal Compact negotiations (see under Questions IV.1 and VIII.1 for similar notations).
How has the Fiscal Compact been ratified in Italy and on what legal basis/argumentation?
It is probably relevant to highlight that, in both the Chambers, and for both the initial part in front of the competent Parliamentary Committees and the discussion in the Chamber, the procedure of authorization by law of the Fiscal Compact was joined with the other procedures related to the Treaty amendment article 136(3) TFEU and the European Stability Mechanism (ESM).
The ratification process through which the Fiscal Compact has been ratified in Italy was the typical process dictated by articles 80 and 87(8) of the Constitution.
According to art. 80, the two Chambers of the Parliament (Camera dei Deputati and Senato della Repubblica) «authorize by law the ratification of international treaties which are of a political nature, or which call for arbitration or legal settlements, or which entail changes to the national territory or financial burdens or changes to legislation». So, having no doubts about the «political nature» of the Fiscal Compact and the «financial burdens» entailed, both the Chambers had to authorize its ratification, through the regular legislative procedure (since art. 72, last paragraph, Constitution dictates that «The regular procedure for consideration and direct approval by the House is always followed in the case of bills on constitutional and electoral matters, enabling legislation, the ratification of international treaties and the approval of budgets and accounts»).
Art. 87(8) Const. reads: «The President shall: authorize the introduction to the Houses of bills initiated by the Government, promulgate the laws and issue decrees having the force of law as well as regulations, call popular referenda in the cases provided for by the Constitution, appoint State officials in the cases provided for by law, accredit and receive diplomatic representatives, and ratify international treaties which have, where required, been authorized by the Houses». So the final step of the ratification procedure – and, formally speaking, the ratification itself – is an act of the President of the Republic. In any case, it is important to highlight that this is a typical act that, in the categorization of the President’s acts, is normally qualified as “formally but not substantially” presidential: this means that the act involves the formal role of the President as the highest representative of the Republic, especially in international relations, but this does not imply his substantive role, nor his liability, for the related political choices, which are in the sphere of the Government in terms of negotiation, and of the Parliament for the authorization, as already seen.
No referendum was held on the Fiscal Compact (or the 136 Treaty amendment, or the ESM Treaty. In fact, art. 75(2) Constitution excludes this possibility for the ratification of international treaties as it «Referenda are not admissible in the case of tax, budget, amnesty and pardon laws, or laws authorizing the ratification of international treaties».
What political/legal difficulties did Italy encounter during the ratification of the Fiscal Compact?
At the time of the negotiation of the Treaty, Italy was already experiencing clear problems in its budgetary situation. Therefore, also the subsequent ratification was influenced by this factor, as well as by the already mentioned, typical bi-partisan support to pro-European measures, especially with the ‘technical’ government led by President Monti and officially supported by both center-left and center-right main parties.
In terms of Parliamentary debates, (see also question V.3), it is relevant here to highlight, talking about general political/legal difficulties and related debates, that, in both the parliamentary Chambers, and in their Committees in charge of the first review, the procedure of authorization by law of the Fiscal Compact was joined with the other procedures related to the ESM and the 136 TFEU Treaty amendment.
The parliamentary debates were obviously influenced by this joint discussion on the three different ratification procedures: the rapporteurs emphasized the difference with the old times in which the ratification of the EU-related bills were seen as a only “technical” debate, with no political echo nor particular resistance, but the discussion seems to be a general treatment of the typical, historical problems of the so called democratic deficit in the European Union, with strong arguments, from both the centre right and the centre left, for the need of a more “political” federal Union.
But probably the Fiscal Compact, considered as the more austerity-oriented measure in discussion, was also the one receiving the clearer critical remarks, by both representatives of the majority and the opposition (the large majority of votes notwithstanding), in the awareness of its nature of possibly «most important act of all the legislature» for its sovereign implications.
Some MPs raised clear concerns about the insufficient democratic nature of such an important move: both in terms of doubts of the transparency of «European bureaucrats»’ decisions, and in terms of the not obvious will of the citizens to participate in the hard process of reduction of the debt, and the desirability of new efforts to engage and inform citizens about the choices made.
Moreover, in a more substantive way, Senator Morando (PD), in his capacity of rapporteur and already during the examination in the III Permanent Committee on 17 April (http://leg16.senato.it/japp/bgt/showdoc/frame.jsp?tipodoc=SommComm&leg=16&id=657917), focused in particular on «the absence, in the fiscal compact, of rules and policies for the growth, of equal strength and capacity for innovation of those aimed at stability», blaming for this the «still too strong doctrine that claims that stability, as the coin, is a common good, while that would not be the case of growth, which continues to be a national asset», also a very important issue for the Government (see Question IX.1).
