VII – Six-Pack

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Austria

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

Negotiation
VII.1
What positions did Austria 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?

Background information is necessary for answering this and the subsequent questions of this section: For better “handling of EU membership”, a law on constitutional level had been adopted in 1998[1] (BGBl I 61/1998). Art. 1 (1) stipulates that institutions on federal, provincial and municipal level were entitled to conclude a consultation mechanism and a stability pact among each other. Art. 1 (3) of above-quoted law stipulates that the stability pact regulates the obligations of the territorial entities regarding the compliance with the criteria set out in (then) Art. 104c TEC by the public Austrian budgets, especially with regard to the rules of secondary law on budgetary discipline; the pact, which implements the economic pillar of the EMU, has to create a rule for the distribution of burdens among the federal, the provincial and the municipal level. The pact is an agreement concluded between the three levels of government and then, on each level, it is implemented (as federal law, as provincial constitutional law, as municipal law). Without getting too much in depth here, Art. 1(3) of that law has to be interpreted in a way that it allows implementation of EU secondary law without constitutional amendment, even when it completes or amends Austrian budgetary law and even if that amounts to a constitutional amendment.[2] The disputed Austrian principle of “double obligation” of the legislator (according to which the application/implementation of EU law has to be equally conform with EU-law and with the Austrian constitution – that needs to be changed in case of conflict”)[3] does not play a role in the case of that specific law (BGBl I 61/1998).[4] Therefore, the implementation of the Six-Pack does not need any formal constitutional amendment even if its content amends the constitution. This is relevant for the discussion of the ratification of the Fiscal Compact that will be discussed in question IX.3.

Consequently, whereas the Austrian Stability Pact 2011[5] already referred to the crisis and measures necessary for budgetary stability, the Austrian Stability Pact 2012[6] directly refers to the Six-Pack (and also to the Two-Pack). Nota bene that elements of the Six-Pack, the Two-Pack and the Fiscal Compact had already been implemented through amendments of the federal budgetary law through which a deficit ceiling based on the German model had been introduced[7] and through a law on upper limits of federal guaranties.[8] The Austrian Stability Pact 2012 was approved two days after the Fiscal Compact (that will be discussed in section II.6) had been approved by the National Council. The discussion in the National Council relates to the preceding discussion on the Fiscal Compact and simultaneously to the amendment of the “Finanzausgleichsgesetz”, the law on “burden-sharing in financial matters” between the single territorial entities that needs to be amended for the new Austrian Stability Pact.[9] In a nutshell, at least from an observer’s perspective, the discussion on the Six-Pack was more centred on the distribution of the burden between the different territorial entities than on its actual content.

In the negotiations, the governing parties SPÖ and ÖVP favour the Austrian Stability Pact. The entire debate is limited to the issues of the reasonability of the deficit ceiling and on the question how the single territorial entities should comply with it – and share the burden. The Greens who were already opposing the Fiscal Compact now oppose the amendment of the burden-sharing law and are against the approval of the Austrian Stability Pact because they consider a debt limit for all territorial entities, especially municipalities, as contra-productive.

In sum, however, the National Council authorizes the government to conclude the Austrian Stability Pact 2012 with the provinces and the municipalities. The SPÖ and ÖVP vote for, the Greens, the FPÖ and the BZÖ against the approval.[10] The amendment of the burden-sharing law is also approved.[11]

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 the Austrian Stability Pact 2012 explained in question VII.1, particularly its Art. 12, but also Art. 17 regarding information requirements.[12] Overall, the Stability Pact is aimed at budget deficit avoidance and should lead Austria to “zero deficit” in 2016.[13]

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

Its implementation was discussed in the framework of the Austrian Stability Pact 2012 and the question of burden-sharing explained in question VII.1.

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 Bundesanstalt Statistik Austria (Federal Austrian Institute for Statistics) is charged with providing the necessary information, data, and decision making basis to comply with all obligations of the Austrian Stability Pact 2012.[14]  

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

The predecessor of the Austrian Fiscal Advisory Council established implementing Directive 2011/85/EU was the state debt committee (“Staatsschuldenausschuss”) that had existed since 1970. The Austrian Fiscal Advisory Council’s statute, tasks and reports can be found (in English) at http://www.fiskalrat.at/en/. Its members are not bound by instructions. Inter alia, their tasks are assessing the current fiscal situation with an outlook for the future against the backdrop of Austria’s fiscal policy objectives and development trends in the money and capital markets; analysing economic effects of financial operations in connection with the indebtedness of all public authorities on the basis of their research activities; analysing the sustainability and the quality of budgetary policies of all public authorities; providing written recommendations on the fiscal policies of the public authorities in Austria, taking economic conditions into consideration; preparing an annual report on the recommendations made to the Federal Minister of Finance, including the results of studies and their analyses; and tasks according to Article 3 TSCG; Article 6 of Directive 2011/85/EU; and according to Article 5 of Regulation (EU) No 473/2013 (“Two-Pack”); such tasks specifically include providing recommendations on the medium-term budget objectives according to EU Regulation 1466/97; providing recommendations on the adjustment path to reach medium-term budget objectives; monitoring rule compliance under Article 5 of EU Regulation 1466/97 as amended by EU Regulation 1175/2011 in a timely fashion; observing circumstances and submitting recommendations that activate, extend or end corrective measures according to Article 7 Federal Law Gazette I No. 30/2013.

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 Austria 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?

The new framework is perceived as stricter because the two Maastricht criteria Austria has always struggled with are debt and deficit. The method EU method of calculating the objectives was not undisputed but overall accepted as part of the new legal framework one had to comply with.  

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 budgetary process had been changed in two steps, once already in 2009 and then in 2013. The 2009 version of the budgetary law was already in conformity with the amended MTO procedure (see also question II.2).[15]

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)?

In compliance with consolidated regulation 1466/97, Austria sends every year a Stability Program together with a national reform program to the commission and the council. The stability program is decided in conformity with the Austrian Stability Pact (and the national budget coordination laid out therein).

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

Nothing specific on this issue.

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)?

There is a federal law on a deficit ceiling plus the Austrian Stability Pact (question VII.1) that stipulate the objective. In a nutshell, the law lays out the framework while the Austrian Stability Pact specifies in particular how the burden is distributed between the different territorial entities.  

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

In the Austrian Stability Pact of 2012, it was agreed that a structural deficit of 0.45% of the GDP should be achieved by 2017. However, based on Art. 3 (1) b TSCG, the Council suggested upon recommendation of the Commission in May 2013 that Austria should achieve this objective already in 2015. Measures were therefore taken in the planning of the budget for 2014.[16]

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

The MTO is formulated in the Stability Program that is prepared by the government (notably Ministry of Finance) in accordance with internal coordination rules (the Austrian Stability Pact).

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

Nothing specific.

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

Nothing specific.

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?

None that have not been mentioned in the previous questions.

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

None.[17]

[1]              BGBl I 61/1998, at http://www.ris.bka.gv.at/Dokumente/BgblPdf/1998_61_1/1998_61_1.pdf

[2]              Griller, S., Zur verfassungsrechtlichen Bedeutung des Fiskalpaktes, Journal für Rechtspolitik, 20, 177-194 (2012), p. 184

[3]              Öhlinger, Verfassungsrecht, 2009, p. 109-111.

[4]              Supra note 1.

[5]              Details on the Austrian Stability Pact 2011 and all the necessary materials can be found and downloaded here: http://www.parlament.gv.at/PAKT/VHG/XXIV/I/I_01206/

[6]              Details on the Austrian Stability Pact 2012 and all the necessary materials can be found and downloaded here: http://www.parlament.gv.at/PAKT/VHG/XXIV/I/I_01792/

[7]              Deficit ceiling” introduced on December 29, 2011, BGBl 150/2011, http://www.ris.bka.gv.at/Dokumente/BgblAuth/BGBLA_2011_I_150/BGBLA_2011_I_150.pdf

[8]              Upper limit on federal guarantees from December 29, 2011, BGBL I 149/2011, http://www.ris.bka.gv.at/Dokumente/BgblAuth/BGBLA_2011_I_149/BGBLA_2011_I_149.pdf

[9]              Stenographic Protocol, Session No. 167 of the National Council, XXIV Legislative Period, pp. 120-151, at http://www.parlament.gv.at/PAKT/VHG/XXIV/NRSITZ/NRSITZ_00167/fname_276574.pdf

[10]             Vote on “Finanzausgleichsgesetz” amendment, Stenographic Prot. 167 (see section V, footnote 8), p. 151.

[11]             Vote on approval of Austrian Stability Pact 2012, Stenographic Prot. 167 (see section V, footnote 8), 151.

[12]             Full text of the Austrian Stability Pact 2012 available at http://www.parlament.gv.at/PAKT/VHG/XXIV/BNR/BNR_00587/fname_259966.pdf

[13] See European Commission, Interim Progress Report on the implementation of Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States, occasional paper 128, February 2013, p. 68.

[14]             Explanation of the government given to the National Council on the proposed legislation introducing the Austrian Stability Pact 2012, http://www.parlament.gv.at/PAKT/VHG/XXIV/I/I_01792/fname_254607.pdf , in particular p. 4.

[15]             Austrian Stability Program (Österreichisches Stabilitätsprogramm 2012-2017) in compliance with MTO procedure at https://www.bmf.gv.at/wirtschaftspolitik/in-oesterreich/StaPro_2012-2017.pdf?3vtn20, p. 36-37.

[16] Übersicht über die österreichische Haushaltsplanung 2014, Ministry of Finance, at http://www.parlament.gv.at/PAKT/VHG/XXV/III/III_00028/imfname_330245.pdf

[17]             For the academic debate on the new economic governance and the six-pack, see Fisahn A., Autoritäre Krisenlösung – der neue Weg der Europäischen Union, juridikum 2011, 445

Belgium

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

Negotiation
VII.1
What positions did Belgium 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?

In a general sense, both public opinion and political decisions have been in favour of a strengthening of European economic governance, with an emphasis from the left side of the political spectre on the need for accompanying social policy.

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)?

Directive 85/2011 has been implement by two separate Acts of the same date: the Laws of April 10, 2014.[1] One law deals exclusively with the federal budgetary process and hence has been adopted by the House only.[2] The other law translates the obligations of the directive for the control of regional budgets and the Court of Auditors, and hence followed the bicameral legislative procedure.[3]

Those same Acts also address article 4(2) of Regulation 473/2013 ensuring the observance of the time-frame (October 15th). Before, the draft budget was to be put before the House before October 31st.

As to the content, the Law on the Federal Budgetary Procedure implements articles 3(1), 3(2), 4(4), 4(6), 9, 10, 11, 14(1) and 14(3) of Directive 85/2011. Additionally, the scope of implementation is extended to include federal social security.

The other Law envisages an identical implementation, but applied to the budgets of the regions and the communities. The implementing Acts amend the Law of May 22nd, 2003 on the budgetary procedure. 

Summarizing, the amendments to the Law of 2003 ensure that:[4]

       (article 3-3) The provisions derived from Directive 85/2011 are applied to the social security departments of the federal government.[5]

       (article 4-45) The draft budget will be presented on October 15 at the latest, following article 4(2) of Regulation 473/2013

       (article 5-46) In the general memorandum that accompanies the draft budget, a sensitivity-analysis is presented that gives a prediction of the evolution of most variables under different scenarios, following article 4(4) and 14(1) of Directive 85/2011.

       (article 5-46) Also included in the general memorandum is an overview of institutions and funds that are not part of the federal budget in strict sense, but are consolidated.

       (article 6-111) Starting in 2020, the Court of Auditors will certify the draft budgets, following article 3(1) of Directive 85/2011.[6]

       (article 8-124/1) Budgetary proceedings of all governments are published through monthly publications (on a website), following article 3(2) of Directive 85/2011.

       (article 9-124/2) Differences between the national forecasts employed and the (more recent) prognoses of the European Commission are to be explained in the accompanying Memorandum.

       (article 10-124/3) The medium-term budgetary framework is annually updated and included in the Memorandum of the draft budget, following articles 9, 10 and 11 of the Directive.

       (article 11-124/4) The Section “Public sector borrowing requirements” of the High Council of Finance will review each three years the methodology of budgetary prognoses, following article 4(6) of the Directive.

       (article 12-124/5) Obligation to publish all conditional budgetary obligations following article 14(3) of Directive 85/2011.

The second law of April 10, 2014 essentially installs the same requirements for the Communities and the Regions: additional information to accompany the annual draft budget, an evaluation by the High Fiscal Council of the methodology, conformity with the medium-term budgetary framework.

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

The time-gap between 2011 and the implementation in 2014 can be explained by the intergovernmental process governing these changes: an important additional element in the negotiation on the budgetary procedure is the Cooperation Agreement of December 13, 2013, which executes the Fiscal Compact.[7] Political negotiations were quite conflictual due to the different budgetary circumstances and objectives.[8]

Belgium failed to implement Directive 2011/85 before December 31, 2013, but when the Commission gave notice under article 258 TFEU, Belgium replied that draft legislation was introduced by that date.[9]

Parliamentary debates were very limited, and contained actually only technical questions by one Member of the Committee on Budgetary and Financial Affairs.[10]

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)?

According to article 9 of the Law of April 10, 2014, the macroeconomic and budgetary forecasts are produced by the Institute for National Accounts (INA). De facto, the Central Bank of Belgium, as an associated institution of the Institute for National Accounts, carries this responsibility.[11]

Article 4(6) of Directive 85/2011 is implemented through article 11 of the Law of April 10, 2014. It designates the Section “Public sector borrowing requirements” of the High Council of Finance to review each three years the methodology of budgetary prognoses.

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

The Court of Auditors (enshrined in article 180 Const.) was erected in 1831. It will review (‘certify’) the draft budgets of the Federation and the Regions and Communities.[12]

An evaluation of the methodology used to draft the budget and to base the statistical data will be carried out each three years by the Section “Public sector borrowing requirements” of the High Council of Finance. This section was erected following article 49 (6) of the Special Act on Finance of 1989. This section is charged with providing annual advice on the budgetary status of the respective governments.[13] It is composed of 12 members, half of them appointed by the federal level, and half by the various Regions and Communities. It will additionally be charged with this review following article 9 of the Law of April 10, 2014.

The independence of the Court of Auditors is constitutionally assured: it is an institution of Parliament, and thus independent from executive authority.           
Whether the High Council of Finance qualifies as independent in the classification of Directive 85/2011 is doubtful.[14] The High Council of Finance is erected by Royal Decree[15], and chaired by the Minister of Finance.  Functional autonomy of the Section
Public sector borrowing requirements is guaranteed by article 49(6) of the Special Act on Finance.

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 Belgium 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?

Because of the direct applicability of EU law and the general favourable political position on EU economic governance, no real debate in constitutional terms has been argued. In the general report to the House, the European Advisory Committee (consisting of members of the House, Senate, and Belgian MEPs) raised no real constitutional objections, though some members of parliament lamented the lack of social objectives and the lack of EU wide convergence in taxation.[16]

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 annual stability program includes the obligation to attain the MTO.

Article 124/3 of the Law on the Budgetary Procedure (implemented by the Law of April 10, 2014) obliges the budget to adhere to the MTO (§1), and points out that the forecasts are based on the economic assessments of the Institute for National Accounts (§2), and that each deviation from the budgetary framework should be justified (again §2).[17]

A nearly identical obligation pertains to the Regions and Communities (including the Local Governments).[18]

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)?

See above, section II.2.

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

No specific debate on this point.

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 annual stability program includes the obligation to attain the MTO.

Article 124/3 of the Law on the Budgetary Procedure as implemented by the Law of April 10, 2014,  obliges the budget to adhere to the MTO (§1), and requires each deviation from the budgetary framework to be justified (§2).[19] The section public borrowing requirements of the High Council of Finance will monitor the budgetary developments of each level of government, and, in case of a significant deviation in the Fall assessment, starts a bilateral procedure between the Section and that level of government.[20]

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

Currently, Belgium’s MTO is a surplus of 0,75 % of the GDP.[21]

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

1. Macro-economic forecasts by the Institute for National Accounts

2. Advice by the High Council for Finance

3. Draft budget by the government – which needs to comply with the MTO as laid down in the Law on Budgetary Procedure

4. Adoption of the budget by Parliament

5. Monitoring by the section Public Borrowing Requirements of the High Council for Finance

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

No specific debate on this point.

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

No specific debate on this point.

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?

None.

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

Not applicable.

[1] Official Gazette April 25th, 2014. http://www.ejustice.just.fgov.be/mopdf/2014/04/25_1.pdf

[2] Article 78 Const. – optional involvement of the Senate (see the debate Parl. Doc. Senate, 2013-14, nr. 5S2811/2, without resulting amendments). http://www.senate.be/www/?MIval=/publications/viewPub.html&COLL=S&LEG=5&NR=2811&VOLGNR=2&LANG=fr

[3] Article 77 Const. http://www.const-court.be/en/basic_text/belgian_constitution.pdf

[4] The first article numbers refer to the Law of April 10, 2014, the second number to the final version of the Law of May 22, 2003.

[5] Those falling within the institutional sector S1314 as defined by Regulation 549/2013.

[6] Certification is no strict requirement of the Directive. As set out by the government, it aims to ensure the truthfulness and reliability of the draft budget and will help to strengthen internal and external audits. See Parl. Doc. House, 2013-14, nr. 53K3408/1, p. 9. Http://www.dekamer.be/FLWB/PDF/53/3408/53K3408001.pdf The Council of State raised the issue of compliance by December 31st, 2013 (as opposed to 2020 as envisaged) – see Parl. Doc. House, 2013-14, nr. 53K3408/1, p. 27. http://www.dekamer.be/FLWB/PDF/53/3048/53K3048001.pdf

[7] See below, section IX on the Fiscal Compact for a detailed discussion of the cooperation agreement.

[8] See for instance the discussion on “European economic governance and the ‘six-pack’ in the Flemish Parliament: Parl. Doc. Flemish Parl., 2011-2012, nr. 1410/1, p. 12. https://docs.vlaamsparlement.be/docs/stukken/2011-2012/g1410-1.pdf

[9]  L. Buffel & E. Vanalme, “De omzetting van de nieuwe Europese budgettaire regelgeving in België” Service Public Fédéral Finances – Belgique, Bulletin de Documentation, 74ème année, n° 1, 1er trimestre 2014, p. 97. – see the Commission’s webpage and the decision to send a formal notice on March 28, 2014: http://ec.europa.eu/eu_law/eulaw/decisions/dec_20140328_1.htm ; and the closing of the case on July 23, 2014: http://ec.europa.eu/eu_law/eulaw/decisions/dec_20140723.htm

[10] See Report, Parl. Doc. House 2013-14, nr. 3408/4. http://www.dekamer.be/FLWB/53/3408/53K3408004.pdf

[11] The Central Bank is also charged with providing the statistics for the excessive deficit procedure – see the Law of February 28, 2014, Official Gazette April 4, 2014. http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=2014022816&table_name=loi

[12] Art. 3 of the Law of April 10, 2014. See also higher, on “certification” in footnote 39 in section VII.2. See also L. Buffel & E. Vanalme, “De omzetting van de nieuwe Europese budgettaire regelgeving in België” Service Public Fédéral Finances – Belgique, Bulletin de Documentation, 74ème année, n° 1, 2014, p. 132-133.

[13] See also the cooperation agreement of 22 May 2014, which organizes the monthly publication of budgetary statistics and charges the Section Public Borrowing Requirements with the evaluation: published in the Official Gazette, 18 august 204. http://www.ejustice.just.fgov.be/mopdf/2014/08/18_1.pdf

This cooperation agreement adds to the implementation of Directive 85/2011, both stipulations of the agreement needed the explicit approval of the substate levels, see the Advice of the Council of State, Parl. Doc. House, 2013-14, nr. 53K3408/1, p. 28-29. http://www.dekamer.be/FLWB/PDF/53/3048/53K3048001.pdf

[14] See also K. Brams & T. Corthaut, ‘De financiering van de gemeenschappen en de gewesten na de Zesde Staatshervorming – responsabilisering in de schaduw van Europa’ in A. Alen et al. (eds.), Het federale België na de zesde staatshervorming (die Keure 2014) 615.

[15] Royal Decree of April 3, 2006, Official Gazette April 13, 2006. http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=2006040331&table_name=loi

[16] Report, Economic governance and the European semester: implications for the Belgian budgetary process, Parl. Doc., House, 53-1343/1 (March 31, 2011). Some of the objections were voiced at p. 12-13 for instance. See also higher, II.2. http://www.dekamer.be/FLWB/PDF/53/1343/53K1343001.pdf

[17] See also L. Buffel & E. Vanalme, “De omzetting van de nieuwe Europese budgettaire regelgeving in België” Service Public Fédéral Finances – Belgique, Bulletin de Documentation, 74ème année, n° 1, 2014, p. 105-106.

