Slovakia

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)

Negotiations
VII.1
What positions did Slovakia 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?

Slovakia supported the six-pack reforms. There was only little substantive discussion on the proposals, as well as on their implementation with few exceptions mentioned in the relevant parts of this section below. Among other things, Slovakia insisted that the reformed SGP acknowledges the importance of systemic pension reforms and a need to reflect their impacts on debt and deficit in the new rules.[1]

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)?

The Directive was implemented through a series of law:

          Constitutional Law No. 493/2011 Coll., on Fiscal Responsibility (Fiscal Responsibility Constitutional Act)

          Law No. 523/2004 Coll., on the budgetary rules for general government

          Law No. 583/2004 Coll., on the budgetary rules for territorial self-government

          Law No. 511/2011 Coll., on the 2012 state budget.

          by-law of the Ministry of Finance of the SR of Nov. 22, 2012 No. MF/21513/2012-31, on the layout, content, form, term and place of submission of accounting information and data necessary for the purposes of evaluation of the budget observance by the general government.[2] The Ministry issued also a Methodical Guidelines to the by-law No. MF/21513/2012-31 providing specific guidelines on the content, form, and process of submitting financial and accounting information to the Ministry for the purposes of central macroeconomic and fiscal evaluations.[3]

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

See the discussion on the Fiscal Responsibility Constitutional Act in the answer to question IX.5. There was a wide agreement on the law, which was prepared by an expert committee consisting of representatives of all parliamentary parties that had been working on the Act between Dec. 2009 and Oct. 2011. Due to this fact, there was little public debate, which is indicated also by the fact that the law passed unanimously and in a shortened procedure.

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)?

The Fiscal Responsibility Constitutional Act consists of two major parts – rules on fiscal responsibility (debt brakes) and a fiscal council (Council for Budget Responsibility) and rules on fiscal transparency. The latter part strengthened the role of two committees – Committee for Tax Forecasts and Committee for Macroeconomic Forecasts. The committees have been established in 2004 and 2005 as analytical unit of the Ministry of Finance, are re-established as advisory organs of the Finance Minister (Art. 8/1 of the Fiscal Responsibility Constitutional Act). The Act strengthened the position of the two committees and set specific dates for submitting their forecasts. The Committee for Tax Forecasts prepares at least twice a year (on Feb. 15 and June 30 of a current budgetary year) prognoses of revenues from taxes and fees. The Committee for Macroeconomic Forecasts prepares also at least twice a year on the same dates prognoses on macroeconomic development (Art. 8/2). The Ministry of Finance publishes these forecasts. The Council for Budget Responsibility is obliged to take into account the macroeconomic forecasts of the respective Committee (alongside the long-term macroeconomic forecasts of the EU) as one of the information (alongside the value of structural primary deficit, demographic forecasts of Eurostat, long-term prognoses of expenditures sensitive to aging of population calculated by the European Commission, long-term forecasts of capital incomes calculated by the European Commission, implicit and conditional liabilities, and other indicators affecting long-term sustainability) for determining an indicator of long-term sustainability (Art. 7).

Although, the Act does not explicitly require an unbiased evaluation of the forecasts, by embedding the Macroeconomic Committee in a law of constitutional force, the Committee enjoys more independence, although it is an advisory organ of the Finance Minister. The new status of the Macroeconomic Committee provides that the main aim of the Committee is to increase the quality of macroeconomic forecasts and increase the transparency of the budgetary process. The Committee’s functioning shall not be influenced by political power and it exercises its tasks independently on the executive power represented by the Government. Further, the Council for Budget Responsibility will have to compare the macroeconomic forecasts of the Committee with the ones prepared by the EU when determining an indicator of sustainable development, based on which it will then prepare its main report on sustainable development (for the competences of the Council for Budget Responsibility see below). Finally, both committees are parts of the Institute for Financial Policy that shall be independent of the Finance Minister and political power (Art. 2 of Statute of the Committee for Macroeconomic Forecasts).

Fiscal Council  
VII.5
Does Slovakia 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 Slovakia have to create (or adapt) a Fiscal Council in order to implement Directive 2011/85/EU?

