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 Hungary 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.
At first, the Hungarian Government was against the Fiscal Compactbecause of their understanding of the Compactaiming to harmonize taxing in the European Union. Prime Minister Viktor Orbán said on 9 December 2011 that the decision about the Compacthas to be made by the Parliament, because its provisions would restrict sovereignty.
During the parliamentary debate on 13 February 2012, the position of the Hungarian Government was that accepting the Fiscal Compact is in the interest of the whole European Union, and therefore of Hungary. The vast majority of Hungarian export goes to the Eurozone and everything increasing the security and productivity in the Eurozone is important for Hungary.
However, most of the Compact is not yet binding for Hungary, but it will be once Hungary joins the Eurozone. Hungary currently would not be able to fulfill the conditions of the Fiscal Compact but the Government will work for a strong Hungary that is able to meet these conditions at the time of joining the Eurozone. The Minister of Foreign Affairs speaking on behalf of the Government reminded that signing the Fiscal Compact is in the power of the Hungarian Government, according to Hungarian law, because it does not deliver sovereignty to the European Union (see also question IX.2). This statement was overruled by the 22/2012. (V.11.) Constitutional Court decision of 11 May 2012. (see question IX.4) But because of the importance of the issue, the Government requested the approval of the Parliament, before signing the Fiscal Compact.
An MP from the governing party Fidesz pointed out that there is no real alternative to the approval of the Fiscal Compact for Hungary. He emphasized that the Fiscal Compact widens the powers of national parliaments, because it opens the opportunity for them to hold joined debates and conferences on budgetary policies and questions resulting from the Compact.
The eurosceptic, far right party Jobbik argued that there were legal problems in the context of the approval. The translation of the text of the treaty is incorrect and uses definitions that are not clear (e.g. general government debt). During the parliamentary debate, the Jobbik recommended a referendum on the issue but it was rather a rhetorical sentence than a real issue. This recommendation was not welcomed by the Government, which has not argued for a referendum. According to Jobbik, the sovereignty of the Parliament will be restricted on deciding on key issues like the deficit, the reduction of public debt after joining the Eurozone, because the conditions of the Fiscal Compact will restrict the freedom of the Parliament to decide on these issues.
Opposition left wing party MSZP (Hungarian Socialist Party) supported the Fiscal Compact and encouraged the Government to act accordingly to it in the future, even though it will not be binding on Hungary until it joins the Eurozone.
The Hungarian Government had two priorities during the negotiation of the Fiscal Compact. The first was that the Compact shall be binding only for Eurozone Member States. This was important because the Government pursues a so-called unorthodox economic policy, that is based on rapid decisions and which leaves a wide margin of appreciation for the Government. This would be limited by the provisions of the Fiscal Compact. The second point was that the Compact shall not refer to the Euro-Plus-Pact and not contain any provisions concerning tax harmonization that is not supported by Hungary.
During the negotiation process Hungary supported the Polish standpoint arguing that in some cases the non Eurozone member states should have the opportunity to join the Euro summits.
How has the Fiscal Compact been ratified in Hungary and on what legal basis/argumentation?
As followed from a case decided by the Hungarian Constitutional Court (see question IX.4), the Fiscal Compact was required to be transposed in an act voted by a two-third majority of the Parliament, according to Article E Paragraphs 2 and 4 of the Hungarian Fundamental Law. This transposition into the domestic legal order of the Compact was carried out by Act XXXII of 2013 on 25 March 2013, which had been accepted with the votes of the two-third majority of the Parliament. The text of the act is equivalent of the Hungarian translation of the Treaty. Since the Fiscal Compact is an international treaty according to Article E Paragraphs 2 and 4 that delivers parts of the Hungarian sovereignty to the European Union the Compact had to be ratified by a cardinal act.
What political/legal difficulties did Hungary encounter during the ratification of the Fiscal Compact?
During the parliamentary debate on 19 March 2013, the Minister of Foreign Affairs on behalf of the Government basically repeated the arguments that have arisen during the negotiation of the Fiscal Compact. He emphasized again that Titles III and IV are not going to be binding on Hungary. The Government also argued that Article 13 will strengthen democratic control over the fiscal and economical policies of the European Union.An MP from the governing party Fidesz pointed out that the fiscal provisions of the Hungarian Fundamental Act – Articles 37 and 38 – prescribe stricter policies than the Fiscal Compact. He also pointed out that only Article 12 will be binding on Hungary while not being a member of Eurozone, which provides the right to the Prime Minister to attend meetings of the Eurozone member states.