[18] Article 16/12 of the Law on the Budgetary Procedure for Regions and Communities of 22 May 2003.

[19] See also L. Buffel & E. Vanalme, “De omzetting van de nieuwe Europese budgettaire regelgeving in België” Service Public Fédéral Finances – Belgique, Bulletin de Documentation, 74ème année, n° 1, 2014, p. 105-106; 137-138.

[20] See Advice of the High Council of Finance, March 2014, p. 23-24: (in French) http://www.docufin.fgov.be/intersalgfr/hrfcsf/adviezen/PDF/csf_fin_avis_2014_03.pdf

[21] See point 14 of Council Decision of 21 June 2013 giving notice to Belgium to take measures for the deficit reduction judged necessary in order to remedy the situation of excessive deficit – OJ 190/87 of July 11, 2013.

See also the 2014-2017 Stability Program: http://ec.europa.eu/europe2020/pdf/csr2014/sp2014_belgium_en.pdf

Bulgaria

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

Negotiation       
VII.1
What positions did Bulgaria 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?

The difficulties encountered during the negotiations at the EU level were mainly related to the topics of the set-up of the Alert Mechanism and publicising Commission’s analysis before it was voted upon in the Council. The position of the Government has been generally supportive of the Six Pack. However, the Government was insisting on the rules being drafted in a way that accommodates the differences in the economic development of the richer and the poorer Member States. Furthermore, the Government generally sought an increased role for the Member States at the expense of the Commission. The Six Pack was not discussed by the National Assembly in a plenary session but only a few times in a Committee setting. Generally, the Committees did not express views conflicting with the position of the Government and did not consider the Six Pack to be problematic for the budgetary sovereignty of Bulgaria. The Six Pack was rather seen as providing useful rules for reflection during the formation of the budget.

Compared to the Euro-Plus Pact, the discussion and the transparency in general surrounding the negotiation position of Bulgaria on the Six-Pack were much better and more straightforward. The first public record of the negotiation position can be found in the Decision of the Council of Ministers of 17 January 2011.[1] The position that was outlined there was that Bulgaria supports the strict observance of the SGP criteria as well as the ambition to apply the Pact with the view of securing the continuous and coordinated recovery of the stable and sustainable growth in the EU. While Bulgaria supported four out of the six instruments proposed by the Commission, it expressed considerable reservations and did not support the current (at the time) versions of two of the proposals. These two were, first, the Regulation on the prevention and correction of macroeconomic imbalances (COD/2010/0281) and, second, the Regulation on enforcement measures to correct excessive macroeconomic imbalances in the Eurozone (COD/2010/0279). The reasons for rejecting these two instruments and supporting the other four were further elaborated in the framework position that the Council of Ministers presented to the National Assembly on 18 March 2011.[2]

On the proposal of (today) Regulation 1177/2011, the position of Bulgaria was that it supported the changes, especially, with respect to the increased weight given to the debt criterion. It was considered that “the introduction of additional fiscal discipline rules was needed in order to stick to the Medium-term Budgetary Objectives (MTO) and the reduction of the “moral hazard” in case of the creation of a permanent European Stability Mechanism”.

On the proposal of (today) Regulation 1175/2011, Bulgaria’s position was generally supportive of the changes while having some remarks, which were presented in a special non-paper.[3] First, Bulgaria was supportive of the initial proposal of the Commission that “next to the trajectory for adopting the structural deficit to the MTO an account is to be made of the expenditure developments net of the discretionary expenditures”. In that regard, Bulgaria made a proposal for the evaluation of the expenditure developments to be made in consideration of the trajectory of these developments. The support for this initial negotiating proposal was in response to the developments in the negotiations, which deviated from it.[4] The framework position pointed to a wide consensus on this Regulation with the exception of France’s proposal for three-year transitional period and Italy’s numerous reservations and insistence of inclusion private debt in the evaluation of a Member State’s debt which was in turn opposed by the other Member States, especially by the Netherlands. Second, a potential problem was identified by Bulgaria with “providing certain flexibility to the States for increasing the expenditures above the determined medium-term growth rate if the excess over the recommended growth is compensated with discretionary measures for the increase of the revenue”.[5] Third, Bulgaria considered that “the evaluation of the deviations of the real exchange rate and excessive fluctuations of the nominal currency rate (Article10) for the States outside of the Eurozone should be  made on the base of the deviation of the currency rates from the medium-term/long-term trend”.

On the proposal of (today) Directive 2011/85, Bulgaria’s position was in principle supportive. However, it was considered that certain aspects, mainly in Chapter III, Forecasts, were in need of further clarification. In particular, in that Chapter “the leading role of the national authorities in the preparation of realistic macroeconomic and budgetary forecast was to be underlined as they have greater resources and expertise with respect to the economic processes unfolding within the State concerned”.

On the proposal of (today) Regulation 1173/2011, the position of Bulgaria was that it supports the effective enforcement of budgetary surveillance in the Eurozone. Although the provisions relate only to the Eurozone Member States, they are important for Bulgaria as it has the obligation to join the Eurozone.

On the proposal of (today) Regulation 1176/2011 the position of Bulgaria was that it did not support the proposal. The main concern was the application of the proposed Alert Mechanism. It was considered that the set of indicators on which the mechanism was based was overly simplistic and could have often given misleading signals for the condition of a given economy. Another issue was the publication of the indicators and their thresholds, irrespective of the degree of convergence of the particular Member State. The mechanism was seen to be putting every State under the threat to be inappropriately identified as a State with macroeconomic imbalances, which would cost greatly to that State. Bulgaria had several proposals in that respect.

First, Bulgaria proposed that the detailed and in-depth analysis should become the first phase of the monitoring and assessment of the risks of macroeconomic imbalances. It was considered that this analysis was to be done by the Commission together with the national authorities. This was supported by most of the new Member States as well as Germany, France and Spain but was opposed by the Netherlands, Italy and Finland and to a certain extent Greece. Second, Bulgaria considered that the arguments of the State concerned should be objectively presented in the Commission report. Third, as this report would contain sensitive information for the State concerned it was not to be made public without the consent of the State in question. On this point Bulgaria was strongly supported by Romania and to a certain extent by Belgium. However, a strong opposition was presented by the Commission and the big Member States. Fourth, in the prevention phase, the recommendations of the Council should not require a change in the applied general framework of macroeconomic policy – the supervisory framework, the monetary policy framework or the tax policy. With respect to the third phase – the adoption of correction measures – Bulgaria did not have objections as such. However, it considered that even in that phase the Council recommendations should not require a change in the general framework of macroeconomic policy that is applied in the particular State. The aim of the proposals and the objections on this Regulation was said to be the prevention of creating unfounded tensions in the markets. It was also pointed out that it was important for Bulgaria to have the characteristics of the catching-up States taken into account during the evaluation of the macroeconomic balances in view of the dynamics in their economic processes and the continuous restructuring of their economies.

On the proposal of (today) Regulation 1174/2011 the position of Bulgaria was that the discussion on the adoption of a Regulation for almost automatic imposition of fines should come after reaching a consensus on the identification and the prevention of the macroeconomic imbalances. The main concern was connected to the base for the imposition of the fines. In particular, it was seen as problematic that the base was a newly-created mechanism for assessing macroeconomic imbalances with vague scope of the eventual recommendations for corrective actions. Another thing that was part of the position of the Government, which appeared in a discussion in one of the National Assembly Committees, was related to the Cohesion Fund.[6] In particular, the Finance Ministry official stated that Bulgaria’s position was to include the principle of equal treatment in the imposition of sanctions with respect to the Cohesion Fund. According to the version of the relevant Regulation at that time, it was provided that sanctions will be imposed only from the Fund. That meant that the Member States that were not beneficiaries of the Fund were not going to be subjected to such a sanction, irrespective of their SGP compliance. On this position, most of the new Member States supported Bulgaria.

The hitherto discussed framework position clearly took under consideration the view of the Committee on European Affairs and Oversight of the European Funds when, a month and a half earlier, on 9 February 2011, the Committee answered the questions of the European Parliament Special Committee on the Financial, Economic and Social Crisis (CRIS).[7] In that questionnaire Question 5 concerned the economic governance in general and the Six-Pack in particular. It should be noted that taking into account the Committee’s views in the framework position was not very problematic for the Government because these views strongly resonated the Government’s initial position of 17 January.

The Committee criticised the proposal to automatically make public the results of the Alert Mechanism and the accompanying economic analysis and called for the Alert Mechanism to be an inseparable part of the In-depth review. It also focused on the table with indicators and considered that it should be drafted by the Council and not by the Commission. This point was supported mainly by the new Member States and Denmark and was opposed by the old Member States, in particular Germany, France, the Netherlands and Portugal. The Committee considered that there should be differentiation on the critical thresholds of the indicators between Eurozone and non-Eurozone Member States as well as between developed and catching-up economies. According to the framework position, this differentiation was supported by the Slovak Republic and Latvia. The Committee’s formulation of its twofold critique, concerning the base on which the fines were to be imposed, was included word by word in the framework position.

In the verbatim record of the meeting interesting points came up. There were questions on (1) why the Bulgarian position supports the criteria for the deficit and expenditure rules equally and is not arguing for the latter to be secondary and (2) why the debt rule is not put forward by Bulgaria? The answer was that this was, indeed, Bulgaria’s initial position. However, the leading Member-States[8] took out completely the expenditure rule and included the MTO as the primary rule and the macroeconomic imbalances as the supporting rule, which was the worst option for Bulgaria. Thus, Bulgaria insisted for bringing back the initial proposal as a compromise solution. It was stated that indeed the debt rule would be the best case scenario fur Bulgaria. However, it met vehement opposition by Italy.

The Government’s framework position was later discussed at the National Assembly on 30 March 2011 in a joint session of the Committee on European Affairs and Oversight of the European Funds and on the Committee on Budget and Finance, without being further discussed in a plenary session. In its Report, the Committee on European Affairs referred to its proposals from its 9 February meeting and expressed its support in general for the proposed Six-Pack. Together with the Committee on Budget and Finance, it was considered that the principles of subsidiarity and proportionality were observed in the Six-Pack. With respect to budgetary sovereignty the two Committees considered that

“the proposed rules create an opportunity for a useful preliminary discussion between the European Institutions and the Member States before the latter decide on their national budgets without provoking concerns that the sovereignty in one of the most sensitive areas – the formation of the budget – is being taken away”.[9]

However, it was still highlighted that there must be differentiation between the different growth models in the Member States and the catching-up nature of the economies of the new Member States was to be carefully analysed and took under consideration in order to avoid the threat of a two-speed Europe. In its Report, the Committee on Budget and Finance summarised the already discussed framework position and did not provide new insights. In the verbatim record from the joint session there was not much of a debate on the framework position as such, which indicates an agreement between the National Assembly and the Government on Bulgaria’s negotiating position. The voting on the Reports was as follows: for the Committee on the European Affairs 8 ‘for’ and 3 ‘abstaining’ and for the Budgetary Committee 13 ‘for’ and 6 ‘abstaining’. No explanations of the abstaining votes were provided.

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 need for transposition of Directive 2011/85 was identified as early as the time when the framework position on the Six-Pack was formed as it noted that the existing legislation in Bulgaria did not provide a basis for the provisions of the Directive. The Directive, or at least most of it, was transposed in the newly-adopted LPF. This is evident from the explanations to the draft law, the Reports of the Committees that considered the draft law as well as from certain provisions of the LPF itself.[10] The LPF also aimed at setting the foundations for the implementation of the Six-Pack Regulations.[11] In the LPF, explicit references were made to Directive 2011/85 twice – that the LPF was implementing the requirements of the Directive and that the implementation of Article 6 thereof on the Fiscal Council was going to be the subject of another law. In the verbatim record from the 14 November 2012 session of the Committee on Labour and Social Policy, while discussing the LPF, a question relating to the transposition of the Directive was asked: why the Fiscal Council, which is provided for in Article 6 of the Directive, was mentioned only once in the concluding provisions?[12] Furthermore, even if the Fiscal Council was going to be set up by another law, why the relationship between that organ and the other actors involved in the drafting and implementing of the budget was not further elaborated in the LPF? Unfortunately, these questions were not answered by the representative of the Government presenting the LPF.

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

The transposition and implementation of the Directive in Bulgaria did not create political or legal difficulties in and of itself. The debates that arose with respect to the LPF neither comment on, nor criticise the implications of the Directive in terms of the sovereignty, the constitutional law or the budgetary process. This was even the case when the draft law was on a second reading and was voted provision by provision. This is to a certain extent because, as it was mentioned during the discussions in the different Committees, the draft law has been in the process of preparation for ten years and many of the changes are not predicated upon the Directive but are the process of the internal drafting. The Six-Pack, in a way, served as a catalyser for the changes that were already prepared. However, keep in mind the considerable delay in setting-up the Fiscal Council, explained in the answer to Question VII.5.

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)?

According to Article 68 LPF, the macroeconomic forecasts are being prepared by the Minister of Finances. The first one is to be prepared until 25 March and the second until 25 September. The budgetary forecasts are being prepared in a decentralised manner, according to Article 69 LPF. In particular, they are drafted:

“1. By the authorising officers on budgets of the budgetary organisations including the municipalities – by using indicators of the common budgetary classification;

2. By the primary authorising officers that apply programme-based budgetary format – by including also divisions according to policy areas and budgetary programmes;

3. By the primary authorising officer on the National Assembly budget – by including also divisions according to operational areas and budgetary programmes;

4. For the budget of the judiciary – by including also divisions according to the different organs of the judiciary;

5. For public higher education institutions and for the Bulgarian Academy of Sciences – through the respective primary authorising officer by also consolidating the forecast with respect to separate budgets using indicators of the common budgetary classification.”[13]

Within the LPF, there is no institution tasked with conducting an unbiased and comprehensive evaluation of the forecasts. The only provision coming anywhere close to this is Article 75, which states that:

“1. When drafting the medium-term budgetary forecast and the State Budget, the Ministry of Finance compares its current macroeconomic forecast under Article 68 with the one of the European Commission and gives a justification in the case of significant differences.

2. The macroeconomic forecasts under Article 68 can be compared with the forecasts of other independent organisations.”[14]

However, since the Minister of Finance is very much involved in the drafting of the Budget, paragraph 1 does not really provide for independent and unbiased evaluation. As for paragraph 2, it simply provides for the possibility for the forecasts to be compared with the forecasts of other independent organisations, which also does not really correspond to Article 4(6) of the Directive. The answer to the following Question may shed some light in that regard.

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

Bulgaria did not have a Fiscal Council in place before Directive 2011/85. The LPF explicitly provides that within six months of the promulgation of the LPF the Council of Ministers must submit a proposal for the designation of an independent organ in accordance with Article 6 of the Directive.[15] On 25 November 2013 the Council of Ministers did submit to the National Assembly a draft Law for Fiscal Council. It was discussed in the Committees on European Affairs and Oversight of the European Funds and on Budget and Finance, where the latter was the leading one. The Reports of the two Committees went along similar lines and included an overview of the proposed Fiscal Council’s goals, operating principles, basic functions, composition and budgetary implications.[16]

The goals (Article 2) were: (1) the independent monitoring and analysis of the budgetary framework with the view to maintain sustainable public finances; (2) increasing the quality of the official macroeconomic and budgetary forecasts by carrying out an unbiased assessment based on objective criteria; and (3) increasing the transparency and the awareness of the society of the fiscal governance of the country. The operating principles (Article 3) were: (1) independence and publicity; (2) objectivity and transparency; and (3) equality of its members. The basic functions (Article 4) were mainly: (1) monitoring of the compliance with the numerical fiscal rules that are set out in the LPF; (2) adopting reasoned opinions and recommendations on the spring and autumn macroeconomic forecasts; (3) adopting reasoned opinions and recommendations on the medium-term budgetary forecast, the draft Law of the State Budget and its amendments, and on the draft Laws for the budgets of the State Social Security and the National Health Insurance Fund; (4) adopting reasoned opinions on the reports on the implementation of the State budget and the budgets of the State Social Security, the National Health Insurance Fund and other Social Security Funds that are administered by the National Insurance Institute. The proposed composition of the Council (Article 5) was of five members, appointed by the National Assembly with a mandate of six years. The budgetary implications provisions (Articles 13 and 14) provided that the Council’s activity and remuneration was to be covered by the budget of the National Assembly.

The Reports of the two Committees also referred to the Fiscal Compact and its requirement in Article 3(2) for independent institutions that are responsible at the national level for monitoring the compliance with the rules set out in Article 3(1). A rather interesting network of cross-references can be observed at this point. First, in the Section on final and transitional provisions of the LPF it is stated that (as observed supra) the Council of Ministers was supposed to submit to the National Assembly a draft law for the determination of an independent organ in the sense of Article 6 of Directive 2011/85 and Article 23(3) LPF for automatic corrective mechanisms. In that Article 23(3) (which states that in certain cases automatic corrective mechanisms should be activated) there is a reference to Article 10 of Regulation 1466/97. As such one is given the understanding that, with the Law on the Fiscal Council, Article 6 of the Directive and Article 10 of the Regulation will be implemented. However, in the explanations to the draft Law for the Fiscal Council it appears that what was being implemented was Articles 4 and 6 of the Directive and part of Title III of the Fiscal Compact, in particular, one of the requirements in Article 3(2) thereof.[17]

With respect to the Articles of the Directive that were being implemented, the explanations to the draft Law seem more plausible than the provisions in the LPF. This also explains the incomplete answer to Question VII.4 with respect to Article 4(6) of the Directive. The issues discussed during the sessions of both Committees were relating only to the points of the necessary qualification of the eventual members (whether only economists or also jurists) and of the amount of the remuneration. The voting on the Reports was as follows: for the Committee on the European Affairs 13‘for’ and 2 ‘abstaining’ and for the Budgetary Committee 10 ‘for’ and no ‘negative’ or ‘abstaining’. No explanations of the abstaining votes were provided.

The first reading of the draft in the National Assembly was on 7 March 2014[18] and it was voted upon and adopted on 11 March 2014 first reading with 91 ‘for’ 11 ‘against’ and 30 ‘abstaining.[19] It should be noted that there were literally no discussions during the first reading and the voting at the National Assembly. The Law was then read for a second time in the Committee on Budget and Finance on 3 April 2014. It was voted article by article and numerous minor amendments were made to the initial draft but none of them presented a critical deviation from what was previously discussed. As such the draft Law was just waiting to be adopted. Since then, however, no progress had been made as it appears from the file of the Law on the National Assembly’s web-site. Thus, Bulgaria is also in clear violation of its EU law obligation to fully transpose Directive 2011/85, which should have happened by 31 December 2013, according to Article 15(1) of the Directive.

This clear violation of EU law did not go unnoticed by the Commission and it initiated infringement proceedings against Bulgaria. At the moment the proceedings are at the stage of a letter of formal notice (№ 2014/0025). This has prompted action on the Bulgarian side and a draft Law for Fiscal Council and Corrective Mechanisms was resubmitted to the National Assembly on 9 February 2015. In the explanations to the draft law it is stated that it creates conditions for the suspension of the infringement proceedings.[20] This was also mentioned in the verbatim records from the meeting of the Council of Ministers on 4 February 2015, when the Decision approving the draft law was adopted. It was also noted by the Finance Minister that the failure to complete the procedure for the adoption of the Fiscal Council law by the previous Government (sic) was probably because it was worried that the creation of such a Council would have limited its freedom of action and its budgetary planning would not have been the same as the one it did in 2014.[21]

The draft law was discussed on 18 February 2015 in the Committees on European Affairs and Oversight of the European Funds and on Budget and Finance where the latter was the leading one. The Reports of the two Committees are quite short and restate what has already been said in a more succinct manner.[22] The verbatim records of the meetings of the two Committees are also lacking any new points of discussion. Both Committees adopted the draft law and the results of the voting were as follows: for the Committee on the European Affairs 9 ‘for’, 1 ‘against’ and 1 ‘abstaining’ and for the Budgetary Committee 14 ‘for’ and 1 ‘abstaining’. No explanations of the negative or abstaining votes were provided. The draft law went through its first reading in the plenary session of the National Assembly on 6 March 2015.[23] Only Slavcho Binev (Patriotic Front) commented on the proposal. First, he asked why it had to get to infringement proceedings for Bulgaria to adopt this law. Then, Mr Binev asked three questions on the substance of the proposed law: (1) how is the Council going to be supervised; (2) which organisations can assess the Council’s performance and ensure that it is fulfilling its duties; (3) why is the Council going to be assessed only once every three years if its members have a six year mandate? In Mr Binev’s opinion these point must be discussed if the law is to be effective. The draft law was then put to a vote and the result was 116 ‘for’ and 1 ‘abstaining’.[24] The draft law is now to undergo its second reading.

