Malta

VII - Six-Pack

The ‘Six-Pack’ is a package of six legislative measures (five regulations and one directive) improving the Economic governance in the EU. The Commission made the original proposals in September 2010. After negotiations between the Council and the European Parliament, the package was adopted in November 2011 and entered into force on December 13, 2011. Part of the ‘Six-Pack’ measures applies only to the Eurozone member states (see the individual titles below).    
The ‘Six-Pack’ measures reinforce the Stability and Growth Pact (SGP), among others by introducing a new Macroeconomic Imbalances Procedure, new sanctions (for Eurozone member states) and reversed qualified majority voting. Also, there is more attention for the debt-criterion.        
(
http://ec.europa.eu/economy_finance/economic_governance/index_en.htm)

Negotiation
VII.1
What positions did Malta adopt in the negotiation of the ‘Six-Pack’, in particular in relation to the implications of the ‘Six-Pack’ for (budgetary) sovereignty, constitutional law
, socio-economic fundamental rights, and the budgetary process.

No information known.

Directive 2011/85/EU    
Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States

Implementation       
VII.2
What measures are being taken to implement Directive 2011/85/EU on requirements for budgetary frameworks (required before 31 December 2013, article 15 Directive 2011/85/EU)?

Malta is planning to write a new fiscal clause into its Constitution.[1] This clause will be a combination of the Stability and Growth Pact rule coupled with the application of an expenditure rule in good times which is interrupted in bad times through escape clauses.[2] However, there is no proposal in Parliament until today.

Malta’s government plans to introduce a rolling three-year medium-term budgetary framework for expenditure commitments.[3] The spending total target shall be set in compliance with the operative fiscal rules (which is called ’top down-approach’). This approach shall be complemented by the Comprehensive Spending Review which is being conducted at each Ministry level, to serve as a platform for medium-term public finance forecasts (called ’bottom up-approach’). The combination of these approaches shall help to identify funding gaps. Furthermore, the government plans to set up a Contingency Reserve Fund (CRF) which shall build up a reserve over a period of three years by making an annual contribution.

Implementation difficulties       
VII.3
What political/legal difficulties
did Malta encounter in the implementation process, in particular in relation to implications of the directive for (budgetary) sovereignty, constitutional law and the budgetary process?

The Directive has not been implemented until now.          

Macroeconomic and budgetary forecasts     
VII.4
What institution will be responsible for producing macroeconomic and budgetary forecasts (article 4(5) Directive 2011/85/EU)? What institution will conduct an unbiased and comprehensive evaluation of these forecasts (article 4(6) Directive 2011/85/EU)?

Since Malta does not have an independent fiscal council at the moment, the Ministry for Finance makes the macroeconomic projections. These projections are sent to the independent National Audit Office (NAO). The NAO concluded in a report that the methodology adopted by the Ministry for the budgetary forecast for 2014 was sound, that the assumptions were plausible and that growth forecasts were prudent.[4] At the moment, Malta uses this procedure to generate reliable macroeconomic and budgetary forecasts.

Fiscal Council 
VII.5
Does Malta have in place an independent Fiscal Council (article 6(1) Directive 2011/85/EU: ‘independent bodies or bodies endowed with functional autonomy vis-à-vis the fiscal authorities of the Member States’)? What are its main characteristics? Does Malta have to create (or adapt) a Fiscal Council in order to implement Directive 2011/85/EU?

At the moment, Malta does not have such an independent Fiscal Council. In the report of Malta on the update of the Stability Programme 2013-2016 from April 2013, the Maltese Government was considering five different policy options for the implementation of this requirement. However, there was no favoured model at that moment, but the government assured that there will be an independent Fiscal Council at the end of 2013.[5] The Maltese Government highlights that this Council will have to be granted the competence to evaluate Government’s fiscal projections in order to increase transparency and prudence. The Fiscal Council must be accountable to the Maltese Parliament and the Maltese Constitution. At the same moment, the Maltese Government emphasised, fiscal policy is and must remain a political process which makes an important role of the Ministry for Finance indispensable. In the view of the government, the establishment of the Fiscal Council must be accepted by a two third majority in Parliament, because economic judgments are fundamental for the political process and therefore it is seen as being necessary to have the political support of such a majority in order to broadly accept the role of such an institution.[6] The two third majority is no legal (or even constitutional) prerequisite, but rather a political recommendation.

In the Budget Programme for 2014 from November 2013, the government concretised their plans to set up an independent Fiscal Council.[7] This independent institution shall be embedded within the National Audit Office (NAO) which is itself an independent institution tasked with the auditing of the Government finances. The government emphasises that the NAO is established by the Constitution of Malta, but they do not reveal whether the independent Fiscal Council will be created on the basis of a constitutional provision. However, there is no legislative proposal at the moment and the Government only plans to set up the independent Fiscal Council in 2014.        

