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 Sweden 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.

In its proposal for a Riksdag decision, the Government explained that it decided to support the adoption of the Treaty as Sweden has a strong interest in a well-functioning Eurozone.[1] It pointed out that it should be the Euro members themselves that decide on measures how to improve economic development, and that the Treaty can help prevent future crises and strengthen the fiscal framework to achieve sustainable public finances in the euro area.

The Swedish Government was also of the opinion that the Treaty should not lead to any legal obligations for non-euro States. Further, it was also important that the Treaty would clearly recognise the role of social partners in labour relations, and that non-euro States would be allowed to participate in certain euro summits. The government was critical to the initial proposal that countries would have to introduce the Fiscal Compact Treaty rules in their national constitutions. The government met all its priorities.

The government informed the Parliamentary Committee on Finance, Committee on the Constitution, and the Committee on EU Affairs during the negotiations. It was the view of the Government that Sweden would not declare itself legally bound by the Treaty provisions. The debate only took place during the ratification process.

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

It is the position of the Government and the Riksdag that Sweden has no legal obligations arising from the Treaty as long as Sweden does not have the euro as its currency or declare itself bound by the Treaty provisions. Sweden has not made such a declaration. The Government was therefore of the view that the Treaty should be approved by the Riksdag according to the procedure in Chapter 10, Article 3, first indent, of the Instrument of Government (Regeringsformen), meaning that only a simple majority would be required.[2] If the treaty provisions would become legally binding for Sweden, amendments have to be made in the Budget Act (2011:203).

The Fiscal Compact Treaty was debated in the Chamber of the Riksdag on the 6th of March 2012[3] and approved on the 7th of March.[4]

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

There have been no political or legal difficulties during the ratification of the Fiscal Compact.

The Government’s Proposal and the Motions

The Government’s proposal[5] to the Riksdag emphasised that the Treaty does not create any legal obligations for non-euro states. It argued that by ratifying the Treaty, Sweden gives its support to the work of the Eurozone to strengthen the economic-political framework in the Eurozone, and at the same time, Sweden preserves its influence, and it prevents a division between the Euro members and the non-euro members. The Government welcomed the fact that the Treaty is clearly linked to EU law and the processes that already exist for economic policy coordination. In the Government’s view, this can contribute to cohesion within the EU and ensures compliance with existing rules.

A number of proposals from individual members of parliament were submitted to the Riksdag.[6] A proposal by some MPs from the Left Party,[7] requested the Riksdag to disapprove the Government’s proposal to approve agreement. The MPs were of the view that the Treaty would restrict Member States’ competence on fiscal policy matters. They also argued that there was an obvious risk that the Treaty would consolidate a policy based on austerity measures and that this could hamper economic recovery in the Eurozone. This could subsequently also have negative effects on the Swedish economy, which is an export-dependent economy.

Another proposal came from two MPs from the far-right party ‘Swedish Democrats’.[8] Also they requested the Riksdag to dismiss the Government’s proposal. They argued that each country must have the right and possibility to independently adopt its monetary and fiscal policy. They pointed out that the EMU implies that there is a central procedure for countries with very different prerequisites. According to the MPs, this is a threat to peace because it undermines national sovereignty and trust between the countries. In the MPs’ view, the Fiscal Compact would strengthen this development and the EU’s competence would increase at the Member States’ dispense. The MPs also opposed further centralization of the EMU since, they argued, Sweden does not have a formal, permanent derogation from the EMU.

A proposal by some MPs from the central-left Social Democrats[9] set out that Party’s requirements on the Treaty in order to give its support in the Riksdag: Swedish influence would have to be ensured; Sweden should not be bound by the Treaty’s fiscal rules; and the Treaty should respect the role of the social partners in their national systems. Since these requirements were met, they supported Sweden’s accession to the Treaty. The MPs emphasised that the fiscal rules must not become legally binding to Sweden and that if they are to be incorporated in the EU Treaties, the Riksdag must give its approval to any treaty change.

A proposal by MPs from the Green Party rejected the Government’s proposal.[10] They argued that the Government should negotiate a Swedish permanent derogation from the EMU, and that Sweden should not make any commitments as long as Sweden does not have such derogation. They welcomed in principle the Treaty’s balanced budget rule as a means to bring order to the sovereign debt problems in certain countries. However, they argued that there could be a risk that the target for the budget balance is set as an annual structural balance: there is no established definition of the structural balance, and this may open the way to manipulation. Further, the annual balanced budget limits the scope for government incentives in rapid decline in demand.

In another proposal from the Green Party,[11] it was proposed that the Government should negotiate derogation from the third stage of the EMU, similar to the UK or Denmark. In 2003, Sweden held a referendum on the introduction of the euro with a negative outcome. In the view of the MPs, this should lead to a formal derogation from the third stage of the EMU and to not negotiate such derogation would demonstrate a lack of respect for democracy. The MPs further pointed out that Sweden is legally obliged to join the EMU. The EU has passively accepted this and it is further unlikely that other Member States would force Sweden to join. However, argued the MPs, since Sweden is legally bound under the EU Treaties, there is a risk that this may be invoked in different contexts and this necessitates a legally binding derogation.