A Council for Budget Responsibility was created by the Fiscal Responsibility Constitutional Act of 2011 (effective from March 2012). The original bill was amended upon a request from the ECB resulting from the obligatory submission of bills with a possible impact on the ESCB or ECB. The aim to ensure the highest possible independence of the Council for Budget Responsibility lead the drafters to adopt a solution that the Council for Budget Responsibility will be attached to the National Bank of Slovakia (the central bank) as an independent institution and its budget will be financed from the budget of the National Bank of Slovakia. The reason was to avoid a situation that happened in Hungary where the Government and Parliament once exercised a political pressure on the Council for Budget Responsibility by substantially limiting its budget. However, the ECB was of an opinion that such solution is not in compliance with rules on independence of central banks because a government cannot obliges a central bank to make payments to any institution.[4] The solution that was adopted keeps the system where expenditures of the Office of the Council for Budget Responsibility[5] are paid from the budget of the Slovak National Bank, however these payments are reimbursed by the Ministry of Finance from the general government’s budget without delay when the Slovak National Bank requests so (Art. 3/8 of the Fiscal Responsibility Constitutional Act of 2011).

The Council for Budget Responsibility has three members appointed for seven years. The chairman is elected by a three-fifths majority of the Parliament on the suggestion from the Government. A member of the Council for Budget Responsibility is elected by a simple majority of the Parliament on the suggestion from the President of Slovakia and the other member is elected by a simple majority of the Parliament on the suggestion from the Governor of the Slovak National Bank (Art. 3). The tasks of the Council for Budget Responsibility are monitoring and evaluation of Slovak economic development and evaluation of observance of the fiscal responsibility rules (Art. 3/1). More specifically, the Council for Budget Responsibility (Art.4/1):

          prepares and publishes a report on long-term sustainability including a baseline scenario and determination of an indicator of long-term sustainability annually on April 30 and regularly within 30 days after a vote of confidence to a new government;

          prepares and publishes for the purpose of discussion in the Parliament a report evaluating the fulfillment of the fiscal responsibility rules and the fiscal transparency rules as specified in the Fiscal Responsibility Constitutional Act for the period of a preceding year annually on August 31;

          prepares and publishes from its own initiative an opinion on bills discussed in the Parliament regarding the impacts on general and territorial self-governments’ budgets and long-term sustainability; it may do so also on the request of parliamentary caucuses

          exercise other functions connected to the monitoring and evaluation of the Slovak economic development and evaluation of fiscal transparency rules.

The Council for Budget Responsibility may require cooperation from other organs of general and territorial self-governments in collecting data and information and shall cooperate and share data with the Slovak National Bank if requested (Art. 4/2).

Based on the OECD recommendation for fiscal councils, the Council for Budget Responsibility created five-member Advisory Panel composed of high-profile foreign economists. The Advisory Panel met first time in Oct. 2013. Its task is to supervise methods and processes used by the Council for Budget Responsibility.[6]

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 Slovakia 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 political debate or legal difficulties noticed. Only the Slovak National Bank in its May 2012 Report on Financial Stability after the first Alert Mechanism pointed out that imbalances are not necessary resulting from domestic causes. The biggest danger rests in out-of-control increase of credit and therefore more focus shall be given to the financial sector (portfolio investments and inter-banking operations mainly) than to goods and services market, which are much more stable. If credit sources come from abroad, there is little to do on the national level to remedy macroeconomic imbalances thus created. The Slovak central bank also raised doubts about whether the Commission will be able, due to sovereignty concerns, to really push for and enforce under a threat of sanctions within the MIP a country to adopt specific tax measures, liberalization of labour market, etc. Finally, the bank raises some concerns about informative value of some of the indicators used in the MIP. The bank concludes that corrective measures might be successful only if coordinated on a supranational level given the financial interconnectedness of countries.[7]