After comparing the old and the new draft laws, a significant difference appears. The new draft law, as its name indicates, has a broader scope and includes provisions on the corrective mechanisms in the sense of Article 23(3) LPF, which aim at correcting the occurrences of significant divergence from the MTO, in accordance with Regulation 1466/97. Its broader scope is also reflected by the fact that it explicitly states in its miscellaneous provision that it also implements requirements under Title III of the Fiscal Compact. Before looking at the whole new section with provisions on the corrective mechanisms, it is worth looking at the more substantive changes in the provisions that were borrowed from the old draft law, which was used as a basis for the new one.

First, the new draft law starts with the inclusion of two general provisions. These provisions state that this law (Article 1) regulates the creation, the functions, the formation and the activity of the Fiscal Council as well as the adoption and implementation of automatic corrective mechanisms; and (Article 2) that this law aims to provide conditions for the observance of the fiscal rules laid down in the LPF. Second, in Article 6(1)(3) it is added that the Fiscal Council adopts reasoned opinions and recommendations on other strategic documents of the Government which are relevant for the observance of the numerical fiscal rules in the LPF. Third, Article 6(4) makes an important clarification for the powers of the Council. While in the old draft it was stated that the Council members have the power to request and receive information from the State authorities, new draft adds that these authorities have the obligation to provide such information in accordance with the respective laws regulating the particular type of information.

The, new, Chapter three, which deals with the automatic corrective mechanisms, contains seven Articles. Article 17 states that automatic corrective mechanisms are created (in the sense of Article 23(3) LPF) which aim at correcting the occurrences of significant divergence from the MTO in accordance with Regulation 1466/97. These mechanisms include the development, adoption and application of corrective plans. Article 18 states that a significant divergence can be identified by one or more of the following bodies: the European Commission in accordance with Article 6 of Regulation 1466/97, the Minister of Finance in the framework of the budgetary process and the Fiscal Council. Article 19 states that in case of a significant deviation from the MTO or from the measures for its achievement, the Finance Minister prepares and submits to the Council of Ministers for approval a corrective plan within two months from the identification of the deviation. In case the corrective plan envisions measures concerning the powers of the National Assembly, the Council of Ministers submits the plan to the National Assembly for adoption.

Article 20 lays down three elements comprising the corrective plan under Article 19. First, the plan must include the period for correction, which can extend up to two consecutive budgetary years following the years in which the significant deviation has been identified. Second, the plan must include an average annual improvement of the structural balance amounting to at least 0.5% GDP for the corrective period. Third, the plan must include the corrective revenue and expenditure measures. These measures must be described in detail with respect to their type, size and quantitative impact assessment on the subsectors in the “State Governance” Sector. Article 21 states that the measures in the corrective plan must lead to achieving the MTO within the originally set deadline (before the identification of the divergence). Under Article 22, the corrective plan must take note of the recommendations made to Bulgaria under Regulation 1466/97 for overcoming the significant deviation. Article 23 states that the implementation of the corrective plan may be temporarily suspended in the case of emergency in the sense of Article 24(3) of the LPF. Such suspension must not risk the sustainability of the public finances in the mid-term. Once the emergency circumstances are terminated the Finance Minister, if necessary, submits for approval an updated corrective plan to the Council of Ministers. Where applicable, in accordance with Article 19(2) the Council of Ministers submits this plan to the National Assembly for approval.

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 Bulgaria 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?

Other than the discussions during the negotiations of the six-pack in general, no political or legal difficulties were encountered after the Regulation was adopted (see the answer to Question VII.3 mutatis mutandis).

No references to the MEIP as such have been found in the LPF or any other normative acts that are related to the budgetary process. That is, none of the budgetary process rules found accommodate that procedure.

In its Report on the Alert Mechanism in 2012 the Commission considered Bulgaria as one of the Member States for which further in-depth analysis is warranted to closer examine certain issues.[25] This was the outcome also of the application of the Alert Mechanism for 2013, 2014 and 2015.[26]

The conclusion of the Commission with respect to the in-depth review on Bulgaria was that:

Bulgaria is experiencing macroeconomic imbalances, which are not excessive but need to be addressed. In particular, the level of external indebtedness as well as certain macroeconomic developments related to corporate sector deleveraging and the adjustment process through labour markets deserve attention so as to reduce the risk of adverse effects on the functioning of the economy.

Possible policy responses should focus on reducing skills and regional labour market mismatches and on reviewing the minimum thresholds for social security contributions. Also, emphasis on boosting total factor productivity remains crucial given that the deleveraging of the corporate sector will probably dampen investment. As a small open catching-up economy with unfettered capital flows and a fixed exchange rate tends to be inherently volatile, macroeconomic policies and banking regulation in Bulgaria should focus on reducing the risks of repeating boom-cycles and on strengthening the risk absorption capacity of economic agents.”[27] (Original emphasis)

As it can be seen from the answer of the previous Question, Bulgaria did not manage to resolve the issues and has been subjected to an in-depth review for every consecutive year since.

The application of the Macroeconomic imbalances procedure in 2012 did not lead to any major policy changes in Bulgaria on its own. The 2012 Update of the NRP only mentions the fact that the Alert Mechanism resulted in an in-depth review for Bulgaria but no specific measures were outlined.[28] Furthermore, the measures addressing the CSR by the Council of 10 July 2012 included the ones relating the Macroeconomic Imbalances Procedure (MEIP). As such, unless they were earmarked it was impossible to identify them. In the 2013 Update only one such measure was earmarked. It was in response to an observation of the Commission in its 2013 in-depth report on Bulgaria.[29] The response was the setting up of an inter-institutional working group with the Ministry of Labour and Social Policy in January 2013 which included also representatives of the social partners. The aim of the working group was “to study the effect of the system of minimum social security thresholds on the employment”.[30]

In the 2014 Update only two measures were earmarked as addressing the MEIP for 2014. The first one was aimed at “the gradual decrease in the liabilities of the private sector”.[31] This measure consisted of a “[l]egal opportunity for rescheduling and deferral of tax liabilities and mandatory social security contributions at alleviated conditions for a longer period and in a greater amount”.[32] With this measure “liable persons facing temporary financial difficulties” can be provided with a chance to re-structure their liabilities. The second one was aimed at “reduction of intercompany indebtedness and improving liquidity of SMEs”.[33] This measure “provides individuals fulfilling certain conditions with the opportunity to use light regime for charging and paying the VAT owed on supplies, namely in cases of differed payment by their clients for performed supplies of goods and services”.[34]

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 MTO is currently included in the LPF (see the answer to Question VII.10). Before this Law was adopted, there was no mentioning of a MTO in the LPSB. There were only a few references to a medium-term budgetary forecast, which was basically an assessment prepared by the Finance Ministry of the envisaged parameters of the consolidated fiscal programme for the following three years which is revised and approved annually. That medium-term budgetary forecast is much further elaborated upon in the LPF and it actually corresponds to the medium-term budgetary framework laid down in Article 2(e) of Directive 2011/85. As such the MTO is part of the medium-term budgetary forecast but the two are not the same. Accordingly, no changes to the rules on the budgetary process were identified which accommodate the amended MTO Procedure. See also the answer to Question VII.12.

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)?

On 21 January 2011 the Council of Ministers adopted the annual Decision on the budgetary procedure in which it is stated that “the budgetary procedure is made in accordance with the timeline for the implementation of the fundamental elements of the “European Semester” with the goal to achieve better coordination and governance of the economic policies in the European Union, strengthening of the economic governance and realisation of the fiscal monitoring of the macroeconomic imbalances”.[35]

On 15 April 2011 Bulgaria issued its CP for 2011-2014 and the Council of Ministers adopted Decision № 246 with which it adopted inter alia the budgetary forecast for 2012-2014.[36] In both instruments it is also stated that Bulgaria has integrated the European Semester into its budgetary procedure. In the budgetary forecast it is stated that with its adoption “Bulgaria starts the implementation of the commitments under the “European Semester” which aim at the EU level to realise early partners overview of the national budgets and preliminary coordination of policies”.[37] A figure depicting the European Semester’s implementation in the Bulgarian budgetary procedure is included in the budgetary forecast and reproduced in Bulgaria’s CP for 2011-2014 (p 59).

According to the CP, FLSU stands for first-level spending units[38] and TBF stands for Three-year Budget Forecast.

Since then, the changes in the LPSB did not bring about changes relating to the European Semester but this happened with the adoption of the LPF. The European Semester was rarely mentioned during the discussions of the LPF. It was only in the Committee on European Affairs and Oversight of the European Funds that it was elaborated on a bit further. According to the Report of the Committee on European Affairs the budgetary procedure is synchronised with and aligned to the timeline and the procedures of the European Semester.[39] In particular, with the LPF the procedure was now divided in two stages.

The first stage concludes in mid-April with the adoption of the medium-term budgetary forecast and the revision of the Strategy for the management of the State debt by the Council of Ministers.[40] By 25 March the Minister of Finance also has to prepare the spring macroeconomic forecast and compares it with the one of the European Commission and gives a justification in the case of significant differences.[41]

In the second stage, Bulgaria’s programme documents are being presented to the Commission and ECOFIN for approval and the CSR that are given to Bulgaria form part of the basis on which (1) the State Budget is being drafted[42] and (2) the medium-term budgetary forecasts is being revised[43]. The programme documents are also revised. This stage concludes on 31 October,[44] when the draft LSB is submitted to the National Assembly together with the revised medium-term budgetary forecast, which serves as the explanations to the draft Law.

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

Other than the discussions during the negotiations of the six-pack in general, no political or legal difficulties were encountered after the Regulation was adopted. See the answer to Question VII.3 mutatis mutandis.

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 LPF incorporates the amended Regulation 1466/97 and its provisions on the MTO are contained in Articles 23 and 24. Article 23 sets out the numerical quantities of the MTO in its first two paragraphs – structural deficit should remain below 0.5% of the GDP and can go up to 1% as long as the consolidated debt is below 40% of the GDB and the threat for the long-term stability of the public finances is low. Article 23(3) provides that in case of significant deviation from the MTO or from the measures for its achievement, automatic corrective mechanisms shall be activated as determined by the National Assembly, in accordance with Article 10 of Regulation 1466/97. The draft law on the Fiscal Council (see the answer to Question VII.5) elaborates further on the adoption and implementation of corrective mechanisms. Article 23(4) states that the MTO for the annual structural deficit is to be revised every three years and that it can be further revised in the event of the implementation of a structural reform with a major impact on the sustainability of public finances as provided in Article 2a of Regulation 1466/97. Article 24 states that:

“1. Failure to reach the medium-term budgetary objective for the structural deficit on annual basis is allowed under extraordinary circumstances and under the condition that the failure does not amount to threatening the sustainability of the public finances in accordance with Article 9 of 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 in the medium-term.

2. Temporary divergence from the medium-term budgetary objective for the structural deficit on annual basis is allowed during the implementation of major structural reforms with great impact on the fiscal sustainability under the condition that the maximum allowed deficit under the “State Governance” sector under Article 25(2) is not surpassed.

3. Extraordinary circumstances is an unusual event outside the control of the Council of Ministers which has a major impact on the financial position of the “State Governance” sector in accordance with Article 9 of 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 or a period of economic downturn above 3% in real terms.”[45]

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

The current MTO of Bulgaria for a structural deficit is 1% according to the CP of Bulgaria for 2014-2017, which was adopted in April 2014.[46] It was expected that this MTO was going to be achieved in 2016. However, considering the revised medium-term budgetary forecast for 2015-2017, in its part discussing the MTO, it becomes clear it will not be possible to achieve this goal even by the end of the three-year period. The forecasts for the following years were 2.8 % for 2015, 2.2 % for 2016 and 1.7 % for 2017.[47]  Having in mind the current banking crisis in Bulgaria (See the answer to Question I.1) it will take even longer to achieve the current MTO of Bulgaria.

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

The LPF does not provide for procedural rules for the adoption of the MTO as such. As it was stated above the MTO is included in the medium-term budgetary forecast. As such the general rules applicable to the forecast apply to the MTO as well. According to Article 66(1) of the LPF, the Council of Ministers, through the Minister of Finance organises the drafting of the medium-term budgetary forecast and the draft LSB. Under Article 67(1), annually, until 31 January, the Council of Ministers acting on a proposal of the Minister of Finance adopts a budgetary procedure for the drafting of the forecast and the draft Law. This procedure sets out the stages, the deadlines, the allocation of responsibilities and requirements for the drafting of the forecast and the draft Law. However, the Decision on the budgetary procedure does not provide for separate rules on the adoption of the MTO. Accordingly, the MTO of Bulgaria is prepared by the Ministry of Finance and adopted by the Council of Ministers as part of the medium-term budgetary forecast.

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

Other than the discussions during the negotiations of the six-pack in general, no political or legal difficulties were encountered after the Regulation was adopted. See the answer to Question VII.3 mutatis mutandis.

With respect to the excessive deficit procedure, the LPF does not provide for changes in the rules on the budgetary process and does not make references to Regulation 1467/97 as such. However, the LPF does seem to implement Regulation 479/2009,[48] which is referred to on several occasions in the amending Regulation 1177/2011. The Law is implementing Regulation 479/2009 by mainly aligning its set of definitions in accordance with that Regulation. In particular, Regulation 479/2009 is mentioned eight times in total – once in Article 37, and seven times in the Section with final and transitional provisions. Six out of these seven are with respect to definitions[49] and the seventh is part of a small amendment to the Law on the Municipal Debt, which mirrors the Article 37 mentioning. In the relevant part, Article 37(1) of the LPF provides that the LSB, for any given year, shall set out the limit for an eventual new State debt that may be accrued by stating separately the total amounts under (a) the Law on the State Debt and (2) financial leasing and the other forms of debt in accordance with Regulation 479/2009.

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

No changes have been introduced as Bulgaria is not a Eurozone member yet.

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?

No changes have been introduced as Bulgaria is not a Eurozone member yet. According to the text of the LPF, its explanations and the explanations to the draft Law for the Fiscal Council, it is only the Fiscal Council that is yet to be set up. This also transpires from the above mentioned Council Recommendations to Bulgaria in 2013. Until Bulgaria joins the Eurozone no other changes in the rules on the budgetary process have been identified as required.

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

No other relevant information.

[1] Council of Ministers, Decision № 24 for adopting an Annual Programme for Participation of the Republic of Bulgaria in the Decision-Making Process of the European Union (2011) of 17 January 2011, 9-10.

[2] Council of Ministers, Framework Position on legislative proposals of the European Commission concerning the strengthening of the Stability and Growth Pact and improving the coordination of economic policies. The framework position is on file with the author. The translations provided are of the author.

[3] Special non-papers are types of documents used during negotiations expressing the opinions and proposals of the delegations. The special non-paper was referred to in the framework position (Ibid) but it is not available to the author.

[4] See the discussion on 9 February 2011in the meeting of the Committee on European Affairs infra.

[5] These fears/concerns can be linked to the economic crisis in Bulgaria in 1996. See the answer to Question III.3.

[6] Committee on Economic Policy, Energy and Tourism, Protocol № 3 of 2 February 2011. One of the guests in the meeting Marinela Petrova (Director for Economic and Financial Policy in the Finance Ministry at the time) provided a short summary of the position of Bulgaria.

[7] Committee on European Affairs and Oversight of the European Funds, Report on Examining the Resolution of the European Parliament of 20 October 2010 on the financial, economic and social crisis: Recommendations concerning the measures and initiatives to be taken of 9 February 2011.

[8] Reference to Germany and France was made in the framework position. It was also mentioned that Spain and Portugal were against Germany’s proposal because it diluted the meaning of the Regulation.

[9] Translation by the author.

[10] Explanations to the draft LPF, 3; Committee on Regional Policy, Committee on Legal Affairs, Committee on Budget and Finance, Committee on Labour and Social Policy; Law on the Public Finances (LPF), SG 15 of 15 February 2013, Additional Provisions, § 3 and Transitional and Concluding Provisions, §18.

[11] Ibid.

[12] Committee on Labour and Social Policy, Protocol of 14 November 2012.

[13] Translation by the author.

[14] Translation by the author.

[15] Law on the Public Finances (LPF), SG 15 of 15 February 2013, Transitional and Concluding Provisions, §18.

[16] Committee on Budget and Finance, Report of 12 December 2012; Committee on European Affairs and Oversight of the European Funds, Report of 4 December 2012.

[17] The explanations also state that the draft Law is in the context of the Recommendation of the Council from 9 July 2013 which recommends inter alia that Bulgaria establishes “an independent institution to monitor fiscal policy and provide analysis and advice”. Council Recommendation on the National Reform Programme 2013 of Bulgaria and delivering a Council opinion on the Convergence Programme of Bulgaria, 2012-2016 [2013] OJ C 217/10.

[18] National Assembly, Stenographic records of the 99th meeting, 7 March 2014.

[19] In favour – GERB (3), Coalition for Bulgaria (59), DPS (25), ATAKA (3) and independents (1); against GERB (8), ATAKA (3); abstaining GERB (30).

[20] Explanations to the draft Law for Fiscal Council and Corrective Mechanisms, 2.

[21] Council of Ministers, Stenographic record of the meeting on 4 February 2015, Agenda point 10.

[22] Committee on European Affairs and Oversight of the European Funds, Report of 18 February 2015; Committee on Budget and Finance, Report of 18 February 2015.

[23] National Assembly, Stenographic records of the 48th meeting, 6 March 2015.

[24] In favour – GERB (58), BSP – left Bulgaria (17), DPS (5), Reformist Bloc (14), Patriotic Front (6), Bulgarian Democratic Center, ABV (7) and independents (2); abstaining BSP – left Bulgaria (1).

[25] Commission, Alert Mechanism Report 2012, COM(2012) 68 final, 14 February 2012, 19.

[26] Commission, Alert Mechanism Report 2013, COM(2012) 751 final, 28 November 2012, 20; Commission, Alert Mechanism Report 2014, COM(2013) 790 final, 13 November 2013, 3-4; Commission, Alert Mechanism Report 2015, COM(2014) 904 final, 28 November 2014, 3-4.

[27] Commission, In-Depth Review for Bulgaria, SWD(2012) 151 final, 30 May 2013, 3.

[28] Europe 2020: National Reform Programme, 2012 Update (Sofia, April 2012) 13.

[29] Commission, In-Depth Review for Bulgaria, SWD(2012) 151 final, 30 May 2013.

[30] Europe 2020: National Reform Programme, 2013 Update (Sofia, April 2013) 18 and 55.

[31] Europe 2020: National Reform Programme, 2014 Update (Sofia, April 2014) 12.

[32] Law to amend and supplement the Tax and Social Insurance Procedure Code, promulgated, SG 109 of 2013.

[33] Europe 2020: National Reform Programme, 2014 Update (Sofia, April 2014) 31.

[34] Ibid.

[35] Council of Ministers, Decision № 40 for the Budgetary Procedure for 2012 of 21 January 2011 [1.5].

[36] CP 2011-2014; Council of Ministers Decision № 246 for Approving the Budgetary Forecast for the Period 2012-2014, Adopting the Expenditure Ceilings on the Primary Authorising Officers, without Municipalities, for the Period 2012-2014 and for Approval of the Update of the Strategy for the Management of the Sovereign Debt of 15 April 2011.

[37] Council of Ministers, Decision № 246, Annex I, 3.

[38] In this Report the same are referred to as primary authorising officers because in the author’s opinion it is a more suiting translation.

[39] Committee on European Affairs and Oversight of the European Funds, Report of 24 October 2012. This was also observed in the Convergence Programme of the Republic of Bulgaria: 2013-2016 (Ministry of Finance, Sofia, April 2013) 67.

[40] The LPF sets 20 April as a deadline for this. Law on the Public Finances (LPF), SG 15 of 15 February 2013.

[41] Ibid. art 75.

[42] This is set out in the annual Decision of the Council of Ministers which describes in detail the budgetary procedure. This annual Decision is adopted on the basis of Article 67 LPF. The annual Decision for the 2015 SBL includes a statement that the procedure is in accordance with the deadlines for the application of the mechanisms and measures that are included in the main stages of the European Semester. Council of Ministers, Decision № 57 for the Budgetary Procedure for 2015 of 4 February 2014, 3.

[43] Law on the Public Finances (LPF), SG 15 of 15 February 2013, art 79(1)(2).

[44] Ibid., art 79(5)(4).

[45] Translation by the author.

[46] Convergence Programme of the Republic of Bulgaria: 2014-2017 (Ministry of Finance, Sofia, April 2014).

[47] Revised Medium-term Forecast for the Period 2015-2017 (Explanations to draft LSB for 2015).

[48] Regulation (EC) No 479/2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community [2009] OJ L145/1.

[49] The definitions are of (1) Debt of sub-sector “Local governance”; (2) Debt of sub-sector “Central governance”; (3) Debt of “Social Security Funds”; (4) “State debt”; (5) Consolidated debt of “State Governance” sector; (6) “Municipal debt”.

Croatia

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

Negotiation
VII.1
What positions did Croatia 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.