Regulation No 1176/2011 on the prevention and correction of macroeconomic imbalances    
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1176:EN:NOT)

MEIP difficulties     
VII.6
What political/legal difficulties
did Malta encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process?

No information known.         

Regulation No 1175/2011 on strengthening budgetary surveillance positions 
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1466:20111213:EN:PDF)

MTO procedure         
VII.7
What changes to the rules on the budgetary process are made to accommodate the amended Medium-term Budgetary Objective (MTO) Procedure?

The Maltese Government wants to implement a rolling three-year budget framework. The medium term budget shall distinguish between cyclical expenditure, statutory expenditure commitments, debt service payments, capital expenditure and ministerial allocation[8] (see also question V.2).

European semester 
VII.8
What changes have to be made to the rules and practices on the national budgetary timeline to implement the new rules on a European Semester for economic policy coordination (section 1-A, article 2-a consolidated Regulation 1466/97)?

No information known.         

MTO difficulties        
VII.9
What political/legal difficulties
did Malta encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

Malta has published a declaration in reaction to the recommendations of the Commission, which – amongst others – highlights that Commission’s recommendations on the wage indexation in Malta is too specific and does not comply with the competence in article 121 TFEU, because this article only allows broad guidelines.[9]            

Respect MTO   
VII.10
How is respect of the Medium-term Budgetary Objective included in the national budgetary framework (section 1A, article 2a consolidated Regulation 1466/97)?

The medium term budgetary targets are presented in Malta’s annual Stability Programme, but such targets are currently non-binding and subject to subsequent annual budgetary processes. Malta wants to reform this in order to be in conformity with EU law.[10] This has not been done until today.

Current MTO 
VII.11
What is Malta’s current Medium-term Budgetary Objective (section 1A, article 2a consolidated Regulation 1466/97)? When will it be revised?

In Malta, the general Government deficit ratio is expected to decrease from 3.3 per cent of GDP in 2012 to 0.8 per cent in 2016.[11] The structural balance will be reduced from 3.0 in 2012 to 1.0 in 2016.[12] GDP growth is expected to exceed potential growth with the output gap closing gradually by 2015.[13]           

Adoption MTO        
VII.12
By what institution and through what procedure is Malta’s Medium-term Budgetary Objective adopted and incorporated in the stability programme (Eurozone, article 3(2)(a) consolidated Regulation 1466/97)?

The Medium-term Budgetary Objective (MTO) is generated by the Ministry for Finance and under the scrutiny of the National Audit Office (see question VII.4). However, there is no legal procedure for the adoption and incorporation of the MTO at the moment. Malta wants to reform this national procedure.[14]    

Regulation No 1177/2011 on the excessive deficit procedure
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1467:20111213:EN:PDF)

EDP difficulties          
VII.13
What political/legal difficulties
did Malta encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No information known.         

Regulation No 1173/2011 on effective enforcement of budgetary surveillance    
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1173:EN:NOT)

Sanctions
VII.14
What political/legal difficulties
did Malta encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No information known.         

General changes       
VII.15
What further changes have to be made to the rules on the budgetary process in order to comply with the Six-Pack rules?

The Maltese Budgetary Act will have to be amended. The exact changes are not known until today because there is no proposal for a new Budgetary Act in Parliament.

Miscellaneous
VII.16
What other information is relevant with regard to Malta and the Six-Pack?

Not applicable.          


 

VIII   ESM Treaty

The European Stability Mechanism (ESM) Treaty was signed on July 11 2011. It was later renegotiated and a new ESM Treaty was signed on February 2, 2012. The Treaty provides a permanent emergency fund that is intended to succeed the temporary emergency funds. It entered into force on September 27, 2012 for 16 contracting parties (Estonia completed ratification on October 3). The 17 contracting parties are the member states of the Eurozone, but the ESM Treaty is concluded outside EU law. 
(
http://www.european-council.europa.eu/eurozone-governance/esm-treaty-signature?lang=it and       http://www.esm.europa.eu/pdf/FAQ%20ESM%2008102012.pdf)

Negotiation
VIII.1
What political/legal difficulties
did Malta encounter in the negotiation of the ESM Treaty, in particular in relation to the implications of the treaty for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process.

For the Maltese Government, it was important to make sure that even a small and economically less important country such as Malta will be able to receive financial assistance in the case of financial difficulties. This is why the Maltese government in collaboration with the government of Cyprus had introduced an interpretation of Article 136 (3) TFEU in the meeting of the Council of the European Union (see question V.1).

Ratification
VIII.2
How has the ESM Treaty been ratified in Malta and on what legal basis/argumentation?