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 Parliament adopted as of January 1, 2014 an amendment to Law No. 523/2004 Coll., on budgetary rules for general government implementing in § 30a the MTO and the correction mechanism. First, it states that “[a]chieving a balanced or surplus budget of the general government including a procedure leading to the medium-term objective is ensured by” Art. 3/1 b) of the Fiscal Compact. Second, it provides that in the event of a significant observed deviation from the MTO or an adjustment path towards it, a correction mechanism is triggered; the Ministry of Finance according to a published method of calculation evaluates twice a year (June 30 and Nov. 30 of a current budgetary year) whether a significant observed deviation occurred. If the Ministry concludes that a significant observed deviation occurred, it will suggest to the Government a public expenditures ceiling for a period of the correction of such significant observed deviation. It shall respect annual reduction of the general government’s debt to GDP ratio in line with Art. 6 of the consolidated version of the Reg. 1466/97. The public expenditure ceiling means the maximum amount of the total accrued consolidated expenditures of the general government.[8] The Ministry discusses the draft correction measure that impacts on territorial self-governments with associations of municipalities (local governments) and representatives of regional governments. The Government decides on the correction mechanism, including the Ministry’s suggestion on public expenditures ceiling, and approves measures that shall be realized under the correction mechanism. If the Government decides not to activate the correction mechanism, it shall submit its reasoned decision in writing to the Parliament. The obligation to realize a correction mechanism is suspended in the event of exceptional circumstances as defined in Art. 3/3 b) of the Fiscal Treaty. The Government, on the recommendation of the Ministry of Finance, decides on the beginning and the end of exceptional circumstances situation. The Council for Budget Responsibility evaluates the realization of corrective mechanism and the decision not to activate the mechanism. It also reconsiders decisions of the Government on the existence of an exceptional circumstances situation. The Council for Budget Responsibility publishes its reports and the Ministry of Finance publishes its opinion on the Council for Budget Responsibility’s reports.

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)?

Some changes to the budgetary process were adopted by an amendment (Law No. 69/2012 Coll.) to Law No. 523/2004 Coll., on Budgetary Rules for General Government, which became effective on March 1, 2012 alongside the major fiscal reform introduced by the Fiscal Responsibility Constitutional Act. Although, the 2012 amendment to the budgetary rules does not mention a European Semester, it sets two new deadlines within the budgetary process – the Ministry of Finance shall submit a budgetary framework of general government to the Government by April 15 and a draft budget by August 15. Deadlines for and processes of submissions of a Stability Programme, a National Reform Programme, and reaction to recommendations are not provided or mentioned. Major strategic documents (Stability Programme and National Reform Programme) mention the introduction of the European Semester. Slovakia probably considers direct applicability of the Regulation sufficient for the Ministry of Finance and the Government to adjust its internal working schedule to the European Semester cycle. Both, the budgetary framework and the draft budget are prepared for the period of three subsequent years. The budgetary framework (submitted to the Government by the Ministry of Finance by April 15 the latest) is the most important document within the European semester cycle. Based on that, the Ministry prepares the Stability Programme and NRP and submits them to the Commission in April (in 2013, the programmes were approved by the Government on April 24). When the Council adopts specific recommendations in late June/early July, the Ministry has enough time to include them into a draft budget to be submitted to the Government by August 15.

Further changes were introduced to the process of observation of budget realization. The Fiscal Responsibility Constitutional Act (Art. 9/5) and the Law No. 69/2012 introduced an obligation to prepare Annual Consolidated Report (§ 29a of the consolidated version of the law on budgetary process for general government). The Ministry of Finance shall submit the report for a previous budgetary year to the Government by Oct. 3 for approval and the Government submits the report to the Parliament by Nov. 20 for information. The timing matches the beginning of a European Semester (in November, the Commission publishes Annual Growth Survey and Alert Mechanism Report).