Croatia did not participate in the negotiation of the “Six-Pack”. No evidence of any kind of debate can be found.            

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)?

Croatia was supposed to transpose the provisions of Directive 2011/85/EU into its national legal system by the end of 2013.[1] However, by the end of 2013 this Directive was not transposed. In December 2013, the Croatian Government was discussing the final proposal of the Law on amendments and modifications of the Law on Fiscal Responsibility adopted in 2010, which entered into force on 1 January 2011.[2] The main goal of this Law is transposition of Directive 2011/85/EU into Croatian law. However, this law is still not adopted by Croatian Government and proposed to the Parliament for adoption. (December 2013)

The 2013 Economic Programme of Croatia, adopted by the Croatian Government also pointed out that Croatia intends to prepare for publishing of the basic data on total revenue and total expenditure and on overall balance (surplus/deficit), monthly for the central government and social security funds sub-sectors and quarterly for the local government sub-sector in accordance with Directive 2011/85/EU.[3]

 

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

There is no evidence regarding any kind of difficulties or discussions in the implementation process.

 

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 Directive has not yet been transposed into Croatian legal system, but will have to be by the end of 2013.

 

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

In 2011, on the basis of a Decision of the Croatian Government, the Fiscal Policy Committee was adopted, in accordance with the Law on Fiscal Responsibility. It is a professional and independent body whose main goal is to advance the public system finance and to monitor the fiscal rules established by the Croatian Law on Fiscal Responsibility adopted in 2010, which entered into force on 1 January 2011.[4] It consists of seven members who are characterized by high level of professional experience in the area of public policy and distinguished personal reputation. The Committee members have to be independent and impartial, any conflict of interests is strictly prohibited. The main tasks of the Committee are, first, to examine and verify the application of the fiscal rules, second, to analyze and check the proposals of the Government of Croatia regarding the annual projections and the state budget, and, third, to assess the measures whose goal is to improve the efficiency and sustainability of the system of public finance.  The Committee publishes its findings at least twice a year at the official website of the Ministry of Finance.

 

No information is provided whether it fulfils the criteria imposed by Directive 2011/85/EU


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 Croatia encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process?

No information on that in Croatia.


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?

No rules of that kind have yet been made.[5]     

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)?

Croatia has already been, unofficially, participating in the 2013 European Semester. This is why Croatia submitted its Economic Plan to the European Commission for assessment in April 2013, but its application in practice is only expected as of 2014.[6]

Croatia did not get any recommendations as other Member States, but the European Commission just assessed its Economic Programme and it pointed out to the weak quality of business environment. The assessment made by the European Commission pointed out to the problems with which the justice system is faced, high level of corruption and to the fact that Croatia will be, after Spain and Greece, the third country in the EU regarding the unemployment rate.

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

No evidence of any kind of political/legal difficulties can be traced. This can be explained by the fact that Croatia is only now becoming a Member State. Before 1 July 2013, possible implications for budgetary sovereignty and process are primarily mentioned in the context that with the accession into the European Union, Croatia will limits its competences and powers in these areas.

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)?

No information.

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

The current Croatian Medium-term Budgetary Objective, as pointed out in 2013 Economic Programme for Croatia, is to continue with the fiscal consolidation which is necessary for the sustainability of the burden on the society by the existing level of debt and costs of its financing, the reduction of the state budget expenditure is planned, but also of the budget expenditure of extra-budgetary users and the units of local government when compared with the original plan. In this context, selective cuts and reallocations are planned on the expenditure side of the budget to have as little negative effect as possible on potential growth, and the continuation of investments, although in a reduced volume, in water and transportation infrastructure, health-care and education.[7]     

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

In Croatia, the medium-term budget objective is defined in the guidelines of the economic and fiscal policy that is proposed by the Ministry of Finance and adopted by the Croatian Government for the period of three years.  It still needs to be aligned with Regulation 1466/97.

 

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

No legal difficulties have been notified. Again, the reason for that is that Croatia is becoming a Member State as of 1 July 2013.

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

Croatia is not a member of the Eurozone.     

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?

No information known.

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

Not applicable.

[1]              Assessment of the 2013 Economic programme for Croatia, SWD (2013) 361 final of 29.5.2013, p. 11

[2] Official Gazette of Croatia No 139/2010

[3]              Economic Plan of Croatia, p. 40, available at: http://ec.europa.eu/europe2020/pdf/nd/ep2013_croatia_en.pdf

[4] Official Gazette of Croatia No 139/2010

[5]              Assessment of the 2013 Economic programme for Croatia, SWD (2013) 361 final of 29.5.2013, p. 7

[6]              Assessment of the 2013 Economic programme for Croatia, SWD (2013) 361 final of 29.5.2013, p. 8

[7] see: 2013 Economic Programme for Croatia, pp. 20-21, available in English at: http://ec.europa.eu/europe2020/pdf/nd/ep2013_croatia_en.pdf

Cyprus

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

Negotiation
VII.1
What positions did Cyprus 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.

The transposition of the Six- Pack into the Cypriot legal order was discussed in Parliament on the 12th of December 2012[1], after the Parliamentarian Committee of Finance and Budget had studied the Draft Bill during the period April – December 2012.

The issues that arose in the Parliamentarian Committee of Finance and Budget, where because of the participation of delegators of all parties the discussion is concentrated, pertain mostly to budgetary issues and a new framework of the management of public debt.

Law 194(1) 2012

According to the report of the Committee one of the objectives of the new Law 194(1) 2012 (see Question VII.2) was the regulation of the evaluation of the budgetary danger that is inherent in the granting of guarantees and the assumption of loan agreements by Cyprus.[2] The report submitted by the Parliamentarian Committee further stressed the need for the drafting and implementation of a modernized legal framework for the management of public debt, which could be attained via the institutionalization of the Office of Public Debt Management (Grafeio Diaheirisis Dimosiou Hreous – Γραφείο Διαχείρισης Δημοσίου Χρέους). Such an office would be entrusted with the materialization of the new public debt management, notably the preparation of the annual financial plan, the formulation of the strategies to be followed, the management of cash and the risk assessment of government guarantees and loans.

The debate during the preparation of the Draft Bill focused on the need to make the Office more independent and resistant to political pressures. Some members of the Committee stressed that there is an increased need to allow as much independence as possible to the Office as experience has shown that there is no clear demarcation/separation between the budgetary targets of the state budget and the management of the public debt. Such a lack in earlier years jeopardises the debt sustainability.[3]

Draft Bill

The Draft Bill[4] aimed at producing legislation transposing the Six Pack Directive under which (the Draft Bill), the executive, based on prior commitments to the European Union, must submit to the House of Representatives balanced budgets and not adopt or propose any Draft bill or regulation that would alter the ceiling deficit for 2012, or that would disrupt the (balanced) fiscal balance for the years to come.

The President and the Committee stressed during the plenary session, that the ‘new law’ should acquire ‘constitutional status’, so that it is ensured that the law becomes supreme against any other law, it applies and it cannot get amended or circumvented in the near future by a simple majority, very likely to be formed. The idea behind the granting of ‘constitutional force’ to the law is that no budget that does not fulfill the requirements of the Medium Budgetary Framework can be examined, debated and decided before the Parliament. As such, the Parliament cannot be susceptible to any pressure while deciding on the coming year’s budget.

The main relevant provisions of the Six Pack Directive and Regulation 1466/97/EC were then listed, during the plenary session (relating in particular to the Medium Budgetary Framework, the guarantees and targets, as well as the general budgetary policy of Cyprus).

For that reason the opinion of the Legal Service of the Republic of Cyprus was requested (not publically available, but referred to in the Parliamentary Committee’s report and in the plenary), in order to process the Constitutional amendment which will ensure the aforementioned guarantees and implement the aforementioned provisions. The representative of the Ministry of Finance argued that the aforementioned provisions (relating to the implementation of the Six Pack Framework) in the Draft Bill might raise constitutional problems. The bill/law has not yet entered into force, nor acquired constitutional status.

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 Cypriot government prepared a draft Bill entitled ‘Law on the Medium-Term Budgetary Framework and Fiscal Rules’ which was submitted to parliament for adoption in mid-2012.

Law 194 (I) of 2012 on the Medium Term Budgetary Framework and the Fiscal Rules (published in the Official Journal of the Cyprus Republic on 21/12/2012[5] implemented Directive 2011/85/EU and provides that the budgetary policy is based, among others, on the adoption of a horizon of multi-year budgetary planning, aiming at maintaining the medium-term budgetary Objective.

Besides the necessary budgetary amendments that had to be incorporated into the yearly budgetary laws, no amendments in national legal sources were necessary, as Article 20 of Law 194 (I) of 2012 provides that the provisions of the law at issue, apply independently of the provisions of any other law, more general or more specific, previous or subsequent laws. As such, although Law 194 (I) of 2012 bears the title of a ‘normal’ Law, in fact it has a special status. According to Art. 19 of the same Law, however, the Ministerial Council is responsible to issue regulations for the better application of the provisions of Law 194 (I) and for the regulation of issues, in particular of a ‘technical nature’.

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

See Question VII.1.

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)?

According to the preamble of the Law 194 (I) of 2012, the ‘Fiscal Council’ is an independent institution with consultancy/consulting powers that is competent/responsible to evaluate, produce and adopt the macroeconomic and budgetary forecasts. The ‘Fiscal Council’ is to be formed/established pursuing the decision of the Cyprus Ministerial Council, which is formed by all Ministers of the Republic of Cyprus. 

Article 167 of the Cypriot Constitution provides that it is the responsibility of the Minister of Finance to compile the budget for each financial year. After the budget has been approved by the Council of Ministers it is submitted to the House of Parliament where it is discussed, and if approved adopted as a law.

According to Article 12 of Law 194 (I) of 2012, it is the responsibility of the Minister of Finance to ensure that the budgetary planning and the fiscal policy are based on realistic macroeconomic and budgetary forecasts. To this end, the budgetary planning has to be compared to the most recent forecasts of the Commission, and possibly, the forecasts of other independent institutions, like the Central Bank and/or the Fiscal Council.[6] In case there are big differences between the selected macroeconomic scenario and the forecasts of the Commission, they have to be described in a substantiated/justified way.[7]

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

According to the preamble of the Law 194 (I) of 2012, the ‘Fiscal Council’ is an independent institution with consultancy/consulting powers that is responsible to evaluate, produce and adopt the macroeconomic and budgetary forecasts. The ‘Fiscal Council’ is to be formed/established pursuing the decision of the Cyprus Ministerial Council, which is formed by all Ministers of the Republic of Cyprus.

Following the suggestion of the Nobel Laureate in Economics, Christoforos Pissaridis, the current President of Cyprus, Nikos Anastasiades, announced before the presidential elections that he would advocate the creation of a ‘Fiscal Council’ that would in principle ‘control and advise the Government’ with regard to the impact its measures and political decisions might have to the economy. [8]

However, despite this political announcement, no decision of the Council of Ministers has been taken yet, to establish a ‘Fiscal Council’. According to Mr. Panteli, a senior economic officer at the Ministry of Finance of Cyprus, the independent Fiscal Council with three members will be established at the beginning of 2015. The Council will be responsible for overseeing the implementation of fiscal rules, analyzing fiscal policy developments, and evaluating the macro-economic and fiscal forecasts prepared by the government.[9]


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 Cyprus 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 particular political or legal difficulties were encountered outside the general debate on the implications of the six-pack (see question VII.1).            

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 annual Budget Bill has to comply with the Medium-Term Budgetary Framework (MTBF) and the Medium-Term Budgetary Objective (MTO) (Art. 9 of the Law 194 (I) of 2012).

The MTO procedure is described under Art. 5 – 7 of the Law 194 (I) of 2012.  Art. 6 stipulates that the procedures of the MTO are issued by the Minister of Finance under a Ministerial Circular/Regulation

Until 2012 Cyprus was among a handful of Member States that had neither fiscal rules nor a binding Medium-Term Budgetary Framework (MTBF), while it also lacked a fiscal council (see also question 34).[10]  Although Cyprus announced in 2007 that it would introduce a three-year medium-term budgetary framework (MTBF) with the aim to better control public sector employment growth and contain other current expenditures,[11] this budgetary framework was eventually introduced in 2012.

In order to accommodate the new Medium-term Budgetary Objective (MTO) Procedure as provided in Regulation (EU) No 1175/2011 the new ‘Budget Law’ for 2013 (Law 59 (II) of 2012, Art. 5) included special reference to the MTBF 2013-2015 where the horizontal expenses ‘ceilings’ for each Ministry are laid down and cannot be exceeded under any circumstances. [12]

This means that the new Law 194 (I) of 2012 has introduced a new/novel budget procedure which finally incorporates and is based on the MTBF and the MTO. The general procedure of drafting the budget is laid down by the Minister of Finance, in accordance with Art. 167 of the Constitution of Cyprus (see question IX.1).  

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)?

According to Art. 3(1) of Law 194 (I) of 2012 every Ministry and every Independent Agency have to send to the Minister of Finance (on the date the Minister dictates) the revenue and expenditure forecasts of their Ministry (or Agency) for the next 3 financial years in accordance with the Ministerial Encyclical which sets out the budgetary provisions (always compliant with the MTO and the MTBF).

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

Neither political nor legal difficulties were encountered with regard to the implications of Regulation 1175/2011/EU outside the general debate on the six-pack (see question VII.1).

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)?

Until 2012 Cyprus was among a handful of Member States that had neither fiscal rules nor a binding medium-term budgetary framework (MTBF), while it also lacked a fiscal council.[13] In order to comply with the relevant EU Six-Pack measures (including the amended Regulation 1466/97), the Cypriot government prepared a draft Bill entitled ‘Law on the Medium-Term Budgetary Framework and Fiscal Rules’ which was submitted to parliament for adoption in mid-2012. Law 194 (I) of 2012 on the Medium Term Budgetary Framework and the Fiscal Rules (published in the Official Journal of the Cyprus Republic on 21/12/2012). The new law includes a rolling three-year budget framework with a view of enhancing fiscal discipline.

In consultation with the EC/ECB/IMF, through regulations in the form of an expanded budget circular, Cyprus will ensure that the MTBF will be fully effective starting with the 2014 budget.

Article 9 of Law 194 (I) of 2012 provides that the Law approving the yearly budget (Budget Law) of Cyprus should be construed in accordance with the provisions laid out in the Medium Term Budgetary Framework. In specific, Art. 9 provides that the estimates of income and expenditure as well as the priorities set out in the Medium Term Budgetary Framework should constitute the basis for the preparation of the budget.

Furthermore, Art. 13 (6) of Law 194 (I) of 2012 provides that (Cyprus’) fiscal policy is premised on the following fiscal rules:

a)     The fiscal position of the government has to be balanced or in surplus: It is deemed that this (provision) is ensured if the yearly structural balance of the government corresponds to the specific medium-term budgetary objective, as set out in the Stability and Growth Pact, by setting the lower limit for the structural deficit to 0.5% of Gross Domestic Product at market prices.

b)    compliance with the reference values ​​for the ceilings of the budget deficit and the public debt of the general government at 3% of Gross Domestic Product and 60% of the Gross Domestic Product respectively.

c)     the adoption of a multiannual fiscal planning horizon, aimed at keeping the medium-term budgetary objectives.[14]

 In the context of a broad review of the Cypriot Public Finance Management (PFM) system which was completed in late June 2013, the Cypriot government is planning to develop a new comprehensive Law on Fiscal Responsibility and Budget Systems including supplementary secondary legislation to address any remaining inconsistencies between the MTBF law and existing legislation, which will be submitted to parliament by end-December 2013 (structural benchmark).[15] The law is expected to be submitted for discussion in the Parliament by the end of December 2013 (see also question 88).

Until now in order to meet the MTBO, there have been several ‘spending cuts’ in the 2012 and 2013 budgets. These cuts have been implemented through ‘amending’ Laws (of the main Budgetary (yearly) law) such as (Amending of the Budget Law) Law 2 (II) of 2013, 3 (II) of 2013 (as published in the Official Gazette of the Republic of Cyprus Issue 4231/ 1 February 2013), (Amending of the Budget Law) Law 22 (II) of 2013 (as published in the Official Gazette of the Republic of Cyprus Issue 4238/ 30 April 2013), (Amending of the Budget Law) Law 29 (II) of 2012 (as published in the official Gazette of the Republic of Cyprus Issue 4212/ 6 April 2012).

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

Since Cyprus is under financial assistance, the MoU sets as an objective for Cyprus the emergence of primary deficit up to 2.4% of GDP for 2013, whereas the Medium-Term Objective sets as a primary objective the achievement of a primary surplus of 4% of GDP until 2017.[16]

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

The Medium-term Budgetary Objective (MTBO) is adopted and incorporated in the stability programme by the Minister of Finance.

According to Art. 5 (1) of Law 194 (I) the Minister of Finance drafts an efficient Medium-Term Budgetary Framework (MTBF) which guarantees the adoption of a national fiscal planning for at least three years. According to Art. 6 of the same law the procedures included in the MTBF pertain to, among other issues, the MTBO which are defined in an Encyclical of the Minister of Finance. In case of no compliance the Automatic Correction mechanism is set off as provided under Art. 14 of the same law.

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

Neither political nor legal difficulties were encountered with regard to the implications of Regulation 1177/2011/EU outside the general debate on the six-pack (see question VII.1).

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

Neither political nor legal difficulties were encountered with regard to the Regulation 1173/2011 outside the general debate on the six-pack (see question VII.1).

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?

No further changes are needed in order to comply with the six-pack rules.

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

In view of the very recent developments in Cyprus, the Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding (MoU) signed by Cyprus on 29 April 2013 precipitates the structural and institutional changes. The MoU thus provides for the important changes to be undertaken within the 2nd and 3rd quarters of 2013. With regard to the budgetary framework the measures to be implemented include:

‘The  establishment  of  a  Fiscal  Council  with  a  statutory  regime,  functions, nomination procedures for its governing body and funding arrangements grounded in law by Q2-2013; complete  the  adoption  of  the  law  transposing  Council  Directive  2011/85/EU  on requirements for budgetary frameworks, and provisions pertaining to the fiscal compact of the Treaty on Stability, Coordination and Governance (TSCG) on the basis of the Common Principles  for  national  fiscal  correction  mechanisms  laid  down  in  Commission Communication  COM(2012)342,  with  implementing  texts  ensuring  that  adopted  measures are fully effective by Q2-2013. In particular, integrate the presentation of the existing multi-annual  budgetary  objectives  (MoU  fiscal  targets  and  the  rolling  three-year  expenditure ceilings)  into  a  comprehensive  Fiscal  Strategy  Statement  in  compliance  with  MTBF requirements  in  the  sense  of  Directive  2011/85/EU  to  guide  the  preparation  of  the  2014 budget by Q2-2013; and submit to the House of Representatives a draft high-level Fiscal Responsibility and Budget System  Law  applicable  to  the  entire  general  government  sector.  The draft  law  will encompass, inter alia, macro-fiscal policy-making, and budget formulation and approval. It will address remaining gaps and inconsistencies and codify existing good budget practices by Q4-2013.’[17]

[3] The reference to previous years is made because in previous years the management of public debt was conducted by the (independent) Central Bank of Cyprus. This responsibility was however transferred to the Ministry of Finance.

[4] See: http://www2.parliament.cy/parliamentgr/008_01_01/008_01_IB.htm under 12-12-2012.

[6] Art. 12 of Law 194 (I) of 2012 (under γ)

[7] Art. 12 of Law 194 (I) of 2012 (under δ).

 

w.mof.

gov.cy/mof/mof.nsf/All/8D5A50938A96AA6BC2257BA20035E774/$file/%CE%91%CF%81%CE%B8%CF%81%CE%BF%20%CE%93.pdf, p. 2

[13] Fiscal Frameworks across Member States. Commission Services Country Fiches from the 2011 EPC Peer Review’, Occasional papers 91, February 2012, p. 9.

[14] Free translation Art. 13 (6) of Law 194 (I) of 2012.

[15] «The Economic Adjustment Programme for Cyprus», Occasional Papers 149, May 2013, p. 144 and G. Panteli, A New PFM Reform Strategy for Cyprus, http://www.mof.gov.cy/mof/mof.nsf/All/8D5A50938A96AA6BC2257BA20035E774/$file/%CE%91%CF%81%CE%B8%CF%81%CE%BF%20%CE%93.pdf

[17] Memorandum of Understanding on Specific Economic Policy Conditionality, version of 12 April 2013. 

Czech Republic

VII    Six-Pack

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

Negotiation
VII.1
What positions did the Czech Republic 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?