However, real, strong and formal resistance to the approval of the bill came only from the relatively small parties of the new opposition under the Monti government (Lega Nord and Italia dei Valori). Some of the representatives of these parties openly talked of «a fiscal unification introduced surreptitiously, almost secretly, without much debate, possibly without making it known to the country because the price of this deal is not heavy for the next few years, but for generations to come», and, in quantitative terms, a «suicidal act for Italy» that goes beyond an even reasonable turn of austerity (see in fact Question IX.5 on the position of Lega Nord on the reform of Art. 81).
A discussion was vaguely introduced on the issue of a possible referendum on the new European measures, but it is important to highlight in this respect that no “consultative referendum” of this kind is foreseen in the Italian Constitution, and the only way to establish it would be through a special “constitutional law” (legge costituzionale), used only once in history (but precisely on EU-related issues, in 1989).
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 Italy? 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.
Constitutional Law n. 1/2012, of April 20th 2012, has introduced the “balanced budget” principle into the text of the Constitution itself, modifying the central art. 81 and, additionally, other three provisions of our basic law: articles 97, 117 and 119.
The label given to the reform was actually “balanced budget”, therefore reminiscent of the Fiscal Compact wording, but this expression has not been explicitly adopted in the Constitution. The new article 81 Constitution introduces in fact a so called “equilibrium principle”: according to this, the State shall ensure that revenues and expenditures will be in “equilibrium” having regard to the economic cycle. The new paragraph 2 of the article introduces a “debt-break” clause, which can be derogated from only in two cases: in order to counteract the effect of the economic cycle and, by a law adopted by an absolute-majority, to cope with exceptional events. According to the new text, the detailed discipline will be provided by a specific ‘reinforced’ law, again adopted by an absolute-majority (art. 5, Constitutional Law n. 1/2012). The reform has also repealed the third paragraph of article 81 Constitution, which prescribed that the balance act cannot introduce new taxes or new expenditures.
In its amended text, the new third paragraph, which is a new version of the old fourth one, dictates that any law involving new or increased charges must provide the means to face these measures. The fourth and the fifth paragraphs prescribe that each year the Parliament must approve the balance acts and, whenever a delay will occur, that a temporary interim budget exercise cannot be granted save by law and for no longer than four months. The sixth paragraph provides for the absolute majority law which should determine the contents of the new balance act, «the basic standards and criteria to ensure the balance between revenue and expenditure budgets and the debt sustainability of all the public administrations».
Furthermore, the new text of article 97 Constitution introduces the principle according to which the public administration (or better, again, all the public administrations, i.e. provinces, municipalities and above all regions, which are often considered as the real problem in terms of sustainability of public accounts) has to take into account the European Union system for purposes of ensuring balance and debt-sustainability.
Art. 117 Constitution, as amended by the reform, mandates a shift in the legislative competences over “harmonization of public accounts” from the State-Regions concurrence competence list (Article 117, paragraph 3) to the State exclusive competence list (Article 117, paragraph 2).
The new Article 119 Constitution prescribes that municipalities, provinces, metropolitan cities and regions have financial autonomy in respect of the equilibrium of their budget and their cooperation in ensuring compliance with the economic and financial constraints deriving from the European Union standards. The last paragraphs impose that, in coherence with the so called “golden rule”, a loan repayment plan must be determined, with the exclusion of any guarantee issued by the State. Art. 5 of Constitutional Law n. 1/2012 determines the necessary contents that shall be regulated by the specific law prescribed by the new sixth paragraph of Article 81 Constitution, and empowers the Houses of the Italian Parliament to monitor the respect on the public finance equilibrium. Art. 5, s. 3, f) prescribes that an independent authority on budget control shall be established within the Parliament (see Question VII.5).
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.
In terms of parliamentary procedures, the rarity should firstly be emphasized of formal amendments to the Italian Constitution for both broad cultural reasons and because of the complexity of the process of constitutional amendment established by the Constitution itself (Art. 138 of the Constitution asks for a double reading by each of the two chambers of the Parliament of the constitutional bill, with a required majority of deputies or senators at the first reading for the approval, and a qualified majority of two thirds of the components in the second reading. If only an absolute majority, and not this last qualified one, is reached at the second deliberation, Art. 138 provides for the possibility to call for a referendum).
In the case of the Balanced Budget Rule amendment, after the approval of the Euro-plus agreement on 11 March 2011, several constitutional bills were filed in both Chambers, by the majority as well as by members of the opposition; but only after the letter sent by the European Central Bank to the Italian Government on 5 August 2011 (as well known, asking, among other things, for a constitutional reform tightening fiscal rules; see Questions X.10 and X.11 for details), the Government announced the presentation of a constitutional bill, filed on 15 September 2011 to the Lower House (Camera dei Deputati). All these were then discussed together, and led to the approval of Constitutional Law n. 1/2012.
This was finally approved by the Lower House (Senato) on 17 April 2012, and soon after promulgated by the President of the Republic, thereby concluding a procedure considered as «unique in the entire history of constitutional amendments in Italy»: in fact, not only revisions brought about through Government initiatives are themselves very rare, but the process has been relatively fast, and the majorities obtained have been very large (Camera dei Deputati: 489 yes, 3 no, 19 abstentions; Senato: 235 yes, 11 no, 34 abstentions ; i.e. more than two thirds of each Chamber, thus avoiding the possibility of a referendum).