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

No discussion noticed. All the changes introduced by the six-pack, two-pack, and Fiscal Compact were understood as one package and introduced in Slovakia through a major fiscal reform consisting of the Fiscal Responsibility Constitutional Act and several implementing statutes. There was a wide consensus on these reforms among political parties that has been triggered by the financial crisis and built up through an expert commission of representatives of all political parties that since late 2009 worked on these reforms. Furthermore, it must be taken into account that many processes that the six-pack, two-pack, or Fiscal Compact strengthened, formalized, and updated in fact existed before these measures were introduced and so their technical realization was not consider problematic. Of course, major political discussions were about formally superior legal acts – Fiscal Compact, Fiscal Constitution, EMS, etc., which were more intelligible for the electorate and therefore more suitable for political debates.

Surely there were frictions, which however, took place rather outside public space and are difficult to reconstruct. One of the most important issues seems to be tightening of fiscal surveillance of territorial self-governments by the general government. That was one of the reasons why the fiscal reform had to be embedded in a law of constitutional force to balance rather sensitive issue of constitutional right to self-government. During the process, the representatives of territorial self-governments demanded assurances within the new fiscal schemes, such as changes to the law on redistribution of tax revenues between the general government and territorial self-governments.

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 obligation to respect MTO and the correction mechanism triggered in case of a significant deviation has been explained above in the answer to question VII.7 and the text of the relevant provisions of implementing law is supplied in the footnote.[9] The obligation to observe MTO and the correction mechanism is set in § 30a of Law No. 523/2004 Coll., on Budgetary Rules for General Government, which also refers to the Art. 3/1 b) Fiscal Compact, consolidated Reg. 1466/97 and 1467/97 that are therefore directly applicable. Budgetary framework as well as the Stability Programme give budgetary outlook for three years and indicate concrete steps towards reaching the MTO. MTO itself is set in a Stability Programme only, which must be approved, including MTO, by the Parliament. The Council for Budget Responsibility evaluates whether the MTO is observed. In its May 2013 report, which reacts to the 2013 budgetary framework submitted by the Ministry of Finance to the Government before April 15, the Council for Budget Responsibility stated that the Government plans towards reaching the MTO by 2018 has not been supported by specific measures yet and concrete steps how to reach the MTO in case of worsening of external environment with negative impact on the general government’s debt have not been indicated.[10] It also pointed out that the 2013 budgetary framework was not specific enough and so the Council for Budget Responsibility’s evaluation of whether the MTO is observed is based on the Stability Programme mainly (the budgetary framework and Stability Programme are finalized simultaneously in April).

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

According to Stability Program for 2013-2016, Slovakia continues in consolidation of public finances in order to meet the medium-term budgetary objective for the general government’s structural deficit of 0.5% of GDP by 2018.[11]

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

The process is not regulated by national law, direct applicability of the Reg. seems probably sufficient. The process starts with the Committee for Macroeconomic Forecasts, which prepares and publishes a macroeconomic report in February. Based on that the Ministry of Finance prepares a budgetary framework for upcoming three years (in April) alongside the Stability Programme. The MTO has been specified in the 2012 Stability Programme and has not been changed yet. That means the annual budgetary frameworks work with such MTO and implements it for each of the upcoming three years in an annual budgetary framework and later in a year in a draft budget. However, only the expenditures and revenues for the first year are binding indicators (not for two subsequent years). In June 2013, the Council for Budget Responsibility (fiscal council) criticized the Government that such procedure is insufficient. It recognizes that the Fiscal Responsibility Constitutional Act creates a system of public expenditures ceiling. It held that a legislative framework that would specify the process of public expenditures ceiling’s calculation and observance was indispensable for realization of the MTO. The Council for Budget Responsibility specifies guidelines for the creation of an effective system of a public expenditures ceiling, including the necessity to be of a permanent character, so “that it cannot be changed by an annual budget act.”[12] Three months later, the Government submitted a bill amending the Law No. 523/2004 Coll., on budgetary rules for general government to the Parliament, that implements the Fiscal Responsibility Constitutional Act, where it specifies that “the public expenditure ceiling is defined as the maximum amount of accrued consolidated expenditures of the general government.”[13] In the case of a significant deviation from the MTO or from the adjustment path towards it, the Ministry of Finance proposes to the Government a public expenditure ceiling and measures for the period of correction. If the Government chooses not to apply the correction mechanism, it shall deliver to the Parliament a written justification of the decision not to apply correction mechanism. The Council for Budget Responsibility shall assess and publish its assessment of the application or non-application of the correction mechanism. (§ 30a/2,4 of Law No. 523/2004 Coll., on budgetary rules for general government).