Regulations 1173/2011 and 1174/2011 do not apply to CR and the two measures were not discussed in the Parliament. During the vote in the Council, CR, however, supported both acts. For Regulations 1175/2011 and 1177/2011 see the answer to question VII.9. Regarding the Directive: Main arguments were laid down during the negotiations. The Parliament supported the position of the Government,[1] which adopted a negative opinion towards the Directive stating that national fiscal frameworks should not be regulated at all on the EU level, even if EU legislation aims to set up minimal requirements only.[2] Particularly, the limitation of regional and municipal fiscal autonomy in favour of the central government was found troubling.[3] In my view, the level of interference of the central government into the regional and municipal self-governance that the Directive presupposed requires a transposition through a constitutional amendment. CR further stated that it agreed to the principles on which the Directive was based – the requirements for higher transparency, rules on budgetary process, statistics and data collection. However, CR believed that maximal fiscal freedom had to be retained and therefore was principally against the Directive. CR considered an adoption of non-binding guidelines with the similar content to be a more appropriate solution. When the Directive passed the Council, CR urged for “a balance between the benefits for effective, holistic, and transparent management of fiscal policy and administrative burden connected with full implementation of the directive and [sought] to postpone the transposition deadline” (the deadline was originally set for Jan. 1, 2013).[4]

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)?

Implementation was foreseen through the adoption of a constitutional law on fiscal responsibility (Fiscal Constitution)[5] and two ordinary laws – law on fiscal responsibility and another law amending a number of laws regarding the budgetary processes and competences, mainly the Law No. 218/2000 Coll. on Budgetary Rules and the Law No. 250/2000 Coll. on Budgetary Rules of Regional and Municipal Budgets. Further legislative changes regarding obligations of social security funds and government institutions that are not included in the treasury such as public universities and public research institutions were also envisaged. No measures have been adopted yet (see question VII.3). The Government report on the Directive states that in general the current budgetary legislation and practice is in compliance with the requirements set in the Directive. “The Law on budgetary rules introduced in 2003 a system of fiscal targeting and required that medium-term fiscal frameworks and medium-term budgetary outlook are prepared for the state budget and state funds, including a numerical fiscal rule for their preparation. This results from the adoption of a medium-term fiscal target for the entire government sector expressed as a share on GDP following the ESA 95 methodology, which is further detailed during the preparation of the said medium-term documents.”[6] According to the Government report, the problems of the current budgetary frameworks in CR rest in non-compliance with the medium-term objectives, where the central government lacks, with an exemption of the state budget and state funds, competence and tools to monitor the development and to enforce the objectives on the level of regions and municipalities. Under the current situation, there is no independent fiscal council and independent evaluation of the forecasts prepared by the Government.

Accounting and statistics

On Jan. 1, 2010 the accounting reform came into force, which means Arts. 3/1 and 10 have been already implemented, as well as the emphasis on the inclusion of potential risks and benefits (Art. 14/3). Also the necessary changes regarding data submissions (cash-based data monthly and quarterly and the reconciliation table) will be realized before the end of 2013 (Art. 3/2a and 2b – for the reconciliation table, the Government requires further specifications of the obligations).[7]

Macro-economic and fiscal forecasts

“Budgetary practice of CR has been for a long time using a macroeconomic and fiscal projection of the Ministry of Finance (MF), which disposes of its own expert capacity. Forecasts of MF take into account the most probable economic development using prudently chosen characteristics; they are prepared based on the most current data and take into account to a certain extent (given the time incongruity) past forecasts of the Commission (Art. 4/1 of the Directive). Forecasts of MF nonetheless do not contain alternative scenarios of economic development (Art. 4/2 of the Dir.). An independent body does not audit these regular forecasts. Although it is not expressly required by the Directive [to establish such independent body], the long-term practice of MF has been such that the forecasts are scrutinized by a panel of independent economists (Art. 4/4 of the Dir.). Currently CR compares its forecasts with a panel of around 15 recognized Czech and foreign institutions, in which the Commission is represented as well. The comparison is made four times a year, out of which twice CR asks the institutions to prepare forecasts. Evaluation of the forecast of MF by way of comparison with the forecasts of the panel participants is published by MF alongside with quarterly forecasts, which encompass methodology, assumptions, and chosen characteristics (Art. 4/3 of the Dir.). The [Nečas] Government based on its political program intends to establish a national fiscal council. When such council is established, the Government may consider enlarging the council’s competences to encompass alongside an assessment of fiscal impacts also an evaluation of the forecasts of MF, although the Directive does not expressly require this. The system of preparation and the quality of forecasts of MF are sufficient; the forecasts of MF have high reputation.”[8]

Numerical fiscal rules

The Nečas Government aimed to introduce the fiscal numerical rules of the SGP into a Fiscal Constitution (Art. 5(a) and (b) of the Dir.). It recognized that the fiscal frameworks for 2013 and after must be set in such a way, that the fiscal consolidation leads to the MTO, which the Czech Republic set as a structural deficit of 1% of GDP. CR has already introduced into its budgetary practice the so called fiscal targeting that implicitly contains a numerical fiscal rule (Art. 5(a) of the Dir.).[9]

Medium-term budgetary frameworks

CR has already established medium-term budgetary frameworks (Art. 9/1,2(a) of the Dir.) and it supports the directive’s emphasis on medium-term fiscal frameworks. However, their enforcement is low and depends on political support. CR has not considered introducing a sanction mechanism directly into the budgetary rules; yet, an introduction of certain non-financial sanctions beyond the budgetary rules is considered desirable, e.g. systemic publishing of instances of non-compliance with procedural rules and of breaches of the frameworks. Medium-term expenditures frameworks are adopted in the form of a resolution by the Chamber of Deputies of the Parliament, however, as I have already mentioned, there is no sanction mechanism in the case of non-compliance (Art. 6(c) of the Dir.). Moreover, the Parliament’s Rules of Procedure does not guarantee a discussion on the frameworks by the Parliament. The medium-term expenditures frameworks of the MF strictly state exemptions, under which the frameworks do not need to be followed in the preparation of state budget. The medium-term expenditures frameworks currently encompass state budget and state funds only. To fully comply with the Directive, that is to enlarge the frameworks to cover the entire general government, is currently unachievable. The frameworks are based on realistic prudent economic forecasts (Art. 9/3 of the Dir.). In order to make the frameworks to cover all government institutions, a constitutional law is needed. CR plans to enlarge the current system of enhanced budgetary surveillance of municipalities and organizations paid from their budgets onto an entire sub-sector of local governmental institutions. Instead of direct management of municipal debts development, CR prefers setting up clear rules on excessive debt or insolvency and a controlled bankruptcy of a municipality. CR also considers a constitutional law that would limit options of deficit financing, e.g. through the golden rule.[10]

As of February 2014, the Directive has not been implemented yet. Pending legislative changes includes Fiscal Constitution Bill, bill on fiscal responsibility and bill that would amend numerous other laws to be in compliance with a new fiscal framework, in particular Law No. 320/2001 Coll., on financial supervision of central government, Law No. 420/2004 Coll., on review of fiscal management of territorial self-government units and voluntary associations of municipalities, Law No. 551/1991 Coll., on health insurance companies, Law No. 362/2010 Coll., on fiscal information duties of health insurance companies. In addition an amendment to the Constitution extending competences of the Supreme Auditing Office and a Bill on management and control system in central government are envisaged. Furthermore, several bylaws shall be updated: bylaws of the Ministry of Finance to the Law No. 563/1991 Coll., on accounting, and bylaws of the Ministry of Finance to the Law No. 218/2000 Coll., on budgetary rules.

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

The Government drafted and submitted to the Parliament a proposal for constitutional law – Fiscal Constitution on Oct. 10, 2012. Although the proposal reached the second reading in the Chamber of Deputies of the Parliament, June 2013 political crisis (resignation of the Nečas Government) and new elections in October 2013 prevented further progress with the bill. After October 2013 general elections, former government party, now in opposition, TOP 09 reintroduced the Fiscal Constitution Bill. However, the new centre-left Sobotka Government do not plan to support the current version as the status quo gives him more fiscal room for manoeuvring in order to implement his social agenda and investment plans. The new government, however, announced to discuss two, in their view, interconnected issues – accession to the Fiscal Compact and some form of a Fiscal Constitution. See more in the answers to the questions on the Fiscal Compact and to III.2 in fine).

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 Ministry of Finance currently prepares macroeconomic and budgetary forecasts and there has been no intention to change this practice. An explicit competence in order to implement the Directive is included in the draft implementing law to the Fiscal Constitution Bill.[11]

Implementing laws to the Fiscal Constitution Bill, which were submitted to the Parliament on June 27, 2013, provides for an independent Committee for budgetary forecasts (Výbor pro rozpočtové prognózy), which evaluates economic and budgetary forecasts of central government and territorial self-governments. Forecasts evaluated as realistic or conservative would represent the basis for the preparation of the annual budget. Due to a political crisis and early elections in October 2013, the legislative process for both the Fiscal Constitution Bill and the implementing laws was terminated. The Social Democrats, who head the new coalition government appointed in January 2014, will most probably come up with their own drafts.

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

Not yet. See answer to question VII.3. According to current version of the Fiscal Constitution Bill (resubmitted to the Chamber of Deputies of the Parliament by an opposition party in December 2013), Art. 3 creates National Fiscal Council (NFC) as “an independent organ that has a competence in the area of fiscal and budgetary policy, surveys the budgetary management of public institutions and observation of the rules on fiscal responsibility and evaluates them” (para 1). A detailed implementation will be left to ordinary law (para 3). The NFC has five members. The Chairman, Vice-Chairmen, and other Members of the NFC are elected by the Chamber of Deputies of the Parliament (para 2) for six-year term by simple majority (Sec. 30 of the draft implementing law). [12] The Government nominates the Chairman, the Senate nominates the first Vice-Chairman, the Czech National Bank nominates the second Vice-Chairman, the remaining two members are nominated by the Ministry of Finance and by at least 7 heads of regional self-government units, respectively (Sec. 27 of the draft implementing law). The NFC calculates the debt and publishes its calculations in the same way the laws are published (Art. 5).[13] The NFC gives an opinion on expenditure framework of annual budget and state funds, which the Finance Ministry publishes. If the Ministry does not agree with the NFC’s opinion, it shall substantiate and publish its objections (Sec. 12/3 of the draft implementing law). The opinion of NFC is thus not binding. The NFC further evaluates whether the fiscal numerical rules are observed and submits a report to the Chamber of Deputies of the Parliament before the annual budget is agreed; and prepares and submits to the Chamber of Deputies of the Parliament a report on the long-term sustainability of public finance, including an evaluation on how the Government-planned policies would effect the sustainability (Sec. 23 of the draft implementing law).

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 the Czech Republic 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 changes on the budgetary process have been introduced.[14] Sanctions do not apply to CR and hence there was little debate. The Senate in its resolution to the draft Six Pack considered the MIP in general beneficial for functioning of the EMU, however, it opined that for “preparation of the comparative survey and evaluation of indicators the degree of integration into the Economic and Monetary Union as well as the degree of actual convergence of a given economy in relation to the EU average must be taken into account.”[15] The Senate further fundamentally disagreed with the symmetrical approach to some of the indicators and complained that the set of indicators is not part of the draft and so the national parliaments could not fully evaluate the effectiveness of the control mechanism for macroeconomic stability. Finally, the Senate pointed to the fact that the Government had only indirect influence, through its measures supporting competitiveness, on the development of macroeconomic indicators, such as actual effective exchange rate or balance of payments current account, and that these measures had effect with considerable delay only.[16]

Finally, as for imbalances, in 2012 the Commission report concluded that there was no need of in-depth analysis in the context of the MIP. Also, in the previous round of the MIP, the Czech Republic had not been identified as experiencing imbalances.[17]

Given the positive result of the 2012 report, no policy changes were made in connection with the report. The identified problems have been known in CR and have been an object of long-term policies. The Nečas Government regularly implemented the policy recommendation of either the biannual Commission Convergence Reports (the last published in May 2012)[18] or the annual Council Recommendation on the National Reform Programme and the Convergence Programme (the last published on July 9, 2013).[19] These recommendations were reflected in the main programming document, the Programme Declaration of the Nečas Coalition Government for the 2010 vote of confidence.[20]

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?

See answer to question VII.2. In 2001, an institution of medium-term expenditures frameworks was introduced, however without sanctions. With an annual budget bill, government presents to parliament expenditures limits for two years following the upcoming budgetary year. Chamber of Deputies approves the expenditures framework by a resolution. Through expenditures framework, government binds itself not to spend in two years following the budgetary year more than stated in the expenditures frameworks and in case the revenues are greater than expected, the difference ought to be used to lower the deficit.[21] However, because two-year expenditures frameworks are presented to parliament with every annual budget bill, they are in fact binding only for a following budget bill (that is for the first year of their application). Moreover, the fact that expenditures framework are adopted in the form of parliament’s resolution only, they are legally unenforceable and represent at the end merely a political commitment.[22]

The Draft Fiscal Constitution creates an obligation for all public institutions to prepare medium-term budgetary outlook for at least two years following the annual budget (that is, in fact, three years). The draft implementing laws aims to replace the current quasi deficit rule of the fiscal objective by an expenditure rule. That means an expenditure ceiling will be created (maximum growth of corrected nominal expenditures) for public institutions. The amount of consolidated expenditures of the state budget and state funds, set according to the expenditure rule for the following budgetary year and two subsequent years, will be submitted to the Chamber of Deputies of the Parliament for its approval, while the amount of consolidated expenditures of public institutions’ budget will be submitted to the Chamber of Deputies of the Parliament for information only. The construction of the expenditure rule is based on the reference medium-term rate of expenditure growth (expenditure benchmark).

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)?

The European Semester was first introduced into practice in January 2011. Before the European Semester, preliminary results of macroeconomic forecasts were published in January and March of a current year. On their basis, medium-term expenditures frameworks were prepared and updated. Thus the period from February till April was crucial. The European Semester meant to incorporate into the first phase the data and documents collected between February and April that are submitted to the Commission and the Council (convergence programme and national reform programme). Preparation of these documents is in the competence of the Office of the Government and they reflect all chapters of the budget. Given that the Government discusses and approves the medium-term expenditures frameworks objectives in April, that is at the time when the convergence programme and national reform programme must be submitted to the Union, the process of the preparation of the two documents needed to be speeded up – a material on medium-term expenditures frameworks will therefore not be submitted to the high meeting of the Ministry of Finance and will not be subject to external comment procedure.

The subsequent steps within a budgetary process in CR following the European Semester are as follows – during July, the Ministry of Finance evaluates recommendations of the European Council in line with government-approved limits on budget expenditures and revenues. In August, the Ministry incorporates the recommendations preliminarily into a draft budget, so that the Government may discuss and pass a draft budget including the expenditures frameworks and medium-term outlook. At this time the Government and Ministry of Finance are given opportunity to react on the Council recommendations; whether they are beneficial and acceptable. Subsequently, the Ministry of Finance works with the recommendations in detail, assesses their feasibility, and incorporates them into a budget bill in September. Subsequently, a budget bill is submitted to the Parliament.[23]

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

CR voted (as all other MS) for the Regulation in the Council.[24] During the parliamentary debate, Finance Minister Kalousek stated that the Czech Republic “generally supports the changes that would lead to the most possibly strict fiscal discipline, enhance credibility and enforcement of the budgetary outlook; however, the primary responsibility for the budgetary policy must remain with the national governments.”[25] The position of the Government touched also upon the reverse QMV voting – CR supports this scheme, unless it is extended to other voting of the Council in the area, e.g. recommendation of the Commission in the corrective part. CR is of opinion, that reverse QMV will enhance equality between big and small MS. [26] Minister Kalousek emphasized that, although the “sanction” in the form of interest-bearing deposit is not applicable to CR as a non-Eurozone MS, CR must observe the development in this area closely given the obligation resulting from the convergence programme (future Eurozone membership). He also warned that in the next stage, the Commission plans to enlarge the sanction mechanism to non-Eurozone MS, where conditionality clauses would be introduced into expenditure programmes of the EU. Finally, he stated that the aim of CR was to support such system that would sanction every MS equally, where small or new MS would not be discriminated.[27] The only criticism came from the Communist Party, who denied SGP as such, called for more flexibility and solidarity, individual focus (giving more weight to different structural problems and given stage in the economic cycle in a MS) and warned that these new rules may substantially limit options for such important reforms in CR such as a pension reform or a health-care reform.[28] The Parliament gave to the Government a mandate to support the Regulation by a vote 84:4 (132 out of 200 deputies present).[29]

The Government Report on Reg. 1175/2011 and 1177/2011 further emphasizes that the government considers the introduction of principle of prudent fiscal policy to be the key innovation that will make governments respect the medium-term objective (mainly that accidental incomes, e.g. from privatization, will be used for deficit reduction), something that has been often neglected in the budgetary practise of CR. According to the Report, CR also supports the possibility to take into account expenses for a pension reform when deciding on the EDP.[30] It supports an extension of the period beyond five years.

CR has not changed any laws in connection to the Regulation, relying on its direct applicability (in the extent binding to CR).[31]

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)?

See the answer for question VII.12.

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

MTO is 1% and will be revised in 2016.

On 26 April 2013, the Czech Republic submitted its 2013 Convergence Programme covering the period 2013-2016 and, on 17 April 2013, its 2013 National Reform Programme. The Convergence Programme reads: “The government’s primary intention is to conclude the excessive deficit procedure based on the 2013 figures, and not to further deepen the procyclical effects of fiscal policy. At the same time, the government is intended, as soon as the situation permits it (probably in 2015 and 2016), to contribute to recovery of the Czech economy in the negative phase of the output gap by introducing a lower tax burden without exceeding the limit of 3 % deficit of GDP once again. The target to balance the total budget in 2016 and achieve the medium‐term objective this year at the level of 1 % of GDP of the structural deficit has therefore been postponed until confidence in the economy is restored and sustainable economic growth gets underway once more.”[32]

On July 9, 2013, the Council adopted its ‘Recommendation on the Czech Republic’s 2013 national reform programme and delivering a Council opinion on the Czech Republic’s convergence programme for 2012-2016’. The Council stated that “[t]he Convergence Programme confirms the previous medium-term objective (MTO) of a deficit of 1 % of GDP, which adequately reflects the requirements of the Stability and Growth Pact. The (recalculated) structural budget deficit is projected to increase by 0,3 %, 0,2 % and 0,5 % of GDP in 2014, 2015 and 2016 respectively; therefore no adjustment towards the MTO is foreseen in the Convergence Programme, which is not in line with the Stability and Growth Pact. The rate of growth of government expenditure complies with the expenditure benchmark of the Stability and Growth Pact in 2014 but deviates by 0,3 % and 0,5 % of GDP in 2015 and 2016 respectively, assuming improvements of 0,5 % of GDP towards the MTO judged as appropriate by the Commission. According to the Convergence Programme, the debt-to-GDP ratio is forecast to continue to increase over the programme period, albeit at a slowing pace, and to reach 51,9 % of GDP in 2016.”[33]

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

MTO is a political commitment, which is incorporated into the medium-term expenditures frameworks prepared by the Ministry of Finance in coordination with the guarantors of individual budgetary chapters. The frameworks contain revenues and expenditures for the next budgetary year and two subsequent years, including the anticipated deficit and its financing.[34] It is submitted to the Chamber of Deputies of the Parliament for information. The Chamber of Deputies adopts a resolution to an annual budget bill submitted by the Government. The resolution indicates medium-term expenditures for the year following the annual budget in the form of a single amount. Such medium-term expenditures amount is legally binding for an annual budget preparation.[35] However, as mentioned above, no sanction mechanism exists for a situation when an annual budget bill does not respect the expenditures frameworks. Because such annual budget bill, once enacted, has a superior legal force to parliament’s resolution on expenditures frameworks, there is no option for challenging budget bill at the courts. Finally, although expenditures frameworks are agreed for two years following an annual budget bill, only the expenditures frameworks for the first year matter, because expenditures frameworks for the second year can be always updated with the subsequent annual budget bill accompanied by new two-year expenditures frameworks. Convergence Programme, which explicitly sets the MTO, is adopted by Government and submitted to Parliament for information only.

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

Sanctions do not apply to CR. The Czech Republic was subject to EDP in 2004 and again in 2009 and so the practice of Ministry of Finance is adapted to this process. Hence the effect for CR is minimal and the debate was limited. The Government supported the proposed changes and the Parliament agreed to Government’s position. No legislative changes made (according to the Government report no legislative changes are needed as the Regulation is directly applicable).[36]

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

The Regulation is not applicable to the Czech Republic (Art. 1/2 of the Regulation).

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?

Nothing to add to what was answered in the previous questions.

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

No other information

[1] Given the consensus between the Government and both chambers of the Parliament, I refer to “CR position”.

[2] Finance Minister Miroslav Kalousek, stenographic protocol, Chamber of Deputies of the Parliament of the Czech Republic, Feb. 3, 2011. Available at: http://www.psp.cz/eknih/2010ps/stenprot/013schuz/s013173.htm#r1.

[3] MP Dana Váhalová, ibid.