The far right eurosceptic Jobbik reminded that David Cameron, Prime Minister of the United Kingdom said after 2015 a referendum will decide whether the UK should remain a member state of the European Union, and Hungary should also consider this option.
Left wing MSZP (Hungarian Socialist Party) welcomed the position of the Government on the issue and supported the ratification.
An independent MP from the former green left fraction LMP (Politics Can Be Different) opposed the Fiscal Compact and argued that an eco-social Europe can be an alternative choice to the Compact.
Since most provisions of the Fiscal Compact are not binding on Hungary yet, and the legal approval of the Treaty was a simple process, the debate did not affect the ratification of the Fiscal Compact.
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 Hungary? 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.
Interestingly considering the fact that Hungary is not yet bound by this part of the Fiscal Compact, the government is already considering the introduction of a correction mechanism: ‘The development of a medium-term budgetary framework aimed at meeting the provisions of Stability and Growth Pact is in progress. There are plans to define rules for the budget balance to ensure compliance with the provisions for improvement of the structural balance, the adjustment path to the MTO, and debt reduction. With a view to complying with the Intergovernmental Treaty (Fiscal Compact), a correction mechanism in the event of non-compliance will also be considered. Consequently, the authorities aim to define rules for the structural balance and the medium-term budgetary objective in Hungarian legislation and, to this end, a methodology to calculate the potential GDP and the output gap. Compliance with such fiscal rules will be monitored by the Fiscal Council. In addition, the authorities plan to set up mandatory mid-year corrective mechanisms if the deficit or debt figures fail to comply with the rules. Ex post reputational or financial sanctions could also be applied. Such sanctions would be based on statistical data that can be properly measured (e.g. spring-autumn EDP notification) and can actually be influenced by the entity against which the sanction would be applied. Also, the application of sanctions would be subject to the principle of progressivity.’
Hungary is not planning to amend its Constitution, since the Fundamental Law of Hungary already contains some provisions concerning the balanced budget. Article M rules that Hungary shall enforce the principle of balanced, transparent and sustainable management of the budget, Parliament and the Government shall have the primary responsibility for fulfillment of this principle and the Constitutional Court, the courts, local governments and other state organs shall respect this principle in the performance of their duties.
According to Paragraph 5 of Article 34 ‘in order to preserve the balance of their budget, an Act of Parliament may prescribe that if a local government plans to contract a debt above a level defined by an Act of Parliament or to undertake any other commitment, it shall obtain the approval of the Metropolitan or County Office of the Government.’
Paragraphs 4 and 6 of Article 36 read as follows ‘the Parliament may only adopt an Act on the central Budget which will not result in an increase in the state debt compared to gross domestic product’ and ‘one may only derogate from the provisions contained in Paragraph (4) during a special legal order and to the extent necessary to mitigate the consequences of circumstances triggering the special legal order, or, if there is a significant and enduring national economic recession, to the extent necessary to restore the balance of the national economy.’
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.
See the answers to questions IX.1 and IX.2. No additional reasoning emerged compared to those discussed earlier.
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)?
Not relevant for Hungary.
Is there a (constitutional) court judgment on the Fiscal Compact/implementation of the Balanced Budget Rule?
There is a Constitutional Court decision in relation with the Fiscal Compact, the 22/2012. (V.11.) CC decision of 11 May 2012.
1. Name of the Court
Constitutional Court of Hungary
The minister of public administration and justice on behalf of the Government, as petitioner
3. Type of action/procedure
Interpretation of the provisions of the Fundamental Law regarding a certain constitutional issue, provided that the interpretation can be directly deduced from the Fundamental Law.