However, regarding the MTO, the implementing law (Law No. 523/2004 Coll.) only refers to Art. 3/1 b) of the Council for Budget Responsibility. According to the explanatory report to the bill, the MTO is set by a Stability Programme. A Stability Programme specifies both the timeline and process of reaching the MTO and these specifications are binding.

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 Slovakia encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No explicit changes to implement the Regulation were made. It shall be noted that Slovakia has been under EDP twice already (2004-2008 and since 2009 onwards). It is well adjusted to this process and followed (at least on paper) the recommendations for the EDP to be ceased. Both the Stability Programme and NRP seem to take EDP seriously, independently of what political parties have been in power, and no political opposition to these processes has been noticed. With the creation of the Council for Budget Responsibility and the independent Committee for Macroeconomic Forecasts, the fulfilment of corrections under the EDP is more scrutinized.

Two other specific procedures aim to control the level of deficit. First, § 30a of Law No. 523/2004 Coll., on budgetary rules for general government dealing with the procedure in the case of a significant deviation from the MTO explicitly refers to Article 3/4 of Regulation 1467/97 as amended. Within this correction mechanism, the Government sets public expenditure ceiling, which directly affects the level of deficit for the period of correction. Second, the debt brakes introduced by the Fiscal Responsibility Constitutional Act also affect the level of deficit. Under the second debt break, the Government must submit to the Parliament a proposal of measures aimed at reducing the debt; under the third debt break, the Government may not propose to the Parliament a draft state budget featuring any nominal year-on-year increase in general government expenditures; and under the fourth and fifth breaks, the Government may not submit to the Parliament a proposal for a deficit-based budget of the general government. The fulfillment of the obligations under the second and third breaks will mostly likely involve deficit reduction. The obligation under the fourth and fifth breaks is then explicitly dealing with deficit (balanced or surplus budget requirement). In 2013, the first debt brake was activated, which however does not involve any correction towards deficit. According to a report of the Council for Budget Responsibility of November 2013, the threshold for activation of the second debt break was surpassed in late 2013 and the threshold for activation of the third debt break will be surpassed in the course of 2014 which will mean that general and territorial self-governments’ expenditures will be frozen on the level of 2014 for the following budgetary year.[14]

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 Slovakia encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No specific political discussion on this topic (see above more generally). For more expert discussion see the position of the Council for Budget Responsibility regarding the MTO, expenditures ceiling, and correction mechanism above.

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?

As mentioned above, the six-pack implementation was concluded with the adoption of the amendment to Law No. 523/2004 Coll., on budgetary rules for general government and the amendment to Law No. 583/2004 Coll., on budgetary rules for territorial self-government. It seems, based on the 2013 annual report of the Council for Budget Responsibility that some gaps will persist, especially regarding a binding nature of MTO and creation of an effective expenditures ceiling system.

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

Macroeconomic imbalances procedure

In the first Alert Mechanism report on Feb. 2012, the Commission found that Slovakia exceeded the limits in five indicators – 3 year average of current account balance was -4.1% of GDP; net international investment position was -66.2% of GDP, change in 3 years of real effective exchange rate with HIPC deflators was 12.1%, change in 3 years of nominal ULC was 10.1%,[15] 3 year average of unemployment was 12%.[16] The excesses from the tolerated values were mostly minor only and so the Commission concluded no economic imbalances in Slovakia:

[T[he current account for Slovakia recorded large and sustained deficits during the last decade, partially financed through capital transfers from abroad. Nevertheless, the current account indicator remains above the indicative threshold although marginally. Foreign direct investment, which was largely directed to productive export-oriented industries, accounted for a dominant share of the gradually deteriorating net international investment position. Loss in price competitiveness reflected in a value of the REER indicator that is above the indicative threshold is mainly due to a strong nominal appreciation, and came together with high growth in productivity, exports and world shares of trade. Overall, public as well as private sector indebtedness levels remain low.”[17]