[4] See “Czech Government and Parliament position on Dir. 2011-85 within the Six-Pack”, p. 3.

[5] The changes on the constitutional level must include the part on the executive power, on the Supreme Auditing Office, and on the territorial self-government. Ibid. 14-15.

[6] Ibid. at 10.

[7] Ibid. at 11-12.

[8] Ibid. at 12.

[9] Ibid.

[10] Ibid. at 13-14.

[11] The draft implementing law amends the Competence Law (Sec. 4/1). Chamber of Deputies of the Parliament Document No. 1098/0, 6th Parliamentary Term.

[12] Chamber of Deputies of the Parliament Document No. 1097/0, 6th Parliamentary Term.

[13] See “Government proposal for a constitutional law on fiscal responsibility”.

[14] The macroeconomic forecasts are prepared by the Ministry of Finance. The macroeconomic scenario of the Convergence Programme and macroeconomic framework of state budget and budgetary outlook are regularly compared with forecasts of relevant institutions that forms so called Colloquium composed of several ministries, Czech National Bank, major banks, major think tanks, and trade associations, plus with the forecasts of the Commission and the IMF.

[15] The Resolution of the Senate of the Parliament No. 76, 8th Senate term, Jan. 26, 2011, available at: http://www.senat.cz/xqw/xervlet/pssenat/htmlhled?action=doc&value=58637.

[16] Ibid.

[17] “In the previous round of the MIP, the Czech Republic was not identified as experiencing imbalances. In the updated scoreboard, the net international investment position is above the indicative threshold. The net international investment position has deteriorated because of sustained, albeit moderate, deficits in the current account balance of around 3 per cent of GDP over the last three years: these are mainly driven by the outflow of dividends on the high stock of foreign direct investment. Overall, the risk of external vulnerabilities is limited because of the relatively low value of gross external debt liabilities. The trade balance recorded a robust surplus in 2011 but gains in export market shares are gradually easing, reflecting the falling share of new green-field projects in foreign direct investment. At the same time import growth is also expected to ease. As domestic demand remains weak, the current account deficit is projected to continue to improve in the coming years and this is expected to contribute to stabilising the net international investment position around the current level. Contrary to the appreciation trend observed before the global financial crisis, the real effective exchange rate has remained broadly stable since 2009. The inflow of capital to the Czech Republic went hand-in-hand with considerable wage growth in all sectors of the economy, even though productivity increases were limited mostly to the tradable sector. While the aggregate nominal unit labour cost growth decreased to close to 3 per cent over the past three years, and is expected to remain subdued in the near future, the cumulative productivity gap in the non-tradable sector may weigh on the competitiveness of the economy: first, because the non-tradable sector provides inputs to other sectors, thus directly affecting their competitiveness of the latter; and second, since higher wage growth in the non-tradable sector may hinder shifts in labour towards export-oriented industries that have more scope for productivity growth. Adjustment, accompanied by falling real house prices, is underway in construction and real-estate activities, which had been boosted by relatively easy lending conditions before the crisis: the share of bank loans to value added in these industries doubled in 2005-8. The largely foreign-owned banking sector in the Czech Republic has remained resilient, and the moderate levels of private- and public-sector indebtedness have prevented the emergence of any negative feedback loops. Overall, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.” Report from the Commission. Alert Mechanism Report – 2013, COM(2012) 751 final, p. 7-8. Available at: http://ec.europa.eu/economy_finance/articles/governance/pdf/alert_mechanism_report_2012-11_en.pdf.

[18] European Commission. Convergence Report 2012. Available at: http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-3_en.pdf.

[19] Council Recommendation of 9 July 2013 on the National Reform Programme 2013 of the Czech Republic and delivering a Council opinion on the Convergence Programme of the Czech Republic, 2012-2016. 2013/C 217/04. OJ C 217/14. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:217:0014:0017:EN:PDF.

[20] Programme Declaration of the Government of the Czech Republic. August 4, 2010. Available at: http://www.vlada.cz/assets/media-centrum/dulezite-dokumenty/Programove_prohlaseni_vlady.pdf. In particular: First, public finance reform with a view to stop the public debt growth and adopt such fiscal measures to achieve balanced budget in 2016; second, pension reform in view of changing demographic structure of Czech population; third, health care reform leading to modernization and higher effectiveness; fourth, tertiary education reform; and fourth, adoption of measures for higher transparency of public procurement and measures against corruption in public sector. Ibid. at p.3.

[21] Finance Minister Miroslav Kalousek, stenographic protocol, Chamber of Deputies of the Parliament of the Czech Republic, Dec. 15, 2010. Available at: http://www.psp.cz/eknih/2010ps/stenprot/009schuz/s009199.htm#r3.

[22] Since the introduction of expenditures frameworks, they have been ignored on several occasions, Finance Minister Kalousek during a Parliamentary debate on medium-term objectives for 2014 and 2015, stenographic protocol, Chamber of Deputies of the Parliament, Dec. 19, 2012, available at: http://www.psp.cz/eknih/2010ps/stenprot/049schuz/s049275.htm.

[23] See “Minutes from the 12th session of the Budgetary Committee of the Chamber of Deputies of the Parliament, March 1 and 3, 2011”, p. 9.

[24] Vote Watch Europe, Council vote on Nov. 8, 2011, available at: http://www.votewatch.eu/en/proposal-for-a-regulation-of-the-european-parliament-and-of-the-council-amending-regulation-ec-no-14.html.

[25] Finance Minister Miroslav Kalousek, stenographic protocol, Chamber of Deputies of the Parliament of the Czech Republic, Feb. 3, 2011. Available at: http://www.psp.cz/eknih/2010ps/stenprot/013schuz/s013077.htm

[26] The Government and the Parliament assessed Regs. 1175/2011 and 1177/2011 together. See “Czech Government and Parliament position on reg. 1175-2011 and 1177-2011 – amendments to SGP within the Six-Pack”, p. 4. The reverse QMV should be consider as an exemption and applied restrictively. Ibid. at 6.

[27] Ibid.

[28] MP Jiří Dolejš, ibid.

[29] Voting no. 72, ibid.

[30] CR particularly appreciated that a special regime was incorporated into the SGP in order to take into account, when assessing fiscal and budgetary position and activation of the EDP, a pension reform, which has been under preparation in the CR at the time.

[31] The Government and the Parliament assessed Regs. 1175/2011 and 1177/2011 together. See “Czech Government and Parliament position on Regs. 1175-2011 and 1177-2011 – amendments to SGP within the Six-Pack”, p. 6-7.

[32] Convergence Programme, April 2013, p. 4.

[33] Council Recommendation of 9 July 2013 on the National Reform Programme 2013 of the Czech Republic and delivering a Council opinion on the Convergence Programme of the Czech Republic, 2012-2016, OJ C 217/14, July 30, 2013, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:217:0014:0017:EN:PDF, preamble point 9, para 2.

[34] Sec. 4 of the Law No. 218/2000 Coll. as amended.

[35] Sec. 8 of the Law No. 218/2000 Coll. as amended.

[36] See “CZ_SGP reform within the Six Pack – Government and Parliament position”. Chamber of Deputies Document No. 237-E, 6th Parliamentary Term, 2011.

Estonia

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

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

No difficulties were encountered. The Estonian government has been supportive of automatic sanctioning (see: question VI.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)?

Since 2004, all public sector institutions are subject to a common legal framework on accounting.[1]

By a new State Budget Bill, Directive 2011/85/EU will be implemented in Estonia. The current State Budget Act will be replaced with a new Act in which provisions will be introduced on a balanced state budget and automatic corrective mechanism required by the Fiscal Compact Treaty. In addition to the State Budget Act, a total of 42 laws need to be amended but only to the extent of technical details (new numbering of references to the State Budget Act, etc.).[2]

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

A question arose in the parliamentary debate as to a possible infringement of the principle of separation of powers by a provision of the State Budget Bill. The Financial Affairs Committee made a request to the Committee on Constitutional Affairs for an opinion on the constitutionality of the Bill. Proposals were made during the parliamentary debate to separate the provisions on budgetary balance from other amendments in order to give more time for the discussion of the latter.

On 12 November, the Auditor General Alar Karis submitted an opinion to the Riigikogu on the State Budget Bill. In his Opinion, the Auditor General makes a number of suggestions, none of which relate to the provisions implementing Directive 2011/85/EU. The conclusion of the Auditor General is that the implementation deadline for the Directive should not adversely affect the adoption of a politically broadly supported State Budget Act. If necessary, the Auditor General suggests amending the State Budget Act currently in force in order to implement the Directive but to continue discussion on other matters until satisfactory solutions have been found.[3]

The Financial Affairs Committee asked for an opinion on the Bill from the European Central Bank (ECB). In its opinion, the ECB is critical of some of the additional tasks the draft Bill would impose on the Bank of Estonia (Eesti Pank).[4] The text of the Bill as it currently stands is not final. The second reading of the Bill in Riigikogu continues. The answers to the following questions on the Six-Pack which reflect the original Bill are, therefore, subject to change.

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 macroeconomic and budgetary forecasts will be produced by the Ministry of Finance and an unbiased and comprehensive evaluation of these forecasts will be conducted by Eesti Pank (Bank of Estonia). Pursuant to §15 subsection 2 of the State Budget Bill, the officials producing the forecasts are unbiased in the compiling of the forecasts as well as in their choice of methodology. § 16 subsection 1 of the Bill specifies that the evaluation of Eesti Pank is not binding but that the Ministry of Finance is to justify not taking the evaluation into account.

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

An independent Fiscal Council was created by the new State Budget Act which introduced a new § 42 into the Bank of Estonia (Eesti Pank) Act.

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 Estonia 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 debates.

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?

No changes.

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)?

None.

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

No debates.

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)?

§ 91 of the State Budget Act lays out conditions for the state budget strategy. Pursuant to § 91 subsection 3, the budget strategy shall be compiled for the following budgetary year and the subsequent three years and shall be approved by the Government of the Republic on the proposal of the Minister of Finance at least seven months before the beginning of the budgetary year.

§ 4 subparagraph 3 of the State Budget Bill contains an explicit reference to the Medium-term Budgetary Objective with a reference to Regulation 1466/97.

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

Stability Programme 2012(-2015): the MTO of the Estonian Government is a general government structural surplus. The Stability Programme 2012 reaches the year 2016, as required from the budget strategy by § 91 subsection 3 of the State Budget Act (the next fiscal year and the three years following).

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

The Government approved the State Budget Strategy 2013-2016 and the Stability Programme 2012 on 26 April 2012. Before the approval the documents were discussed in the Committees of the Riigikogu.[5]

Pursuant to § 91 subsections 3 and 4 of the State Budget Act, the budget strategy is approved by the Government of the Republic on the proposal of the Minister of Finance. The Ministry of Finance has the right to obtain information from the state authorities and persons in the public sector. § 91 subsection 5 identifies the public sector as consisting of the state, local governments, other legal persons in public law, with the exception of the Bank of Estonia, the Compensation Fund, the Guarantee Fund, the Estonian Traffic Insurance Foundation and professional associations established under public law; and foundations founded by the abovementioned if more than half of the revenue thereof for the last two years has been comprised of support from such persons.

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

No debates.

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

None.

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?

None.

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

Not applicable.

[1] A. Naarits. “The Global Financial Crisis and Statistics”, 1 Quarterly Bulletin of Statistics Estonia 2012, p. 8.

[2] For complete list see: Explanatory report to the State Budget Bill, pp. 1-2.

[3] Summary of the Opinions of the State Audit Office on the State Budget Bill, 12 November 2013.

[4] Opinion of the European Central Bank of 18 December 2013 on Public Finances (CON/2013/91), http://www.ecb.europa.eu/ecb/legal/pdf/en_con_2013_91_f_sign.pdf, par. 5.5.

[5] Stability Programme 2012, p. 3.

Finland

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 Finland 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?

Government Memorandum

The whole legislative package was taken to the Parliament based on a single Government memorandum dated on 7 October 2010 (U 34/2010 vp), and the Parliament considered all the proposals as a package. Therefore, it is not always entirely easy to single out positions concerning individual legislative proposals. Since the six-pack was based on ‘ordinary EU legislation’, it was considered by the Parliament based on Section 96 of the Constitution. In its memorandum, the Government expressed its general support for the six-pack, noting its linkage with earlier European Council Conclusions.

A key feature of the negotiations leading to the six-pack was that during the time of the relevant negotiations the Finnish economy was still in a relatively good shape, and the problems in the distant corners of Europe were not really seen to involve it. Therefore, Finland often felt it was in a position to set demands on others together with the Commission and the European Central Bank. It was felt that those states that did not have an excessive budgetary deficit should be left outside strengthened monitoring altogether, and that strengthened overall coordination was not entirely necessary.

Constitutional Law Committee

When considering the package 8 December 2010 the Constitutional Law Committee noted (PeVL 49/2010 vp) that the proposed six-pack was based on TFEU provisions concerning economic politics and that the proposed legal bases seemed largely appropriate, but voiced some reservations on the use of Article 136 TFEU, which was new and open to interpretations. The Committee established that several of the proposed pieces of legislation had implications for the budgetary powers that the Parliament exercises under the Constitution, including the proposed measures preventing an increase of public expenditure, the closely connected obligations relating to tax policies and the limitations of public debt, to which a sanctions mechanism was also attached. For the purposes of the Constitution, however, the Committee established with reference to its earlier practice (see PeVL 46/1996 vp, p. 2/II) that, most crucially, the proposed measures involved no new procedures or other additional elements that had not already been approved when ratifying the EU Treaties. The proposed measures did not impinge on sovereignty or independence of local government in a manner that would have been problematic for the Constitution. The Committee stressed, however, that the factual effect of the proposed measures would due to their future contents and interpretative practice potentially be more extensive and thus affect the Parliaments budgetary and financial competence. For this reason the Committee stressed that the rights of information and participation of the Parliament needed to be appropriately secured in particular in the context of subsequent reporting and control. In addition, the Government was to pay special attention to the adequacy and appropriateness of the legal bases in case the instruments were to be amended. The Committee further stressed that secondary legislation could not be used to influence institutional balance in the EU even if this effect would be indirect (for similar agumentation earlier, see in PeVL 49/1998 vp).

Grand Committee

Following this the Parliament’s Grand Committee on 22 October 2010 considered (see SuVL 9/2010 vp) that it seemed evident that the six-pack included elements that affected the budgetary powers of the Parliament. The proposed measures were intended to affect the overall management of public finances in the Member States, which also involves impinging on municipalities and the functioning of centers for pensions. The Committee required the Government to urgently provide a full-scale explanation of the constitutional implications of the proposed package. In addition, the Committee required more information concerning the proposed legal bases and the implications for subsidiarity and proportionality; the size of envisaged sanctions, and the implications that the proposed regulation for the prevention and correction on macroeconomic imbalances might have on the interinstitutional relations and the competence of Member States in the area of economic policy. While the Committee generally supported the Government’s positive view on the matter, it was unable to formulate a position before additional information had been provided by the Government.

Additional Government Memorandum

The Government gave an additional memorandum on 12 November 2010 specifying these matters (related to U 34/2010). In its memorandum it took a largely positive view on the proposed legal bases, and stressed that since the crisis had a clearly European dimension, measures needed to be taken at the European level. This finding was further justified with the existence of a common monetary policy.

As regards the constitutional dimension of the debate, the Government first analyzed the obligations accepted at the time of acceding the Union, in particular those concerning budgetary deficits and their monitoring. The new measures were seen to enforce these obligations. The Government then pointed out that both the Accession Treaty and Lisbon Treaty had been approved through the procedure of exceptive enactments (see also question III.2), since they were found to include provisions that conflicted with the Constitution. The Commission proposals linked with various Sections of the Constitution: Section 3 establishing that ‘the legislative powers are exercised by the Parliament, which shall also decide on State finances’; with its Chapter 7 on State Finances and thus also with Section 1 establishing that ‘Finland is a sovereign republic’. The proposed regulations would also affect public finances in a wider perspective and outside state administration, including municipal and other regional self-government under Section 121, the Åland Islands under Section 120 and also indirect public administration. The key features of the Parliament’s budgetary powers involve questions relating to the state budget and supervision concerning its implementation (Section 83 of the Constitution), taxation and state debt (Section 82 of the Constitution). Particularly relevant from this perspective were the proposals linking to the limitations of public spending, required measures in the area of taxation and the limitations relating to public debt. In Conclusion, the Government found that the proposed measures did not add significantly to Finland’s previous obligations.

The Grand Committee returned to the matter after receiving the Government memorandum (SuVL 11/2010 vp) and after hearing the positive view of the Constitutional Law Committee on these findings, with some remarks concerning the individual instruments explained below. It gave a positive position, opening up the way for government agreement to the Six-Pack.

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)?

As far as we can see, Finland has not yet notified any legislative amendments for the Republic, only a number of pieces of legislation, some of them adopted in this context, for the Åland Islands (Lagtingsordning för Åland (No 97/2011); Landskapslag om Landskapsrevisionen (No 25/2013); Landskapslag om landskapets finansförvaltning (No 69/2012), Kommunallag för landskapet Åland (No 73/1997), Budgetförordning för landskapet Åland (No 70/1979).

Based on our consultations, the Ministry of Finance still seems to be in a process of preparing the relevant measures, even if it seems that most of the requirements are fulfilled by the Act relating to the adoption of the Fiscal Compact (see question IX.2). The government proposal relating to the Fiscal Compact makes explicit reference to various provisions of the directive and the aim of implementing them in the same context.

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

See also above question VII.1.

A key challenge relates to the relationship of the directive with Section 121 of the Constitution relating to Municipal and other regional self-government and stressing their independent position in relation to the central government:

Finland is divided into municipalities, whose administration shall be based on the self-government of their residents. Provisions on the general principles governing municipal administration and the duties of the municipalities are laid down by an Act.

The municipalities have the right to levy municipal tax. Provisions on the general principles governing tax liability and the grounds for the tax as well as on the legal remedies available to the persons or entities liable to taxation are laid down by an Act.

Provisions on self-government in administrative areas larger than a municipality are laid down by an Act. In their native region, the Sami have linguistic and cultural self-government, as provided by an Act.

Noting that the directive contains provisions involving local government (including municipalities), it infringes on matters that have usually been left to the municipalities to settle more or less independently (PeVL 49/2010 vp).

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 Ministry of Finance based on Government Decree No 610/2003.

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

This function is exercised by the National Audit Office. Provisions on its tasks relating to independent monitoring and evaluation of fiscal policy are laid down in the act on the implementation of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union and on multi-annual budgetary frameworks (No 869/2012) (see question IX.2  on the Fiscal Compact).

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 Finland 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?

The Government pointed out in its Memorandum (U 34/2010 vp) that the Commission proposal was linked to the experiences from the Stability and Growth Pact: recommendations do not work unless they are linked to possible sanctions. In the Government’s view, the measures proposed by the Commission would be used as a last resort, if a Member State were to repeatedly refuse addressing serious problems and imbalances. The Government took a positive view of this proposal, even if the legal basis was the one that provoked most discussion. The Constitutional Law Committee was also somewhat hesitant as regards the last point (PeVL 49/2010 vp). The Government also stressed that the sanctions were not automatic but resulted from a procedure consisting of a number of stages and were only to be applied in case Member State proved incapable of acting.

The Grand Committee established (SuVL 11/2010 vp) with reference to the findings of the specialist Committees that even if necessary as such, the proposed regulation would need to be specified as regards the economic indicators to be used by the Commission, keeping in mind that averting from the figures set by the Commission would lead to half-automatic sanctions. For this reason, the powers of the Commission needed to be specified through examples of possible future indicators or by presuming a consultation prior to the introduction of any new indicators. As indicated above under question VII.1, the Grand Committee also had concerns relating to the impact of the proposed measures on the EU interinstitutional balance.

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?

There has been no need to change the rules of budgetary process because of the MTO. In line with fiscal policy law the Government defines the MTO when adopting the Stability Programme. The Council of the European Union will assess the MTO and ensure that it is appropriate. Then it is the task of the National Audit Office of Finland (Fiscal Council, on which see also questions VII.5 and IX.2) which operates in affiliation with Parliament to ensure that the budgetary process is in line with the MTO and the fiscal policy rules. According to the Section 90 of the Constitution,  an  “independent body affiliated with the Parliament, the National Audit Office, exists to audit the financial management of the state and compliance with the budget.” The National Audit Office is directed by the Auditor General, who is elected by Parliament for a term of six years.

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)?

The existing budgetary timelines are in line with the new rules so that there has been no need to adjust them because of the European Semester.

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

The Government found that the Commission proposals to amend regulations 1466/97 and 1467/97 were in line with the Finnish position and interests and would strengthen the stability of euro area and the achievement of long-term goals (U 34/2010 vp).


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 Government is expected to take the Medium-term Objective into account according to fiscal policy rules when it adopts its framework decision on budget each year. The law obliges the Government to assess the need of corrective measures if a risk of deviation from the MTO is observes or if the National Audit Office interferes.