The ESM Treaty has been ratified by an Act of Parliament (Act XII of 2012; Chapter 523[15] ) on 6 July 2012 by unanimous vote, published on 17 July 2012. It entered into force the same day.[16] The title of the Act is ‘Participation and Granting of Financial Stability Support under the European Stability Mechanism Act’. Annexed and forming part of the law is the European Council Decision of 17 December 2010, the draft of the European Council Decision on amending Article 136 TFEU, the Eurogroup Statement of 28 November 2010, the Statement by the Heads of State or Government of the Euro Area and the EU Institutions (Annexed to the European Council Presidency Conclusions of 16/17 December 2010), the European Council Decision of 25 March 2011, the Euro Plus Pact, the Term Sheet on the ESM, the ESM-Treaty and the letter of the European Commission on the Interpretation of Article 3 ESM-Treaty.

Ratification difficulties   
VIII.3
What political/legal difficulties
did Malta encounter during the ratification of the ESM Treaty?

The discussion, in particular during the second reading of the bill in a plenary session of the House of Representatives on 27 June, 2 July and 4 July 2012[17] , about the ESM Treaty was linked to the discussion about the amendment of Article 136 (3) TFEU. The political and legal difficulties mentioned there are also valid for the discussion about the ESM Treaty (see question V.3).

In addition, Alfred Sant, member of the Labour Party, then in opposition, emphasised that the involvement in the ESM created doubts whether this would lead to a higher influence from economically powerful countries such as Germany, which could be able to put pressure on Malta changing its system of taxation. This would result in the destruction of the significantly important financial sector in Malta.[18]

Furthermore, it was discussed whether Malta will get some financial assistance in case of need, which does not seem to be clear, because of its low importance for the Eurozone. Charles Mangion from the then in opposition Labour Party emphasised the fact that the four biggest countries (France, Germany, Italy and Spain) can adopt every decision they want to in the Board of Governors and in the Board of Directors of the ESM because they possess more than two thirds of the voting rights.[19] This is seen as a threat to the Maltese interest. He relativises his statement by saying that the decision about financial aid to one of the ESM members cannot be made by the majority voting, but he made it clear that the 72%-majority of these countries allows them to adopt important decisions within the ESM. The government did not react to this statement. Several members of the Labour Party (opposition) emphasised that there is the fear that the sovereignty of the parliament will be annulled. The interpretation, that the ESM has to grant financial assistance to a country, even if only this single country and not the whole Eurozone has difficulties of financial stability, is laid down in Article 4 of Act XII of 2012. The Act also contains the interpretation of the Commission DG ECFIN of Article 3 ESM contained in a letter of 3 July 2012 which reads as follows:

“The Commission services have drafted and negotiated the text of the ESM Treaty (in liaison with the EFSF) and are therefore in a position to explain its content and rationale. The reference in several sections of the Treaty (Article 3, 12 and 13) to the need that the financial stability of the ‘euro area as a whole and of its member states’ is at stake to warrant an intervention from the ESM is to be interpreted as allowing ESM actions both in case of difficulties affecting the euro area as a whole or one of its Member States in isolation, whatever its size. This wording aims specifically at allowing the coverage by the ESM of countries like Malta, whose case has been repeatedly mentioned in the discussions.”

Moreover, the opposition (Labour Party) is not convinced that all the different rescue mechanisms and early warning systems work as promised by the ‘European elites’. There is a general mistrust against the actions of the European anti-crisis policy. Amongst others, the lack of transparency and accountability is criticised.

In order to guarantee sufficient influence from the Maltese parliament, the Act contains a clause which says, that:

“The persons appointed by the Government of Malta to represent it on the governing and administrative organs of the European Stability Mechanism shall appear at least once a year and preferably during the month of March before the Public Accounts Committee or before another committee of the House of Representatives which from time to time may be tasked with the economic and financial scrutiny of Government for the purpose of rendering account of the workings of that Mechanism and of the European Financial Stability Facility insofar as this is in conformity with their duties and with the obligations of Malta.”

This shall make sure that the executive predominance can be restricted and effectively controlled by the legislative organ.

The government (Nationalist Party) emphasised that the potential burden of Malta decreased in comparison to the EFSF from Euro 700 million to Euro 512 million.[20]

Case law  
VIII.4
Is there a (constitutional) court judgment on the ESM Treaty?

No such Court judgment exists with reference to the ESM Treaty.

Capital payment         
VIII.5
What is the role of Parliament in the payment of the (first instalment of) paid-in capital required by the ESM Treaty (article 36 ESM Treaty)? What relevant debates have arisen in relation to this payment?      