Also, in the second cycle of MIP, the Commission did not select in its Alert Mechanism Report Slovakia for in-depth review. The conclusions were more detailed this time:

In the previous round of the MIP, Slovakia was not identified as experiencing imbalances. In the updated scoreboard, a couple of indicators are above the indicative thresholds, namely the net international investment position and the unemployment rate. In 2011, the net international investment position recorded a marginal improvement, but most of the external liabilities are in non-debt instruments (notably foreign direct investment, which has been directed primarily towards export-oriented industries). An improving position on the goods and services balances and an increasing outflow of income has contributed to a stable current account balance since 2009. Due to strong growth in manufacturing export, the trade balance and the current account are expected to improve from 2012 onwards. The indicators for the real effective exchange rate and the nominal unit labour cost are now below their respective thresholds, as the impact of the strong nominal appreciation prior to euro adoption and the recession-induced drop in productivity in 2009 is fading away. With unemployment expected to remain well above the pre-crisis level in the coming years, wage pressures are accordingly forecast to remain in check. The continued relatively favourable development of competitiveness indicators is also reflected in an on-going increase in labour productivity and export market shares. The largely foreign-owned banking sector avoided a strong expansion in lending, which spared Slovakia from excessive credit growth, and helped to keep public and private debt relatively contained. However, the public debt ratio has increased substantially in recent years. The unemployment rate – well above the threshold – remains one of the most pressing structural issues weighing on the domestic economy. Persistently high unemployment reflects a lack of labour market improvements since the outbreak of the crisis and the persistence of major regional disparities in economic growth and employment. Overall, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.”[18]

Based on the Alert Mechanism conclusions, Slovakia was not selected for in-depth review either in 2012 or 2013.[19]

As to policy changes following from the first application of the Macroeconomic Imbalances Procedure, the 2012 Alert Mechanism was not mentioned in any strategic documents like National Reform Programme or Stability Programme either in 2012 or 2013. As no corrective action were recommended, the reason probably rests in the fact that there are other, more specific, guidelines of the Commission aimed to improve structural economic problems in Slovakia, namely the Country-specific Recommendations 2012[20] and 2013 as parts of the European Semester (although they do not focus on macroeconomic imbalances as such, the reasons for most of the macroeconomic problems in case of Slovakia identified in the MIP are connected to structural problems identified in the recommendations or the excessive deficit procedure Slovakia has been subjected to since 2009). The responses to these recommendations are exhaustively covered in the NRP 2012. In sum, there have been no immediate responses to the MIP, because all problems mentioned in the Alert Mechanism Report (AMR) have been circulating in political debates in Slovakia and measures to deal with them had started before the AMR.

Division of responsibility for imposed sanctions between different levels of government

Slovakia has not introduced any new rules that would specifically deal with a division of responsibility for imposed sanctions arising from the Macroeconomic imbalances procedure. However, the Fiscal Responsibility Constitutional Act created a better sanction mechanism applicable to territorial self-government units that are in breach of debt rules. Although this sanction mechanism is primarily directed towards fiscal responsibility of territorial self-government units, fiscal problems of territorial self-governments would often result from deeper structural problems, where some of such structural problems may be connected to neglected macroeconomic imbalances. Municipalities and self-governing regions will be sanctioned if their debt exceeds 60% of their actual current revenues in the previous fiscal year (the possibility of sanctions existed before, however now this possibility is based on constitutional law and sanctions increased). Various measures, described in the answer to question II.5, were introduced to increase control of general government over territorial self-governments’ fiscal behaviour. Automatic sanctions were introduced by the Fiscal Responsibility Constitutional Act when certain debt ceilings are surpassed by the territorial self-governments. These changes indicate that the general government assumes responsibility for macroeconomic imbalances caused by the territorial self-governments and there is no need to divide responsibility for sanctions; at least at this stage when no major imbalances exist. However, the described sanction mechanism is not to be considered an implementation of the Regulation.