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

The minimum objective is -0,5%, leaving flexibility for reaching a higher percentage.  The objective is set in the Finnish Stability Program 2014, available at https://www.vm.fi/vm/fi/04_julkaisut_ja_asiakirjat/01_julkaisut/02_taloudelliset_katsaukset/20140411Suomen/name.jsp.

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

The MTO is proposed by the Ministry of Finance, and approved by the Government in the context of approving the stability program (see Article 2 of the Fiscal Compact Act, Laki on talous- ja rahaliiton vakaudesta, yhteensovittamisesta sekä ohjauksesta ja hallinnasta tehdyn sopimuksen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta ja sopimuksen soveltamisesta sekä julkisen talouden monivuotisia kehyksiä koskevista vaatimuksista and Government degree on julkisen talouden suunnitelmasta (120/2014). See also question VII.7).

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

For general considerations, see above question VII.1.

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

The Government expressed in Memorandum 34/2010 vp its general agreement with the proposal, which was found to contribute substantively to the credibility and implementation of the Stability Pact. The Government stressed the speedy nature of the new mechanism and the fact that it involved several subsequent stages, which contributed to their preventive nature. The Government expressed its support for the reversed qualified majority voting proposed, since the mechanism was to be as automatic as possible and contain little political discretion. It was also of importance that the mechanism could be used as soon as possible and also involves non-euro States. Sanctions involving the budget should be as comprehensive as possible, strengthening the elements linked to conditionality. Economic sanctions should be directed at national budgets, not private operators receiving support.

 

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?

No changes have been made to the rules on the budgetary process in order to comply with the six-pack rules specifically.

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

Not applicable.

France

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

Negotiation
VII.1
What positions did France 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?

The Six Pack[1] entered into force in the middle of the French Presidential campaign. Nicolas Sarkozy’s party and the main opposition party, the socialist party, had diverging understandings regarding the pace that had to be followed in reaching again a financial balance[2] but not regarding the need to adopt the Six Pack itself. At that point in time, France did not experience financial difficulties and tried, on the contrary, to be an example for the rest of Member States. Indeed, as it was also the case with other crisis instruments, the Franco-German tandem was very active in this matter. President Sarkozy and Chancellor Merkel sent a letter to the Presidents of the European Council and of the EU Commission on 6 May 2010 affirming the need to ‘reinforce the economic governance of the Eurozone’ and drawing three main areas in which intervention was needed:

1. ‘reinforcement of the budgetary surveillance within the Eurozone with a strengthening of the sanctions in case of excessive public debt and reinforcement of the coherence between the national budgetary procedures and the Growth and Stability Pact’

2. ‘Enlargement of the surveillance to structural and competiveness issues and to unbalances and reinforcement of the efficiency of the political economic recommendations of the Commission’

3. ‘For the future, the options to create a solid framework for crises resolution respecting the principle of budgetary responsibility of each Member State’[3].

This Franco-German commitment is further noticeable in the publication by finance ministers Lagarde and Schäuble on 21 July 2010 of a paper on the ‘European economic government’[4]. This paper contained concrete proposals developing the three main ideas above mentioned. These were most similar to those prepared by the working group led by Herman van Rompuy and those prepared by the EU Commission.

Two Senators, Pierre Bernard-Raymond (UMP at the time) and Richard Yung (PS) also prepared an information report[5]. Generally, they considered the reform of the Stability and Growth Pact to be necessary but they argued for other criteria, such as the investments made by a Member State for research and development, to be taken into account[6].

Still before the Six Pack entered into force, but later in time, the Socialist group of the Senate made a resolution proposal which, however, was rejected by the finances Committee. This resolution was very critical of the Six Pack, which was said to be insufficient and not taking into account the priorities defined in the strategy EU 2020 that were deemed to have become unreachable in this ‘context of generalized austerity policies’. Furthermore, the introduction of the reverse majority voting mechanism was said to result in a loss of power for the French state. This resolution proposal was rejected because it arrived too late both in the European and the national time-frame[7].

On the other hand, the EU affairs committee of the National Assembly organized a joint meeting with the members of the EU affairs committee of the Senate and the French MEPs on 30 March 2011 on the economic governance but no resolution was adopted[8].

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 implementation of Directive 2011/85/EU – and of the Six Pack in general – is strongly intertwined with the implementation of the TSCG (hence, see also part IX.4 ).

Directive 2011/85/EU was implemented by several laws and a decree.

The Decree on public budgetary and accounting management (Decree 2012-1246 of 7 November)[9], contains very detailed rules related to the public budget and its control, hence giving compliance to the European requirements in this domain. It updates and replaces provisions previously contained in several legal documents which now are all gathered in the Decree.

The Organic Law on Programming and Governance of Public Finances and the Programming Act for 2012-2017 also served the implementation of this Directive as mentioned in Part II.1. Indeed, Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States is said to be partially transposed in the Organic Law in its articles 1 to 5 and 11 to 23. However, it is not always clear which provisions of the Organic Law should be referred to the requirements of Directive 2011/85 or to those of the Fiscal Compact.  Only article 5(7) of the Organic Law mentions explicitly Directive 2011/85, in order to clarify the meaning of the requirements pertaining to the inclusion of the projections of the government on public finances in the informational reports annexed to the Programming Acts. In fact, this article contains the requirement anchored in Directive 2011/85/EU for Member States to prepare a medium-term budgetary framework that contains projections of each major expenditure and revenue item for the budget year and beyond, based on unchanged policies.

As regards the Programming Act for 2012-2017, it provided the first multiannual framework in respect with the European rules.

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

The need for a multiannual framework was not particularly difficult to implement since Programming Acts had existed since the constitutional reform of 2008. The Organic Law for the Programming and Governance of Public Finances modified their content by requiring that they also specify the trajectory of the effective and structural balances of public administrations in order to reach the Medium Term Objective. The other provisions of the Directive did not provoke any further implementation difficulties.

The Constitutional Council issued a decision on the Organic Law for the Programming and the Governance of the Public Finances but none of its declarations of unconstitutionality or its reserves of interpretation regarded financial measures. Of interest in the implementation of Directive 2011/85 is the freedom this decision guaranteed to Parliament at the time of approving annual Financial Acts and the protection of the Government’s prerogatives guaranteed in article 20 of the Constitution (‘The Government shall determine and conduct the policy of the Nation’) in spite of the existence of the Programming Act. (See also parts IX.4.).

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 Direction générale du Trésor (Treasury Direction general) of the Ministry of Finance and economy produces macroeconomic and budgetary forecasts.

The High Council of Public Finance, created by the law on the Programming and the Governance of Public Finances, is in charge of conducting an unbiased and comprehensive evaluation of these forecasts (see Part VII.5.).

It is worth noting that disagreements exist between the DG Treasury of the Ministry of Finance and Economy, Eurostat, the IMF, the EU Commission and the OECD regarding the value of the output gap as a result of different calculation methods of the structural balance. In her Information report prepared before the Debate of orientation in preparation of the budget for 2015, PS deputy Valérie Rabault underlined these differences and asked for a common definition between the Government, the parliamentarians and the EU Commission to be found.

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

France decided to create an independent fiscal council, the High Council of Public Finance (HCFP) created by the Organic Law 2012-1403 on the Programming and the Governance of Public Finances.

This Council is an independent body created within the Cour des Comptes (Court of Auditors – art. 11). Both organs assume complementary functions since the Cour des Comptes is, among others, responsible for the control of public expenditure and its certification and the High Council of Public Finance has to give opinions (avis) on the potential GDP and the macroeconomic previsions used as bases for the proposal of Programming Act and on the macroeconomic previsions at the basis of the proposal for yearly Budget Act and Social Security Financing Act.

Furthermore, article 17 of the organic law 2012-1403 foresees the intervention of the High Council of Public Finance after the Government has elaborated its Stability program and at least two weeks before the Stability program is submitted to the Commission. Its opinion is attached to the Stability program[10]. When the HCFP assesses the Stability programme, though, it takes the content of the Programming Act into account but its analysis is limited to the macroeconomic previsions used by the Government to present its Stability Programme.

It also intervenes after the proposal of each yearly Accounting Act (see below).

This intertwinement between both organs (HCFP and Court of Auditors) is further reinforced by the fact that the President of the Court of Auditors is also the President of the High Council of Public Finance. In fact, the High Council of Public Finance is composed of ten members in addition to its President: four judges of the Court of Auditors, four members nominated respectively by the President of the National Assembly, the President of the Senate, the Presidents of the finance committees of each assembly ‘because of their competences in the domain of macroeconomic previsions and public finances’ (art. 11(2)). These four last members are nominated after a joint public hearing by the committees of finance and the committee of social affairs of the designating assembly[11].

Another member is nominated by the President of the economic, social and environmental Council because of his or her competences in the domain of macroeconomic previsions and public finance; this member cannot have any elected public function at the time either. Finally, the General Director of the Institut national de la statistique et des études économiques (INSEE – National institute of statistics and economic research) is also a member.

All members – apart from the General Director of the National institute of statistics and economic research – are nominated for a mandate of five years, renewable once for the judges only[12]. Half of them are to be designated every 30 months. Furthermore, they all have to provide the President with a declaration of interests upon their designation.

The independence of the HCFP is essential and required by the European norms. The independence of the General Director of the INSEE was subject to discussion. Indeed, the INSEE is associated to the Ministry of Finance but the criterion of independence was considered to be fulfilled since this independence is recognised by the EU Commission due to the existence of European rules that guarantee it[13]. Furthermore, in spite of the fact that the independence of the other members is guaranteed by the incompatibility with any elective function and by the fact that none of the members are remunerated, the political balance between majority and opposition is secured since the president of the finance committee is always a member of the political opposition of each assembly[14].
As regards the independence of the Council itself, it is guaranteed by two elements: first of all, it is created within the Court of Auditors and, secondly, it was attributed a special budget deduced from that of the Court of Auditors in order not to increase the overall expenditure.
Finally, its independence is further ensured by its rules of procedures: its meetings take place upon a call of its President, it can organise hearings of any representative of an administration competent in the domain of public finances, statistics and economic forecast and it can call on any body or person outside of the public administration to assess the prospects for fiscal revenue, expenditure, balance or debt of the public administration. Additionally, the Government must answer any information request addressed to it while the HCFP prepares its opinion.

The HCFP is obliged to transparency, for example when it takes into account previsions on growth issued by bodies other than the EU Commission and the Government. Whenever it takes into account this external data, it must publish the list of the bodies which authored them.. Its members ought to keep any detail regarding its deliberations secret and are not allowed to publish any dissenting opinion. As was to be expected, the HCFP can only publish opinions when the Organic Law on the Programming and the Governance of Public Finances so foresees.

It is interesting to note that a rule guaranteeing equal numbers of men and women has been inserted in the Organic Law 2012-1403 whose article 11(4), par. 2 defines the modalities of the system for its respect. This innovative provision was added on a proposal by Senators André Gattolin and Jean-Vincent Placé.

The High Council of Public Finance has so far (August 2014) issued seven opinions and declared the activation of the correction mechanism (see Part II.1.).

The correction mechanism was included in the Organic Law 2012-1403 of 17 December 2012 on the Programming and Governance of Public Finances. Its Chapter IV defines that the High Council of Public Finance will issue an opinion on the Loi de règlement (Accounting Act) of the previous year in which it will compare the results of the execution of the previous year with the structural balance of the pluriannual orientations contained in the Law on the Programming of Public Finances. If it notes that an important deviation – as defined in the TSCG – exists, this observation will be stated in the opinion which is, in any case, always made public and transmitted to Parliament together with the act proposal. It should also take the existence of exceptional circumstances into account.

When such deviation exists, the Government has to explain the reasons for it when the project of Accounting Act is examined by each Chamber. It must also present the proposed corrective measures in a report mentioned in article 48 of LOLF. The Government should take account of this important gap in the Budget Act and the Social Security Financing Act of the next year by latest (it can also do so in an Amending Budget Act or an amending Social Security Financing Act)[15].

A report appended to the projects of the Budget Act and the Social Security Financing Act of the following year analyses the proposed correcting measures – which may affect all public administrations or some sub-sectors only – in order to respect again the multiannual orientations of structural balance defined in the Programming Act. This report will justify, if required, the differences between the content of the Programming Act in terms of the extent and the calendar of the proposed measures.

The Government may request the HCFP to state whether the exceptional circumstances defined in article 3 TSCG are met or have ceased to be.

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 France 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?

The adoption of Regulation 1176/2011 on the prevention and correction of macroeconomic imbalances has not provoked any particular difficulties in France and, generally, the political debate focused on the Six Pack or even on the European economic governance as a whole. As mentioned in part VII.1., France had been very much in favour of the Six Pack. Even the critical resolution proposal made by Nicole Bricq and other members of the Socialist Group of the Senate (see VII.1.) – which was not adopted – considered this novelty positively, though warning about the potential risks depending on the parameters chosen to determine the existence of imbalances.

However, in her report on the Amending Budget Act for 2012, PS senator Nicole Bricq considered for instance that it did not bring ‘anything particularly new’ compared to what existed before, this being due, according to her, to the fact that the legal basis provided by article 121 TFEU is rather weak.
This question was also discussed during the joint meeting organised by the EU affairs committee of the National Assembly with the members of the EU affairs committee of the Senate and the French MEPs on 30 March 2011 on the economic governance already mentioned. PS deputy Christophe Caresche highlighted the fact that it is absolutely necessary that macroeconomic indicators are also taken into account.

It should furthermore be noted that the EU Commission considers that France suffers from macroeconomic imbalances. In its 2014 in-depth review[16], it concluded that ‘France continues to experience macroeconomic imbalances, which require specific monitoring and decisive policy action.[…and that] The need for decisive action so as to reduce the risk of adverse effects on the functioning of the French economy and of the euro area is particularly important given the size of the French economy and potential spillovers onto the functioning of the euro area.’ It further concluded that ‘Given the need for policy action already called in the 2013 IDR, the Commission will put in motion a specific monitoring of the policies recommended by the Council to France in the context of the European Semester, and will regularly report to the Council and the Euro Group.’ 

France necessity to reform its economy is at the centre of the political debate since the publication of this review and the observation that the aim of the 3% deficit will not be matched in 2015. President Hollande launched a ‘pacte de responsabilité et de solidarité’ (responsibility and solidarity agreement) in January 2014 in order to remedy to the economic problems France is currently facing and further reforms are expected in autumn 2014. Furthermore, the majority (PS) is divided since spring 2014 and some of its members urge the President to change the orientation of his economic policy.

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?

As mentioned in Part II.1., the requirement to define a medium-term budgetary objective (MTO) procedure has been included in the Organic Law 2012-1403 of 17 December 2012 on the Programming and Governance of Public Finances.

Its article 1 states that ‘In the respect of the aim of account balance of public administrations contained in article 34 of the Constitution, the Programming Act defines the medium term objective of public administrations mentioned in article 3 of the treaty on stability, coordination and governance in the economic and monetary union, signed in on 2 March 2012, in Brussels.’ 

The current medium-term budgetary objective of France foresees that France will reach structural balance by 2016 (see Part VII.11. for more information on this point).

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)?

The new rules on a European semester for economic policy coordination have led both assemblies to follow up and prepare communications, resolutions and reports at the different stages of the European Semester since its introduction in 2011.

For instance, the National Assembly has started following up intensively the procedure of the European Semester, publishing communications and reports on the recommendations of the Commission on the Stability Programme for example. It also repeatedly insists on the necessity to imply the French Parliament further by allowing it to present amendments on the stability programme for example. A similar evolution is visible in the Senate where ‘the ‘moments’ of the European semester are linked to publications by the finance committee on the programming – or the execution – of public finances: in consequence the European semester is perfectly integrated to its activities’[17].    
The opinions of the Commission and/or the Council are commented on during the Debate on the Orientations of Public Finances in June, allowing the deputies and senators to take them into account when discussing in the view of the preparation of the Budget Act of the following year.

Additionally, art. 14 of the Programming act for 2011 (law 2010-1645 of 28 December 2010) contained the obligation for the Government to provide the Parliament with its project of Stability program at least two weeks before its transmission to the EU Commission. It foresaw that Parliament would debate on this project and express its opinion through a vote[18]. This possibility for parliamentary participation has been widened by the organic law 2012-1403 whose article 10 now provides for the possibility to organise debates in the National assembly and the Senate ‘when European Union law institutes coordination procedures of the economic and budgetary policies that require the exchange and examination, at periodic intervals, of documents produced by the Government and the European institutions’[19]. Although the content of this article is rather vague in its reference to ‘documents produced by the Government and the European institutions’ exchanged ‘at periodic intervals’, a reference to the documents exchanged during the European Semester introduced by the Six Pack should surely be seen here, although this article provides a basis for parliamentary debates on documents sent in the framework of the Two pack arrangements too.

Furthermore, article 50-1 of the French constitution that foresees that ‘The Government may, before either House, upon its own initiative or upon the request of a political group, as set down in article 51-1, make a declaration on a given subject, which leads to a debate and, if it so desires, gives rise to a vote, without making it an issue of confidence’ was also used in 2011 in the Senate regarding the Stability programme.

In spite of the change in the scheduling of the presentation of the stability programmes (previously, multiannual programs were presented in December and covered a period of three years starting from the following year whereas the stability program presented in spring in the framework of the European Semester contains previsions that start the following year), according to the President of the Haut Conseil des Finances Publiques ‘the new European rules adopted in 2011 did not substantially modify the conditions in which the Government prepares and presents its stability program.”[20]

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

Regarding the need for a MTO itself, it was generally accepted[21]. The need for healthy public finances was presented as a national necessity as well given the deficit France has been suffering from for a decade, and given the fact that the reimbursement of the French debt amounted to a large part of the budget[22].

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 High Council of Public Finance checks the coherence between the Programming Act and the Medium-Term Budgetary Objective and the European commitments towards the European institutions of the French State.

Since the adoption of the Organic Law on the Programming and Governance of Public Finances in 2012, each proposal for a Budget Act must contain a ‘article liminaire’ (preliminary article) in which a table will state the prevision of structural and effective balance for all public administrations for the year of the Budget Act (that is, the following year). This table should also contain the same information regarding the previous year and the expected figures for the current year. This preliminary article is common to the initial Budgetary Act and Social Security Financing Act but in the event of the proposal for an amending Budget Act or Social Security Financing Act, each proposal will contain its own preliminary article. This preliminary article facilitates the Parliament’s task since it now has an overview of the financial situation in one document.

When the Budget Act proposal (or amending Act proposal) is submitted to the HCFP, it assesses two elements. The first one is the macroeconomic previsions at the basis of the proposal and the second one consists in the assessment of the coherence between the preliminary article and the structural balance pluriannual orientations contained in the Programming Act in order to reach the MTO. For example, in its opinion on the Budget Act proposal and Social Security Financing Act proposal for 2014, it clearly indicated the lack of respect of the orientations contained in the Programming Act in terms of structural deficit and warned the Government that the correction mechanism could be activated in May 2014. And so it was. (See Part VII.5. on the activation procedure). Furthermore, according to article 9 of the Programming Act, the Government has to provide the Parliament with a report before the Debate on the orientations of Public Finances organised in June (this is the preparatory debate before the Budget Act proposal is debated after the summer). In this report, the Government has to justify any potential gap between the Programming Act in force and the last Stability Programme transmitted to the Commission.

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

France’s current medium-term budgetary objective is contained in the Law 2012-1558 of 31 December 2012 on the Programming of Public Finances for 2012-2017 and it foresees that France will reach structural balance by 2016. It should however be reminded that the Programming Act are ordinary laws in France and are not fully binding neither on the Government nor on the Parliament when they elaborate the annual Budget Act and of the Social Security Financing Act (see Part VII.3.).  

Although this law covers a 5-year period ending in 2017[23], it will be revised in autumn 2014: the French Government has announced that it will present a proposal in September 2014, in spite of the fact that the previous law was only adopted in December 2012. As stated in part II.1., the Programming Acts can be revised at any point in time, the condition of a change in government foreseen in article 11 of Directive 2011/85/EU has not been introduced in the National law. This is a consequence of the interpretation made by the Constitutional Council in its decision of 13 December 2012[24] (on this point, see question VII.2. as well).

Arguably, this possibility to adopt a new law at any point in time might, in the long run, undermines the efficiency of the corrective measures created in implementation of the European norms.

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

France medium-term budgetary objective is incorporated in the Programming Act adopted by Parliament. The Programming Act also contains the trajectory that will permit the achievement of this Objective.

The stability programme is prepared by the Direction générale du Trésor of the Ministry of Finance and Economy. In this programme, details as to how the Objective will be achieved are given. For example, in the latest Stability Programme (2014-2017), there is a chapter dedicated to the global strategy and the medium-term objective in which the French Government explains the actions it intends to take and how they will permit the achievement of the Objective.

