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 Portugal 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.

As previously mentioned, the parliamentary debates about both the Fiscal Compact and the ESM took place at the same time. This per se raised much confusion and did not allow the parliament to tackle distinctively the implications that each instrument raised by itself. Nevertheless, it was possible to identify five main issues debated in parliament: 1) the loss of parliamentary sovereignty and submission of the national courts to the European courts;[1] 2) Governments’ (PSD/CDS-PP) willingness to amend the Constitution in order to include the Balanced Budget Rule vis-à-vis PS proposal to amend the framework budgetary law instead; 3) the clear disagreement with the 0,5% rule by the BE, PCP and the PEV, 4) the referendum proposals (discussed below) and 5) the additional protocol to the Fiscal Compact and a conditional ratification of the treaty by the government, in particular the Minister of foreign affairs.[2]


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

Portugal was the first countries to ratify the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.[3] Resolution n.º 84/2012, 3 July was approved by the Parliament on the 13th of April with votes against of PCP, BE, PE, abstention of Pedro Delgado Alves (PS), Rui Pedro Duarte (PS) and favorable votes of PSD, PS, CDS-PP. Overall, the Parliament approved it by 204 votes (PSD, PS and CDS-PP) to 24 (PEV, PCP, BE), with 2 abstentions (two PS MP against 96 MP PS).[4]


The procedure of ratification of an international treaty in Portugal is part of the Parliament´s political and legislative competence, as is stated on Article 161 of the CRP.[5] According with Article 166 (5) CRP, in the case of an international treaty, the Parliament adopts a Resolution. Following the approval of the Parliament´s the resolution, by simple majority, the document is signed by the President in accordance with Article 135 b) CRP.


Three proposals for a referendum on the approval of the Fiscal Compact were presented by BE, PCP and PEV (left-wing parties). All of them based their proposal on article 295 of the Portuguese Constitution which predicts the realisation of referendums on the ratification and approval of a treaty that deals with the construction and integration of the EU.

 The proposed “question” was: Do you agree with the ratification of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union?[6]


The Portuguese Constitution provides the possibility of a referendum in Article 115 (1) CRP stating that citizens may be asked to answer directly on matters of competence of the Parliament and the Government. The procedure of referendum starts with the parliament or the government presenting a proposal of the question to be asked for the President´s approval. The referendum may only relate with topics of national interest. In addition, the question object of referendum has to be a question that needs to be decided by the parliament or government through the approval of international convention or a legislative act. [7] In case there is a referendum its outcome is binding only when the number of people who voted is superior to half of the electorate.[8]


All proposals were rejected by PSD (central right), CDS (right wing) and PS (central left) votes. PS voted against after PSD and CDS-PP backed-down from their initial position and agreed to, following ratification, amend the framework budget law and not the Constitution (see question IX.1).


            Arguments from the different parties for a referendum:

 1.  BE referendum proposal:

A budget deficit with a invariant ceiling of 0.5% consequently results in economic disaster, unemployment and social cuts in public protection, especially in times of crisis. The sanctions for non-compliance, the fees and the persecution of Member State against Member State at the ECJ and the loss of national parliamentary sovereignty, were arguments presented in favour of the referendum and not ratifying the treaty.





2. PEV

The Fiscal Compact is a treaty that fits perfectly in the cases contemplated by article 295 CRP.  In PEV´s views the treaty affects strongly the sovereign power of Member States and implies the submission to rules drafted and imposed by Germany with extremely direct impact in the Portuguese economy and society. The fact that Fiscal Compact establishes ceilings for the budget deficit, which are possible for some of the Member States, but not for other in different development stages with sanctions of non-compliance that might compromise the future of a particular Member State, justifies the need for referendum.


3. PCP

The PCP considered the Fiscal Compact an inacceptable imposition against countries like Portugal serving only the interests of capital and potencies like Germany. It was also by the PCP defended that this imposition is part of a economic blackmail that constitutes a serious threat to national sovereignty and independence and it also represents the institutionalization of austerity measures and colonial type relationships within the EU. The PCP affirmed that not only by its content but also by the way the Portuguese government is imposing it, there is not in accordance with the Constitution and the principles of sovereignty protection and national independence, legitimacy to ratify this submission pact.


Thirdly, the PSD, the CDS-PP and the PS presented the arguments against referendum. The PS did not agree with the proposals of referendum, but that did not prevent them to present to the Parliament an additional protocol to the Fiscal Compact, which was not approved, for being considered a conditional ratification of the treaty.[9] The government defended that the Fiscal Compact would promote the conditions leading to stronger economic growth in the European Union, which is, in fact, essential for closer coordination of economic policies and safeguard financial stability. In the PSD´s view the Treaty answers the need for governments to maintain sound and sustainable public finances and avoid excessive government deficits, to preserve the stability of the entire euro area. Consequently, in line with the management of fiscal policy, it was defended by the PSD the necessity for the introduction of specific rules, including a balanced budget rule and an automatic mechanism for the adoption of corrective measures in case of deviation.


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

See the answers to questions IX.1 and IX.2.


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 Portugal? 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 Portuguese Constitution was not amended in order to implement the Balanced Budget Rule. 


The Balanced Budget Rule was included in the budgetary framework law in 2013.[10] The Lei 37/2013 is an alteration to the budgetary framework that concretizes in the national law what was imposed by EU law in the area of budgetary framework and public finances, in particular the transposition of the Directive 2011/85 EU and the internal implementation of the Fiscal Compact.[11] New rules of quantitative nature were included, which are the concretization of the Balanced Budget Rule.