4. Admissibility issues
The Constitutional Court can interpret the Fundamental Law on the petition of the Parliament or its standing committee, the President of the Republic or the Government. Here, the member of the Government was the petitioner, and the petition regarded a certain constitutional issue, so it was admissible. (Decision paras 29-31)
5. Legally relevant factual situation
‘The Treaty – as pointed out in the petition – regulates in many different contexts the application of certain legal and institutional mechanisms of the European Union, and the role of the institutions of the European Union in monitoring, supervising and enforcing the implementation of the Treaty, and in the consultation and the coordination with the Member States. Although the subject of the Treaty is not about Hungary being a Member State of the European Union or not, and neither is it a founding treaty, a question emerges concerning the interpretation of paragraph (2) of Article E) of the Fundamental Law and the application of paragraph (4) thereof, with regard to the authorization given in the respect of acknowledging the mandatory force of it (paragraph 33).’
The decision was about interpreting Article E Paragraph 2 and 4 of the Hungarian Fundamental Law:
‘(2) In order to participate in the European Union as a Member State, and on the basis of an international treaty, Hungary may, to the extent necessary to exercise the rights and fulfill the obligations set out in the founding treaties, exercise some of its competences deriving from the Fundamental Law jointly with other Member States, through the institutions of the European Union.
(4) The authorisation for expressing consent to be bound by an international treaty referred to in paragraph (2) shall require the votes of two-thirds of all Members of Parliament.’
6. Legal questions
‘Would an international treaty be regarded as an international treaty under Article E) para. (2) of the Fundamental Law if
a) it is not one of the founding treaties of the European Union, and it is not a legal act of the Union, but
b) all of its states parties are member states of the European Union,
c) which regulates subjects that are also regulated by the founding treaties of the European Union and by the legal acts of the Union,
d) which is aimed at the further development of the European Union and strengthening the economy of the European Union in a subject matter, which is an essential element of the European Union’s founding treaties, and
e) according to which certain institutions of the European Union can act in implementing and supervising the implementation of the international treaty?’ (paragraphs 3 to 9)
The main question is that whether the Fiscal Compact is an international treaty in which case it shall be promulgated in a cardinal act, an act requiring the two thirds of the votes of the MP’s. (see on cardinal acts in general question III.1)
7. Arguments of the parties
In the procedure of interpreting the Constitution, no argumentation is required from the petitioner. On the contrary, the petitioner is in the position of asking the Constitutional Court to interpret the Constitution from a specific aspect that is defined in a question proposed by the petitioner.
8. Answer by the Court to the legal questions and legal reasoning of the Court
‘The votes of two-thirds of the Members of the Parliament is required for the consent to be bound by an international treaty aimed at modifying or amending the rights and obligations originating from the founding treaties, provided that the treaty is aimed at jointly exercising further competences originating from the Fundamental Law. An international treaty can be, in particular, regarded as such, if Hungary is a party to it as the Member State of the European Union together with other Member States, and the treaty regulates subjects contained in the founding treaties, or it is aimed at implementing or supervising the founding treaties.’ (para 1)
‘The votes of two-thirds of the Members of the Parliament is not required for the consent to be bound by an international treaty, if the treaty would not result in exercising, jointly with the institutions of the European Union or with other member states, new competences originating from the Fundamental Law.’ (paragraph 2)
9. Legal effects of the judgment/decision
According to the decision, the Fiscal Compact is required to be ratified by an act voted by a two-third majority of the Parliament, which is the requirement linked to a cardinal act. This domestic legal recognition of the Compact was carried out by the Act XXXII of 2013 on 25 March 2013 that had been accepted with the votes of the two-third majority of the Parliament.
10 Shortly describe the main outcome of the judgment/decision and its broader political implications.
The Constitutional Court decision was not subject of any major debate on the basis of the implementation of European Union legislation. There was major citation and examination of the decision because it was the first that stated that the decisions of the Constitutional Court that had been delivered on the basis of the former Constitution are still binding when interpreting the new Fundamental Act in case no major textual changes happened comparing the text of the former and latter.
According to the decision ‘Article E) para. (4) regulates clearly that two-thirds of the Members of the Parliament is required for acknowledging the mandatory force of treaties that contain a transfer of sovereignty’and the Fiscal Compact is an international treaty that contains a transfer of Hungary’s national competences to the European Union. The understanding of the decision is that the Constitutional Court did not draw a line that marked the border of the transfer of national competences to the European Union. Therefore there is no clear line that indicates the borders of national sovereignty and sovereignty that is transferred to the European Union.
Non-Eurozone and binding force
Has Hungary 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?
What other information is relevant with regard to Hungary and the Fiscal Compact?
No other relevant information.