The parliament authorised the Maltese government to disburse all the payments laid down in the ESM Treaty in an Act of Parliament (‘Participation and Granting of Financial Stability Support under the European Stability Mechanism Act’, see question VIII.2). There is no further participation of the Parliament in the payment process.

Application & Parliament       
VIII.6
What is the role of Parliament in the application of the ESM Treaty, for example with regard to decisions to grant financial assistance and the disbursement of tranches, which both require unanimous adoption by the Board of Governors composed of the national Finance Ministers.

The Government of Malta makes the disbursement via the Public Treasury.

Parliament only has to approve by resolution any participation and stability assistance granted by the Maltese Government beyond the purpose specified in Article 3 (2) Act XII of 2012.[21] Article 3(2) contains the purpose of the ESM which is to provide stability support under strict conditions, appropriate to the financial assistance instrument chosen, to a Member of the European Stability Mechanism which is experiencing or is threatened by severe financial problems, for which support is indispensable to safeguard the financial stability of the euro area as a whole and of its Members States – a purpose which is also laid down in Article 12 ESM-Treaty. Therefore, Article 3 (2) of Act XII of 2012 only makes it clear that the approval of the Maltese Parliament goes as far as laid down in this Act of Parliament (there is no carte blanche for the government).

However, Parliament has the right to demand answers to questions sent to the government and the newly established Standing Committee on Economic and Financial Affairs (for more information on this new Committee see question IX.3) can request that the representative of Malta at the ESM Council appears before the Committee and answers questions of its members.

Application difficulties     
VIII.7
What political/legal difficulties
did Malta encounter in the application of the ESM Treaty?

See the answer given to question II.7, in particular concerning Spain.

Implementation
VIII.8

Have there been any relevant changes in national legislation in order to implement or to comply with requirements set by the ESM-Treaty?

No information known.         

Miscellaneous
VIII.9
What other information is relevant with regard to Malta and the ESM Treaty?

Not applicable.

[1] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 66, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[2] Maltese Ministry for Finance, Malta’s National Reform Programme under the Europe 2020 Strategy, April 2013, p. 167, http://ec.europa.eu/europe2020/pdf/nd/nrp2013_malta_en.pdf

[3] Maltese Ministry for Finance, Budget Document 2014, 4 November 2013, p. 18 to 19, http://mfin.gov.mt/en/The-Budget/Documents/The_Budget_2014/Budget2014_Document.pdf

[4] Maltese Ministry for Finance, Budget Document 2014, 4 November 2013, p. 18, http://mfin.gov.mt/en/The-Budget/Documents/The_Budget_2014/Budget2014_Document.pdf

[5] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 68, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[6] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 68, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[7] Maltese Ministry for Finance, Budget Document 2014, 4 November 2013, p. 18, http://mfin.gov.mt/en/The-Budget/Documents/The_Budget_2014/Budget2014_Document.pdf

[8] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 69, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[9] Declaration by Malta on the Country Specific Recommendations, 3 July 2012, http://www.parlament.mt/file.aspx?f=21416

[10] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 69, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[11] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 21, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[12] Maltese Ministry for Finance, Budget Document 2014, 4 November 2013, p. 17, http://mfin.gov.mt/en/The-Budget/Documents/The_Budget_2014/Budget2014_Document.pdf

[13] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 22, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[14] Maltese Ministry for Finance, Malta: Update of Stability Programme 2013-2016, April 2013, p. 69, http://ec.europa.eu/europe2020/pdf/nd/sp2013_malta_en.pdf

[15]                     http://www.parlament.mt/file.aspx?f=23449

[16]                     See Legal Notice 232 of 2012, http://www.doi-archived.gov.mt/en/legalnotices/2012/07/LN%20232.pdf

[17]             See Transcript of Sitting 495 of the Plenary Session of the House of Representatives on 27 June 2012, p. 687 et seq., http://www.parlament.mt/file.aspx?f=32225; Transcript of Sitting 496 of the Plenary Session of the House of Representatives on 2 July 2012, p. 734 et seq., http://www.parlament.mt/file.aspx?f=36398; Transcript of Sitting 498 of the Plenary Session of the House of Representatives on 4 July 2012, p. 828 et seq., http://www.parlament.mt/file.aspx?f=36400

[18]             Transcript of Sitting 495 of the Plenary Session of the House of Representatives on 27 June 2012, p. 687 et seq., http://www.parlament.mt/file.aspx?f=32225

[19]             Transcript of Sitting 495 of the Plenary Session of the House of Representatives on 27 June 2012, p. 697, http://www.parlament.mt/file.aspx?f=32225

[20]                     See the report in Times of Malta, ‘ESM: Malta’s €58m bill’, 28 June 2012, http://www.timesofmalta.com/articles/view/20120628/local/ESM-Malta-s-58m-bill.426293

[21] Article 5 of Act XII of 2012