During the parliamentary process, already in the first date of plenary examination (23 November 2011, at the Camera dei Deputati) the Government (represented by the Minister for the Relationship with the Parliament, Prof. Giarda, http://leg16.camera.it/410?idSeduta=0553&tipo=stenografico#sed0553.stenografico.tit00050.sub00010) expressed the importance for the government of the bill’s approval: «I hope that the discussion, and then the completion of the work on this bill, can be reasonably quick so that we can proceed to the examination and approval by the Senate of the Republic, in order to show to all the world, which is observing us, the first concrete steps, of particular importance, because they modify the text of our Constitution to show that this government is working with the cooperation, assistance, aid of Parliament, implementing the commitments that characterized the settlement itself of this Government».
In the same context, the problem of (budgetary and general) sovereignty was actually raised by some of the few political parties at the time in the opposition (e.g. the “Italia dei Valori”, MP Cambursano: «We are not deprived of sovereignty when some decisions made by Europe replacing those of Member States are based on commonly agreed rules and democratically controlled by the European Parliament. But we are defraud when the sacrifices asked to Greeks and Italians are decided in Berlin or Frankfurt, without control of the institutions of the European Union»); but some other opposition parties, such as the “Lega Nord”, approved the Bill because it was originally presented by the Berlusconi IV government (whom they supported), and they simply argued against the traditional policies of high public expenditure of the past decades.
Some other MPs, also supporting the government, stressed the critical points of the choice of an implementation in the form of a Constitutional Law, also for problems of timing in the approval (MP Tassone, UDC : «was it really necessary to undertake an amendment of Article 81 and constitutionalize, therefore, a balanced budget? Times are tight but I think we are pointing more to an announcement than to anything else, because if times are so tight to adopt such a complex measure relating to the budget, maybe it was fairer and easier to provide by ordinary law, considering that a law of constitutional revision obviously leads necessarily to a time dilation»), as well as the desirability of similar strict budgetary constraints («And then there are also the stories of the past, because in a moment of crisis and difficulty we also need debt to face critical situations of economic nature, and I refer to the occurrence of exceptional events») and the problematic imposition made, through this, by the State on the local authorities and the other levels of government («how can we think of a revival of Article 81 of the Constitution just starting from the state? A constitutional principle should refer to the Republic which is made by the State, regions, municipalities and metropolitan areas pursuant of Title V and Article 114 amended by the Constitutional Law of 18 October 2001, n. 3 … so can one just consider the state, only the state?»).
In the assembly of 30 November 2011 an amendment was proposed and briefly discussed (but eventually withdrawn) on the possibility for the Houses of Parliament to establish, in deciding the annual planning of public finance, a formal maximum level of public spending, forcing subsequent «legge di bilancio» and «legge di spesa» to conform to it (MP Calderisi). Large part of the criticism by the main parties supporting the Monti government was diluted precisely with the drafting choice of avoiding «the introduction of too rigid a ban for deficit spending», also not to «affect the quality of the stabilization policies and range of choices and tools to achieve it», and not to put it «in conflict with other fundamental rights» (MP Bressa, PD, 23 November 2011).
Another formal point was also emphasized (Senator Ceccanti, 14 December 2011, http://leg16.senato.it/japp/bgt/showdoc/frame.jsp?tipodoc=Resaula&leg=16&id=620512): «the choice of the Italian legislator to intervene at a double regulatory level is appreciated, by approving a thin constitutional law, in which the general principles are established, and then a reinforced law containing detailed elements, which cannot be derogated from by ordinary laws.»
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)?
The point was actually briefly touched upon during the discussion of the «Bill: provisions for the implementation of the principle of a balanced budget in accordance with Article 81, sixth paragraph, of the Constitution» (A.C.5603-A, http://leg16.camera.it/410?idSeduta=0732&tipo=stenografico#sed0732.stenografico.tit00020.sub00010, then Law 243/2012).
The rapporteur, MP Duilio (PD, Camera dei Deputati, 11 December 2011), stated that «During the examination in the Commission two parallel changes were approved referring to Articles 3 and 4, specifying that all the public administrations concur with each other in ensuring balanced budgets and the sustainability of the public debt. The equilibrium coincides with the medium-term objective specified under the Stability and Growth Pact, as amended by the Six pack. … I remind that at now the medium-term objective for our country is a balanced budget in structural terms. The provision also states that the equilibrium is reached if it intends to respect the adjustment path towards the medium-term objective.».
Is there a (constitutional) court judgment on the Fiscal Compact/implementation of the Balanced Budget Rule?
No. Again, this was maybe not surprising, given the limited possible modalities of access to the Italian Constitutional Court (see under Question IV.5 for details on this).
Non-Eurozone and binding force
Has Italy 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?
What other information is relevant with regard to Italy and the Fiscal Compact?
No other relevant information