The Committees

Before the Riksdag could decide on the proposal, it had to be prepared by a Parliamentary committee. In its Opinion, the Committee on Finance[12] gave its support to the Government’s proposal. It pointed out that the Treaty only becomes legally binding to Sweden the day Sweden introduces the euro as a currency or declares itself bound by the Treaty rules. The Committee shared the Government’s view that Sweden should not declare itself bound by the rules. In the view of the Committee, it was a prerequisite for the Riksdag’s approval of the Treaty that the Treaty does not affect Sweden’s sovereignty in fiscal policy matters. The Committee was of the view that additional considerations and an approval of the Riksdag would be required in case the Treaty rules are to become legally binding for Sweden, and likewise, that the Riksdag’s approval would be necessary in case the rules of the Fiscal Compact Treaty would be inserted into the EU Treaties. The Committee proposed that the Riksdag would make a declaration to the Government that the Riksdag’s approval is necessary if Sweden becomes legally bound by the Fiscal Compact Treaty or by EU Treaty rules equivalent to those in the Fiscal Compact Treaty.

The Committee on Finance also asked the Committee on the Constitution for an Opinion. The Committee on the Constitution mainly considered the constitutional requirements for the Swedish approval of the Treaty.[13] It held that the Riksdag could decide by simple majority since the Treaty neither presupposes an amendment of the Constitution nor imply a transfer of competence (see Question V.2). The Committee pointed out that the Treaty rules only could become binding if Sweden introduces the euro or declare it legally bound by the rules. The Committee held that in such a case, it would be necessary that the Riksdag further considers and approves the rules.

The Committee further held that the Government should inform and consult with the Riksdag before Sweden participates in euro summits. The same procedure should apply as before EU summits, despite the fact that Sweden’s participation in the euro summits is based on the Fiscal Compact Treaty and not on EU rules. The Committee explained that the Fiscal Compact Treaty is characterised by an institutional and legal infinity to the EU cooperation and EU law, and it would therefore only be necessary if the same procedure would apply. If necessary, the Riksdag Act (a constitutional instrument) needs to be amended, this should be considered in due course.

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 Sweden? 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.

Sweden does not intend to make any changes in its national legislation. There is already, since the year of 2000, a budget-balance requirement on local governments. Moreover, it is the position of the Swedish Government that the Fiscal Compact Treaty does not give rise to legal obligations for Sweden.

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.

It is the position of the Swedish Government that the Fiscal Compact Treaty does not give rise to legal obligations for Sweden.

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)?

Sweden is not legally bound by the Fiscal Compact, and does not intend to make any changes in national legislation.

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


Non-Eurozone and binding force       
Has Sweden 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?

See the answers to questions IX.5 and IX.6.

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

No other relevant information.

[1] See the Government’s proposal, Proposition 2012/13:39, http://www.riksdagen.se/sv/Dokument-Lagar/Forslag/Propositioner-och-skrivelser/Fordraget-om-stabilitet-samor_H00339/?html=true

[2] Ibid. This is further explained under Question V.2.

[3] Riksdagens protokoll 2012/13:73, the 6th of March 2012, debate under paragraphs 10 and 13, http://www.riksdagen.se/sv/Dokument-Lagar/Kammaren/Protokoll/_H00973/

[4] Riksdagsskrivelse 2012/13:167, http://www.riksdagen.se/sv/Dokument-Lagar/Kammaren/Riksdagsskrivelser/201213167_H00K167/ In the Chamber, 251 voted yes, 23 voted no, 37 abstained from voting, and 38 were absent.

[5] Ibid. See also the memo prepared by the Government, Ds 2012:30, the 13th of July, 2012, http://www.regeringen.se/sb/d/15681/a/196897 .

[6] See footnote 15.

[7] Motion 2012/13:Fi5 by Ulla Andersson and others (Vänsterpartiet), http://www.riksdagen.se/sv/Dokument-Lagar/Forslag/Motioner/Fordraget-om-stabilitet-samor_H002Fi5/?text=true

[8] Motion 2012/13:Fi6 by Sven-Olof Sällström and Johnny Skalin (both Sverigedemokraterna), http://www.riksdagen.se/sv/Dokument-Lagar/Forslag/Motioner/Fordraget-om-stabilitet-samor_H002Fi6/?text=true

[9] Motion 2012/13:Fi7 by Fredrik Olovsson and others (S), http://www.riksdagen.se/sv/Dokument-Lagar/Forslag/Motioner/Fordraget-om-stabilitet-samor_H002Fi7/?text=true

[10] Motion 2012/13:Fi8 by Per Bolund and others (Miljöpartiet).

[11] Motion 2012/13: Fi295 by Ulf Holm and Mats Pertoft (both Miljöpartiet).

[12] Finansutskottets betänkande, 2012/13:FiU28, http://www.riksdagen.se/sv/Dokument-Lagar/Utskottens-dokument/Betankanden/201213Fordraget-om-stabilitet_H001FiU28/

[13] Konstitutionsutskottets betänkande, 2012/13:KU4. http://www.riksdagen.se/sv/Dokument-Lagar/Utskottens-dokument/Betankanden/201213Fordraget-om-stabilitet_H001FiU28/