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 Malta 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 Maltese Government, represented by Prime Minister Lawrence Gonzi (Nationalist Party), was in favour of a Fiscal Compact with the participation of all 27 Member States of the European Union, not only 25. The government did not want to conclude an agreement creating a fiscal union which has the power to determine what kind of economic measures are taken in the Member States, but preferred a cooperative approach said Finance Minister Tonio Fenech (Nationalist Party). Fenech (Nationalist Party) emphasised that Malta’s position in the negotiations on the European level was always in favour of more coordination, but has never agreed on limiting fundamentally the budgetary autonomy. In addition, Malta did not agree on a European-wide financial transaction tax.
How has the Fiscal Compact been ratified in Malta and on what legal basis/argumentation?
The Maltese Government initially wanted to ratify the Fiscal Compact by an order of the Prime Minister (and bypass parliament). The plan was to use the competence of the Prime Minister to declare a (European) treaty as forming part of the Maltese ‘European Union Act’ (see question V.3 and V.5) which would have avoided the usual parliamentary procedure for the adoption of Acts of Parliament. After some criticism, the government decided to ratify the Fiscal Compact by the usual parliamentary procedure for the ratification of international treaties and introduced Motion No. 294 on 5 March 2012. The ratification of international treaties is regulated in the Maltese ‘Ratification of Treaties Act’ (Act V of 1983; Chapter 304) which requires in its Article 3 (3) that an Act of Parliament is necessary to make a provision of an international treaty become part of the law of Malta.
The first out of three readings began on 3 October 2012. All parliamentary groups agreed on the procedure to discuss the Treaty paragraph by paragraph (including the preamble) which lasted between 3 October and 5 November 2012 without even finishing the first reading of the law. Parliament discussed the preamble and Articles 1 to 3 of the Fiscal Compact. The opposition (Labour Party) was in favour of voting for the resolution, but emphasised that they did so with the greatest reluctance. After the government (Nationalist Party) had lost the support of parliament at the end of 2012, the ratification procedure could not continue. Elections for a new parliament took place on 9 March 2013, which were won by the Labour Party for the first time since the Maltese accession to the Eurozone (see for more information question 85). The new government introduced a motion to ratify the Fiscal Compact on 7 May 2013. This motion was discussed in the House of Representatives on 11 June 2013. The new Finance Minister Edward Scicluna (Labour Party) explained the Treaty and Tonio Fenech as the representative of the opposition (Nationalist Party) made it clear that his party will support the ratification. Both parties referred to the intensive discussions about the ratification of the Fiscal Compact in the prior (eleventh) legislature and this is why the motion was passed unanimously without intensive discussion the same day. Malta’s participation in the Fiscal Compact has entered into force on 1 July 2013.
What political/legal difficulties did Malta encounter during the ratification of the Fiscal Compact?
During the first reading of the Bill to ratify the Fiscal compact on 3 October 2012 Alfred Sant, member of the opposition (Labour Party), criticised that the Fiscal Compact applies to all countries with the same rules which does not reflect reality, because every country has different problems. In particular, the fact that Malta is a very small country is not taken into account. In addition, he criticised that because of the ‘one size fits all’-approach the Treaty introduces a plan-led economic governance through law and through diplomatic fiat.
Alfred Sant also mentioned that parliament wants to have more information about the position of the government when discussing such treaties in the future. The fact that parliament can now only agree or disagree with the Treaty, but cannot change a single word, makes the debate about the Treaty partly redundant. Opposition wanted to know the main guidelines of the government before negotiating on the European level.
The opposition, represented by Alfred Sant (Labour Party), demanded clarification from the government concerning the role of the European Commission on the adoption of the national budget. They wanted to make it clear that if the European Commission proposes Malta to change certain expenditures on the basis of the Fiscal Compact, the Maltese government cannot simply implement these proposals, but has to discuss the proposed changes by the European Commission in parliament. In this context, it was discussed that the Commission has strong competences, if a country is under an excessive deficit procedure. However, Finance Minister Tonio Fenech (Nationalist Party) could not anticipate how the European Commission will behave in such a case under the new legal regime.
In addition, Alfred Sant (Labour Party), then in opposition, also criticised that it is within the competence of the European Court of Justice to decide whether a country has infringed the balanced budget rule. This is seen as a task of national courts.
Furthermore, the enhanced cooperation on the economic policy level is seen as a critical point, because coordination will lead to harmonisation and this could endanger the strategic advantages of Malta in the field of financial services, in particular its location for international banks.
In relation to Article 2 of the Fiscal Compact, Alfred Sant as a member of the opposition (Labour Party) criticised that this Article only mentions European Treaties, but not national law or national constitutions. It is seen as an intrusion into the sovereignty of the Maltese state. Government agreed that by ratifying this treaty, Malta gives additional competences to European institutions. Nonetheless, Finance Minister Tonio Fenech (Nationalist Party) emphasised that no new punitive competences arise from this Treaty and that the European Commission will not have new competences in the field of economic policy.
Finance Minister Tonio Fenech (Nationalist Party) emphasised that he hopes that there will be an ‘Economic and Financial Affairs Committee’ in the future which would be the appropriate place to discuss the modifications of economic governance in the EU. Such discussions have always taken place in the ‘Foreign and European Affairs Committee’ which is no longer seen as the appropriate committee, because this committee mostly deals with implementing directives. The Economic and Financial Affairs Committee was finally established on 23 April 2013 by the amendment of the ‘Standing Orders of the House of Representatives Order’ , based on two parliamentary motions. The Committee was explicitly granted the competence to request the appearance of Maltese representatives in the ESM and the EFSF.
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 Malta? 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 former government led by the Nationalist Party, which fell at the end of 2012, wanted to incorporate the golden rule into the Maltese Constitution. The government had brought a motion containing the amendment of the Constitution into parliament on 1 February 2012 , but the parliamentary procedure did not continue after the first reading. However, in the discussion about the Fiscal Compact in October of the same year the Finance Minister Tonio Fenech (Nationalist Party) did not want to make a clear statement, but referred to the expected proposal by the European Commission on how to implement this obligation into the national system.
The new government, led by the Labour Party and in office since March 2013, plans to adopt a ‘Fiscal Responsibility Act’ which shall include the introduction of fiscal rules, and in particular the SGP rule which will bind national fiscal authorities with numerical targets to achieve a balanced budget. At the moment, there is no such proposal in the legislative procedure.
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.
During the discussion of the Fiscal Compact the government refused to make any clear statement in relation to the so-called ‘golden rule’. However, the current government plans to adopt a ‘Fiscal Responsibility Act’ which would include an SGP rule (see question IX.4).
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 information known.
Is there a (constitutional) court judgment on the Fiscal Compact/implementation of the Balanced Budget Rule?
Non-Eurozone and binding force
Has Malta 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?
Malta is a Eurozone Member State.
What other information is relevant with regard to Malta and the Fiscal Compact?