Division of responsibility for imposed sanctions between different levels of government? Regulation (EU) No 1173/2011 of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area

No specific provision on the division of responsibility exists. However, there is a specific sanction regime for territorial self-governments in case of exceeding a debt ceiling of 60% (the sanction is 5% of the difference between the ceiling and the actual debt) (Art. 6 of the Fiscal Responsibility Constitutional Act).

[1] Report from the EC summit on Oct. 28-29, 2010, prepared for the Slovak Government. Available at: https://lt.justice.gov.sk/Attachment/vlastny%20material_doc.pdf?instEID=-1&attEID=29369&docEID=142350&matEID=3364&langEID=1&tStamp=20101122092002857.

[2] Opatrenie Ministerstva financií Slovenskej republiky z 22. novembra 2012 č. MF/21513/2012-31, ktorým sa ustanovuje usporiadanie, obsahové vymedzenie, spôsob, termín a miesto predkladania informácií z účtovníctva a údajov potrebných na účely hodnotenia plnenia rozpočtu verejnej správy. Available at: http://www.kniznica.sk/fileadmin/kniznica/transparentna_kniznica/zakony/Opatrenie_z_22.novembra_2012_c._MF_21513_2012_31_k_FIN_vyk….pdf .

[3] Metodické usmernenie Ministerstva financií Slovenskej republiky z 12. decembra 2012 č. MF/27088/2012-31 k postupu pri aplikácii  § 2 opatrenia Ministerstva financií Slovenskej republiky  z 22. novembra 2012 č. MF/21513/2012-31, ktorým sa ustanovuje usporiadanie, obsahové vymedzenie, spôsob, termín a miesto predkladania informácií z účtovníctva a údajov potrebných na účely hodnotenia plnenia rozpočtu verejnej správy pre rok 2013.

[4] MP Jozef Kollár, 26th Session of the 5th Parliamentary Term, Dec. 8, 2012. Available at: http://mmserv2.nrsr.sk/NRSRInternet/Vystupenie/75864/Kollar_Jozef.html.

[5] The Office of the Council for Budget Responsibility is an organization with legal personality with a seat in Bratislava that provides expertize, personal and organizational, administrative, and technical support to the Council for Budget Responsibility (Art. 3/7).

[6] Advisory Panel of the Council for Fiscal Responsibility. Available at: http://www.rozpoctovarada.sk/svk/rozpocet/173/panel-poradcov.

[7] Slovak National Bank, Report on Financial Stability, May 2012, Annex 2, p. 67-69. Available at: http://www.nbs.sk/_img/Documents/ZAKLNBS/PUBLIK/SFS/protected/SFS-052012.pdf.

[8] The term “public expenditure ceiling” is explained in detail in the footnote to question VII.10.

[9] It is regulated by § 30a/2-4 of Law No. 523/2004 Coll., on Budgetary Rules for General Government that reads (translation by the Council for Budget Responsibility, available at http://www.rozpoctovarada.sk/download/523_2004_en.pdf): “(2) In the case of a significant deviation42af) from the medium-term objective or from the adjustment path towards the objective referred to in paragraph 1, a correction mechanism shall be applied; the Ministry of Finance shall, pursuant to separate regulations42ag), publish a notice on whether a significant deviation has occurred, twice a year, by 30 June and 30 November of the current budgetary year. If the Ministry of Finance publishes a notice that a significant deviation has occurred, it shall propose to the Government a public expenditure ceiling and measures for the period of correction of the significant deviation, taking into account the magnitude of the deviation and respecting the medium-term objective and annual reduction in the share of the general government deficit in gross domestic product pursuant to separate regulations42ag); the public expenditure ceiling is defined as the maximum amount of accrued consolidated expenditures of the general government. The Ministry of Finance shall discuss, in advance, any proposal for measures with impact on local governments with the national associations of municipalities and representatives of higher territorial units. The Government shall decide on the correction mechanism, as part of which it shall also decide on the proposed public expenditure ceiling and approve measures to be implemented as part of the correction mechanism; before the Government takes the decision, the proposal shall be assessed by the Council for Budget Responsibility.42ah) If the Government chooses not to apply the correction mechanism, it shall deliver to the Parliament a written justification of the decision not to apply correction mechanism.