The fact that this change was introduced in the Framework law is especially relevant, for this law has a special status, or “enhanced value”; it’s an organic law that prevails over others ordinary laws according to article 112º/3 of the Constitution.

The LEO states that the medium-term budgetary objectives (3-5 years) will be defined according to the Stability and Growth Pact (SGP) for the euro area. The structural balance can never be lower than the annual goal set in the SGP. While these goals are not met, annual adjustments will have to be of at least 0.5% of the GDP, and the growth rate of public expenditure, net of extraordinary measures on the revenue side, must not exceed the reference rate of the medium-term growth of potential GDP, as defined in the SGP. The Public Administration is subject to the principle of sustainability, being able to fund all commitments with respect for the rule of structural budget balance and the public debt limit. The limit of public debt (ratio of debt to GDP) is set at 60% – as agreed in the SGP -; the State is forced to cut the value above 60% at average of one-twentieth per year, in an average of three years. The new law predicts as well that the payment of interests and amortization of debt takes priority over other expenses.


Article 10º G as revised – Limits of the Public Debt (Free translation from the original text of the law)

 1 – When the ratio of government debt to gross domestic product (GDP) exceeds the reference value of 60%, the Government is obliged to reduce the amount of the debt, on the excess at a rate of one twentieth per year , measured an average of three years.

2 – For the purposes of determining the amount of the reduction in debt is considered the influence of the economic cycle, in accordance with EU Regulation 1177/2011 of 8 November. 3 – The annual debt is adjusted for the effects of a change of the perimeter of the Public Administrations performed by statistical authorities, in accordance with paragraph 5 of Article 2.


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.

On 12 April 2012 the Prime Minister Pedro Passos Coelho argued in Parliament for the need to ratify the Fiscal Compact and the ESM.[12] It was stressed that the Balance Budget Rule guarantees a principle of balance for generations since the lack of budgetary balance and excessive debt accumulation are caused by the choices made by one generation, which consequently binds the next ones. In favour of the Fiscal rules Pedro Passos Coelho added some points. Firstly, these rules do not betray any government’s identity nor do they betray its program. Secondly, it was defended that the Balance Budget Rule – (the golden rule), is a realist rule that differentiates what is temporary and what is structural a rule which corrects structural problems, but it is compatible with a reasonable accommodation to business cycle fluctuations. Thirdly, the government added that the Balance Budget Rule and the provisions related to debt have more than just financial consequences and play a determinant role in enhancing the quality of Portugal´s democracy. The Prime Minister clarified that in Portuguese democracy the golden rule is not an ideological rule and it will solely contribute to raise the transparency of the public debate.

The opposition party (PS) started by affirming full support to the ratification of the treaties, in order to keep their tradition of protection and encouragement of the European project.[13] However, António José Seguro MP added that, although the ESM and the Fiscal Compact might answer to the markets, they do not answer the essential problems that the Portuguese people is living, such as the need to fight unemployment. As a way of overcoming this flaw the PS proposed an additional protocol to the treaty then debated with the purpose of giving a social and economic dimension to the Fiscal Compact.[14]

See questions VII.6 and IX.4 for further information on the Balanced Budget Rule (also known as the golden rule).


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 budgetary interdependence between the balanced budget rule, the TSCG and the MTO has been clarified through the successive alterations of the budgetary framework law since 2011. Article 12.º C/1 presently stipulates that the MTO is the one defined in the SGP/BDS (see question VII.10). Article 12.º C/3 stipulates that the structural balance cannot be inferior to the MTO so as to respect the Balanced Budget Rule.


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


Non-Eurozone and binding force   
Has IPortugal 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.

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

No other relevant information.

[1]           http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l12sl1n95-0017&type=texto&q=regra%20de%20ouro

[2]           http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l12sl1n95-0035&type=texto&q=regra%20de%20ouro.and AdditionalProtocol_PS.pdf.

[3] See: http://www.bbc.co.uk/news/world-europe-17700059

[4]           See: http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=36873http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=36873.

[5]           Same procedure mentioned on question V.2.

[6]           See: pev_referendum, be_referendum, pcp_referendum and referendum notes pdfs.

[7]           See. Article 115 (3).

[8]           See: Article 115 (11).

[9]           See question IX.1.

[10] Article 10º C and G and H of the Lei n.o 37/2013 de 14 de junho que procede à sétima alteração à lei de enquadramento orçamental, aprovada pela Lei n.o 91/2001, de 20 de agosto, e transpõe para a ordem jurídica interna a Diretiva n.o 2011/85/UE, do Conselho, de 8 de novembro, que estabelece requisitos aplicáveis aos quadros orçamentais dos Estados membros.(See: http://www.crup.pt/images/documentos/Financiamento/Lei_37-2013.PDF)

[11] http://www.ideff.pt/xms/files/Iniciativas/varios_2013/Apresentacao_Prof._Dr._NCC.pdf

[12]          See PM declarations_FC. pdf and also: http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l12sl1n95-0005&type=texto&q=regra%20de%20ouro and http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l12sl1n95-0025&type=texto&q=regra%20de%20ouro

[13]          http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l12sl1n95-0006&type=texto&q=regra%20de%20ouro

[14]  http://debates.parlamento.pt/page.aspx?cid=r3.dar&diary=s1l12sl1n95-0009&type=texto&q=regra%20de%20ouro