(3) The obligation to activate the correction mechanism shall not apply during the existence of exceptional circumstances.42ai) The beginning and end of the duration of exceptional circumstances shall be declared by the Government based on the proposal by the Ministry of Finance and subject to prior assessment thereof by the Council for Budget Responsibility.

1(4) The Council for Budget Responsibility shall assess and publish its assessment of the application or non-application of the correction mechanism pursuant to paragraph 2 and of the beginning and end of the duration of extraordinary circumstances pursuant to paragraph 3; the Ministry of Finance shall publish its opinions on such assessments.”.

Footnotes to references 42ac to 42ai shall have the wording as follows:

42ac) Article 3, paragraph 1 (b) of the Treaty on Stability, Coordination and Governance. Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (Extraordinary issue OJ EU, chapter 10/vol. 1, OJ EC L 209, 2.08.1997), as amended. Council Regulation (EC) No. 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (Extraordinary issue OJ EU, chapter 10/vol.1, OJ EC L 209, 02.08.1997), as amended.

42ad) Article 5(2) of constitutional act 493/2011 Coll.

42ae) Article 2, paragraph (a) of constitutional act 493/2011 Coll.

42af) Article 6 of Regulation (EC) No 1466/97.

42ag) Articles 5 and 6 of Regulation (EC) No 1466/97. Article 3(4) of Regulation (EC) No. 1467/97.

42ah) Article 3 of constitutional act 493/2011 Coll.

42ai) Article 3, paragraph 3(b) of the Treaty on Stability, Coordination and Governance (Notification No. 18/2013 of the Ministry of Foreign and European Affairs).

[10] Council for Fiscal Responsibility, Evaluation of medium-term budgetary objectives, May 2013, p. 4. Available at: http://www.rozpoctovarada.sk/download2/strednodobe_ciele_2013_final.pdf.

[11] Stability Programme of the Slovak Republic for 2013 – 2016, April 2013, p.5. Available at: http://ec.europa.eu/europe2020/pdf/nd/sp2013_slovakia_en.pdf. According to the current General Government Budget Framework for 2014-2016, the target deficit values have been set at 2.6% of GDP in 2014, 2.0% of GDP in 2015 and 1.3% of GDP in 2016. Id.

[12] Council for Fiscal Responsibility, Report evaluating the observance of the rules on fiscal responsibility and transparency in the year of 2012, June 2013, p. 6. Available at: http://www.rozpoctovarada.sk/download2/hodnotenie_pravidiel2013_final.pdf.

[13] §30a/2 of Law No. 523/2004 Coll., on budgetary rules for general government. See also more extensive definition used in practice in footnote to question VII.10.

[14] Council for Budget Responsibility, Evaluation of the draft budget for general government for years 2014-2016. Nov. 2013, p. 45. Available at http://www.rozpoctovarada.sk/download2/HodnotenieRVS_2014_2016_FINAL_01.pdf.

[15] This should be within the tolerated range according to the scoreboard, however it is indicated as excessive. Either the number is wrong or there is another problem in the scoreboard.

[16] European Commission, Alert Mechanism Report, Brussels Feb 2, 2012 COM(2012) 68 final, pp. 4. Available at: http://ec.europa.eu/economy_finance/economic_governance/documents/alert_mechanism_report_2012_en.pdf.

[17] Id. at 17-18.

[18] European Commission, Alert Mechanism Report 2013, Brussels Nov. 28, 2012 COM(2012) 751 final, pp. 17. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0751:FIN:EN:PDF.

[19] Id. at 19.

[20] Council Recommendation on the National Reform Programme 2012 of Slovakia and delivering a Council opinion on Stability Programme of Slovakia, 2012-2015, Brussels July 6, 2012. Available at: http://register.consilium.europa.eu/pdf/en/12/st11/st11271.en12.pdf