According to article 9 of the Programming Act, the Government has to provide the Parliament with a report before the Debate on the orientations of Public Finances organised in June (this is the preparatory debate before the Budget Act proposal is debated after the summer). In this report, the Government has to justify any potential gap between the Programming Act in force and the last Stability Programme transmitted to the Commission.

In January 2014, a new Council, the Conseil stratégique de la dépense publique (Strategical Council of Public expenditure) was established by a Decree in order to propose and follow up the programme of development of structural savings presented in the stability programme. This Council is chaired by the President of the Republic and composed of the Minister of Finance, Minister of Economy, Minister of Social Affairs and Health, Minister of Employment, Minister in charge of the Reform of the State, decentralization and public service and the Secretary of State in charge of the Budget. For instance, in 2014, they analysed – at the highest possible level – all potential sources of economy, including the local and social expenditure.

The decisions made by the Council will be put into place and taken into account in the next Programming Act.

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

During the debates that took place before the regulation proposal was made, France defended a semi-automatic sanction mechanism so that politicians would still have a say on its activation and it would not be let to experts[25].

When discussing about the Six Pack proposals, the members of the EU affairs committee of the Senate did not question the lack of legitimacy of the reformed Excessive deficit procedure, rather they pointed at the inefficiency of the preexisting system and the potential inefficiency of the reinforced one for some of them. They considered the possibility to introduce political sanctions instead of monetary ones.

France is additionally particularly impacted by the excessive deficit procedure since its excessive deficit was declared by the Commission in 2009. France was given until 2015 to correct this excess but the latest economic forecasts indicate that respecting this deadline might be difficult. In fact, PS secretary Jean-Christophe Cambadélis considered it ‘inevitable’ to change the criterion of 3% defined before crisis and there are hints that the 1% growth the Government foresaw for 2014 will not be reached[26].

Sanctions
VII.14

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

With regard to the sanctions contained in this Regulation specifically, this question was first of all considered ‘probably the most delicate one in the framework of the negotiations on the reform of the European economic governance’[27]. France had expressed its wish that the sanctions should not be completely automatic, and favoured the fact that the sanctions proposed by the Commission could be rejected by a simple majority of Member States instead of a qualified majority[28]. This opposition to the reverse qualified majority voting was also voiced during the debate of the resolution proposal prepared by Senator Nicole Bricq on behalf of the Socialist group – which was nevertheless never adopted -: it was said to ‘threaten National parliaments’ sovereignty’[29]. A large political consensus existed on this point in the Senate. The democratic deficit stemming from the automatic character of the sanctions was also mentioned again during the debates organized on the Fiscal Compact in the National Assembly[30]. Hence, it seems that this question has been subject to large parliamentary attention.

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?

Not applicable

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

Not applicable.

[1] As mentioned above, it is often difficult to differentiate which elements of the public debates referred specifically to the Six Pack since discussions took place simultaneously on the other crisis measures.

[2] Indeed, while President Sarkozy claimed that delaying this change of one year to 2017 would have a negative impact, socialist senator Nicole Bricq considered such a delay to be safer for the economic growth. Information report on the Government’s stability programme. 17 April 2012, p.28. 

[3] ‘1°) « un renforcement de la surveillance budgétaire dans la zone euro, comportant des sanctions plus efficaces pour les procédures de déficit public excessif et renforçant la cohérence entre les procédures budgétaires nationales et le Pacte de stabilité et de croissance » ;

2°) « l’élargissement de la surveillance aux questions structurelles et de compétitivité et aux déséquilibres et le renforcement de l’efficacité des recommandations de politique économique de l’Union européenne»;

3°) « pour l’avenir, les options pour créer un cadre robuste pour la résolution des crises respectant le principe de la responsabilité budgétaire de chaque État membre ».

Letter quoted in the information report prepared by Senators Pierre Bernard-Raymond and Richard Yung on behalf of the EU affairs committee on the economic European governance, 19 October 2010, p.32.

[4] Ibidem.

[5] Ibidem.

[6] Ibidem, p.38.

[7] The proposal was made on 20 June 2011 though the Six pack proposal had already been examined by the Senate in Autumn 2010.

[8] Meetings with different institutional actors have been regularly organized by the National assembly in the framework of the crisis. For example, a round table was organized by the Foreign affairs Committee on 14 October 2013 regarding the introduction of the new agenda by the Two pack with the French executive, the European parliament and the French parliament.

[9] Although it does not make any direct reference to the European Directive and only refers to the Organic Law on Public Finance of 2001, this Decree does indeed contain provisions that permit the implementation of the Directive.

[10] The obligation for Member States to submit a yearly Stability program has not been introduced by the Six Pack but the Six Pack has modified the date of its presentation. Hence the mention of this provision in this part of the report.

[11] The original Organic Law proposal foresaw that also the nomination of the four judges and the member nominated by the president of the Economic, social and environmental Council should depend on a parliamentary hearing. However, the Constitutional Council struck down this provision in order to protect the separation of powers: such hearings cannot be introduced by an organic law but have to be contained in constitutional provisions. Constitutional Council 13 December 2012, 2012-658 DC and Romain Bourrel, “La validation par le Conseil constitutionnel de la “nouvelle Constitution financière » de la France », AJDA, 2013, p. 478, 2013, p. 479.

[12] Some exceptional rules have however been defined for the first functioning period of five years of the High Council, during which some members were only designated for a period of 30 months.

[13] Michel Lascombe, « La nouvelle gouvernance financière », AJDA 2013 p.228, 2013, p.7..

[14] Ibidem.

[15] Note that the expression ‘take account’ may seem a bit weak.

[16] COM(2014) 150 final.

[17] Answer provided by the French Senate to the questionnaire of the COSAC in preparation of its 21st bi-annual report.

[18] In 2011 for example, the Senate Finances Committee first adopted an information report, then the Government made a declaration that was followed by a vote. Finally, a European resolution was approved in reaction to the Commission’s recommendations on the Stability and Reform programs. In 2012, elections disturbed this process and a debate with the ministers in charge could only be organized within the Finance Committee which also adopted an information report. 

[19] Own translation. Article 10 (full text) : ‘Lorsque le droit de l’Union européenne institue des procédures de coordination des politiques économiques et budgétaires qui comprennent l’échange et l’examen, à échéances périodiques, de documents produits par le Gouvernement et par les institutions européennes, des débats peuvent être organisés à l’Assemblée nationale et au Sénat aux dates qui permettent la meilleure information du Parlement.’

[20] Hearing before the National assembly finances committee, 16 April 2013, p.4

[21] In fact, in their information report on the European economic governance, deputies Herbillon and Caresche simply mentioned the fact that the pre-existing OMT system was maintained.

[22] For instance, in its note accompanying the project of Programming Act for 2012-2017, the Government declared ‘Alors que la charge de la dette est aujourd’hui le premier poste du budget de l’Etat, la France doit retrouver des marges de manoeuvre pour assurer son avenir et son indépendance face aux marchés financiers’ (At a time when the cost of the debt is the first item of the State budget, France must regain margins of manoeuvre to ensure its future and its independence vis a vis financial markets.’). Furthermore, the constitutional reform conducted in 2008 inserted an ‘objective of balanced budget’ in article 24 of the Constitution.

[23] In reality, only part of the law indeed covers a five-year period (this is the case of the OMT indeed). Some of its provisions only contain pluriannual orientations for a three-year period, which is the minimal period this law has to cover. For instance, the State participation to the financing of territorial entities (collectivités territoriales) is only defined for three years in the law in force.

[24] Constitutional Council 13 December 2012, 2012-658 DC.

[25] Information report prepared by Senators Pierre Bernard-Raymond and Richard Yung on behalf of the EU affairs committee on the economic European governance. 19 October 2010. p.53.

[26] GDP growth has been of 0% both during the 1st and the 2nd trimester of 2014 making it difficult to reach the 1% objective defined for 2014.

[27]  Information report prepared by Senators Pierre Bernard-Reymond and Richard Yung on behalf of the EU affairs committee on the economic European governance. 19 October 2010. p.50.

[28] Ibid., p. 53. In fact, the Franco-German declaration adopted on this matter on 18 October 2010 advocated the use of classical qualified majority voting procedures in the Council instead of reverse majority voting procedures.

[29] Debate organised on 6 July 2011. http://www.senat.fr/compte-rendu-commissions/20110706/2011-07-06.pdf

[30] Intervention of PS deputy Christophe Caresche during the debate on his resolution proposal on the economic revival and the reinforcement of the democratic control, which was finally rejected. http://www.assemblee-nationale.fr/13/rapports/r4344.asp

Germany

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

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

No positions known.

 

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

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

The directive was implemented by the ‘Law on the domestic implementation of the Fiscal Compact’ from 15 July 2013 (see question IX.4).

 

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

 

No particular discussions known.

 

Macroeconic 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 forecasts regarding tax revenues is made by a working committee of the Federal Ministry of Finance which exists since 1955. This institution consists of one representative from the Federal Ministry of Finance, one from the Federal Ministry for Economic Affairs, representatives of five institutes for economic research, one from the Federal Statistics Office, one from the German Bundesbank, one from the German Council of Economic Experts, one from the Finance ministries of the Länder and one from the federal union of the communalities.

The macroeconomic forecast is developed by the Federal government.

 

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

Yes. This function is fulfilled by the stability council (“Stabilitätsrat”) pursuant to Article 6 of the Stability Council Law. The Stability Council consists of the Federal Finance Minister, the Federal Minister for Economic Affairs as well as the Finance Ministers of the 16 Länder. In order to fulfil the requirement of an independent body the stability council has an independent advisory council which can issue reports and comments on the development of the public deficit (§ 7 of the Stability Council Law). The advisory council consists of one representative from the Bundesbank, one representative from the German Council of Economic Experts, one representative from the research institutes which participate, two experts nominated by the Federal Republic and the Länder, one expert nominated by the communalities and one expert nominated by the social insurances.

 

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 Germany 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?

The parliamentary group the Left (Die Linke) from the opposition demanded that the social implications of such measures must be taken into account and that one of the reactions to the increase of public spending must be the consideration of higher wages. In addition, they pleaded for the establishment of a European Bank for public securities whose role would be to buy public securities from money borrowed from the ECB.[1]

 

 

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?

See question IX.4.

 

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)?

See question IX.4.

 

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

 

The parliamentary group the Left (Die Linke) asked the Federal Government not to vote in favour of the Regulation but to campaign for a “European Compensation Union” (“Europäische Ausgleichsunion”) which is entitled to impose penal interests on accumulated current account surpluses in order to finance a structure and cohesion fund for the promotion of a structural change in the deficit countries to increase the productivity. Moreover, the German Bundestag shall develop a draft legislative act which increases the wages (including a minimum wage of Euro 10 per hour), increases public investments and promotes the social state.[2]

 

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)?

 

It is laid down in Article 51 (2) of the Law on the budgetary principles (“Haushaltsgrundsätzegesetz”).

 

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

 

The 2014 MTO was at 1.1 % of the GDP.

 

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

See question IX.4.

 

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

See question VII.9.

 

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

See question VII.9.

           

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?

No necessary amendments known.

 

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

The decision of the German Federal Constitutional Court (see question V.4).

 

[1] German Bundestag, printed matter 17/5905, 25 May 2011, http://dipbt.bundestag.de/doc/btd/17/059/1705905.pdf

[2] German Bundestag, printed matter 17/5904, 25 May 2011, http://dipbt.bundestag.de/doc/btd/17/059/1705904.pdf

Greece

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

Negotiation
VII.1
What positions did Greece 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?

The position of the Government during the negotiations of the “six-pack” was not much discussed in public debates or in Parliament. Negotiations took place at the same time with the Greek bail-out negotiations and thus the latter monopolized public and parliamentary discussion. The “six-pack” enhanced budgetary surveillance and discipline was generally perceived by the Greek Government as a necessary step for further European integration.

The position of the Government was clarified by Papandreou, the Prime Minister at the time of the negotiations, in an interview given immediately after the September 2010 Euro-Summit. According to Papandreou, Greece was not opposed to a European mechanism of fiscal surveillance and to sanctions; he observed that, if such a mechanism existed some years before, it would have prevented the Greek crisis. However, he accentuated issues of justice and other aspects of economic governance, such as issues concerning fiscal paradises, sanctions against banks, growth and competitiveness. He stressed that austerity should be replaced by responsibility concerning macroeconomic figures, growth strategy and transition to a “green” economy. Papandreou proposed three tools to this direction: issuing of “green bonds”, imposition of the Tobin tax and of CO2 taxation.[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)?

Statute 4270/2014 implemented Directive 2011/85/EU into the Greek legal order.[2] The statute was introduced to Parliament on the 3rd of June 2014 and was discussed and voted on the 26th of June 2014. It entered into force on the 28th of June.[3] Apart from the implementation of the Directive, the statute aimed at the systematization of the Greek budgetary process, until then dispersed in various legal texts.

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

No serious political/legal difficulties were encountered during the implementation of Directive 2011/85/EU. Since Greece was subject to an Economic Adjustment Programme already providing for stringent economic supervision rules, the Directive was hardly a matter of public discussion. The Directive was implemented with statute 4270/2014.[4]

During parliamentary debates for the voting of the statute, the Directive was presented by the Government as a move for the consolidation of Euro-area Member States’ economies through the adoption of common rules and principles. It was also perceived as a proof that the Eurozone functions within the EU legal framework. In substance, the Government representative argued that the statute implementing the Directive would modernize the Greek budgetary procedure in order to avoid the deficits of the past.[5]

The representative of SY.RIZ.A. objected that the statute was imposing more stringent economic governance and was further removing issues from the political forum, in order to subject them only to evaluation according to technocratic standards. He contested the effectiveness of the measures from the point of view of economic rationality and he reproached the limited participation of Parliament to the choice of the members of the Fiscal Council instituted by the statute.[6]

The representative of PA.SO.K. responded that the adoption of growth policies would be only possible at a European level, while the political will of European leaders is absent.[7]

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)?

According to article 21 of statute 4270/2014, the General Accounting Office of the State (a service under the Ministry of Finance) is competent for producing macroeconomic and budgetary forecasts. The same statute instituted an Independent Fiscal Council according to the provisions of Directive 2011/85/EU, which is charged with the evaluation of these forecasts.[8]

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

Greece instituted a Fiscal Council (called Hellenic Fiscal Council) with statute 4270/2014,[9] in order to implement Directive 2011/85/EU. This Council is an Independent Administrative Authority; its main characteristic is its functional independence and the personal independence enjoyed by its members.

The Council’s Board of Directors (President and four members) is staffed following an open call: a committee composed by the Minister of Finance, the Governor of the Bank of Greece and the President of the Court of Audit select the most competent candidates (according to objective and predetermined criteria). The final selection of the members of the Board among these candidates belongs to the discretion of the Government. The selected persons must be subsequently approved by the special permanent parliamentary committee for Institutions and Transparency. They are nominated by the Minister of Finance for 5 years. Technocratic economic knowledge is the main criterion for being eligible as a member of the Council.

The Council is financed by the Budget and is responsible for managing its revenues and expenses.[10]

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 Greece 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 serious political/legal difficulties were encountered by Greece about the implications of Regulation No 1176/2011. Generally, debates at the time were focused on the Economic Adjustment Programme. However, the “six-pack” was perceived by the opposition as a prolongation of budgetary surveillance and discipline in EU Member States. Chountis, an MEP of SY.RIZ.A. (at the time in the opposition), in a relevant question to the European Commission in September 2013, argued that the “six-pack” and the “two-pack” limit Member States’ sovereignty and democratic rights. He further argued that these EU legal instruments “institutionalize unprecedented interventions by EU institutions and by strong Member States to the sovereign exercise of economic and fiscal policy at the domestic level, and render permanent a stringent austerity regime to the detriment of European peoples”.[11]

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?

Law 3871/2010 first established the obligation to draw up a Medium term budgetary framework.[12] Subsequently law 4270/2014 incorporated the rules concerning the medium term framework into the new budgetary process that it instituted and further harmonized Greek law to the precepts of the “six-pack” and especially to Directive 11/85/EU.[13]

Article 14 of the statute defines the MTO as “the medium term budgetary objective, according to what is defined in paragraph 1 of article 3 of the Treaty on the Stability, Coordination and Governance in the EMU”. Article 35 of the statute announces the Budgetary Position Rule, according to which the annual General Government structural balance should correspond to the MTO. Further, the same article defines maximum and minimum limits for the MTO, following Section 1-Aa of the consolidated Regulation (EC) No 1466/97. Article 35 provides that the MTO is mentioned in the Medium term budgetary framework and in the introductory report to the Annual Budget; the Minister of Finance re-examines the MTO at least every three years, according to the Stability and Growth Pact procedures.

Temporal deviation from the MTO is allowed only in exceptional circumstances, and only under the condition that such deviation will not endanger medium term fiscal sustainability, or in times of implementation of major structural reforms. Finally, article 35 defines for the first time a MTO on structural balance. Article 36 sets the MTO concerning the debt/GDP ratio according to the precepts of Directive 11/85/EU and article 2 of the consolidated Regulation (EC) No 1466/97. Article 37 announces the adjustment path rule, according to the precepts of amended Section 1-Aa of Regulation (EC) No 1466/97 and allows for deviations from this rule only in exceptional circumstances, and only under the condition that such deviation will not endanger medium term fiscal sustainability, or in times of implementation of major structural reforms.

Articles 38-40 regulate the corrective mechanism procedure, activated after initiative of the Minister of Finance, the Fiscal Council, or automatically after recommendation by the European Council, in case of important deviations from the MTO or the adjustment path. They describe the procedure and the content for the adoption of a corrective action plan, whose implementation is monitored by the Fiscal Council with the regular publication of relevant reports. Finally, article 41 provides that, if the country is under an economic adjustment programme (which is the case of Greece), the fiscal rules of articles 35 f. and their adjustment path are defined in this programme, in which the corrective action plan is incorporated as well.[14]

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)?

Law 3871/2010 for the first time defined a specific budgetary time-line, before the “six pack”.[15] According to this statute, the timeline of the budgetary cycle is divided in calendrical stages accordingly:

1) January-March (1st Stage): the General Governmental Strategy is defined and the Medium Term Framework of Budgetary Strategy is compiled.

2) April-May (2nd Stage): The Medium Term Framework of Budgetary Strategy is approved by the Ministerial Council and is approved by the Parliament.

3) June-July (3rd Stage): The budgetary process for Central Government begins, together with the preparation of the budget of the rest of the institutions of General Government.

4) August-October (4th Stage): Negotiations between the Ministry of Finance and the Ministries concerning their budget and timely preparation of the Social Budget.

5) November-December (5th Stage): Submission and voting of the Central Government Budget by Parliament with a parallel publication of the budget of the remaining institutions of General Government (Social Security Funds, Hospitals, Local Authorities).[16]

Statute 4270/2014 incorporated this time-line into the new budgetary process that it instituted (article 54) and further harmonized domestic law to the “European semester”.[17] Thus, it provided that the Fiscal Council (an independent administrative authority instituted for the first time by the same statute) will publish twice per year, in conformity with the “European Semester” time-line, a report in which it will elaborate its conclusions concerning the macroeconomic and fiscal forecasts, the fiscal objectives and the fiscal results.[18]

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

The regulation was not particularly discussed during public or parliamentary debates. The MTO was perceived as a rule imposed by Directive 11/85/EU. During parliamentary debates for the voting of the statute 4270/2014, which harmonized Greek budgetary process with the “six-pack” precepts, the representative of SY.RIZ.A. objected that the statute was imposing more stringent economic governance and was further removing issues from the political forum, in order to submit them only to technocratic standards. He contested the effectiveness of the measures from the point of view of economic rationality and he reproached the limited participation of Parliament to the choice of the members of the Fiscal Council.[19] The representative of PA.SO.K. responded that the adoption of growth policies would be possible only at a European level, while the political will of European leaders is absent.[20]

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)?

Statute 4270/2014 harmonized the Greek budgetary process with the “six-pack” precepts and introduced the MTO procedure.[21] Article 35 provides that the MTO is mentioned in the Medium term budgetary framework and in the introductory report to the Annual Budget; the Minister of Finance re-examines the MTO at least every three years, according to the Stability and Growth Pact procedures. Temporal deviation from the MTO is allowed only in exceptional circumstances, and only under the condition that such deviation will not endanger medium term fiscal sustainability, or in times of implementation of major structural reforms. Finally, article 35 defines for the first time a MTO on structural balance. Article 36 sets the MTO concerning the debt/GDP ratio according to the precepts of Directive 11/85/EU and article 2 of the consolidated Regulation (EC) No 1466/97. Article 37 announces the adjustment path rule, according to the precepts of Section 1-Aa of the consolidated Regulation (EC) No 1466/97 and allows for deviations from this rule only in exceptional circumstances, and only under the condition that such deviation will not endanger medium term fiscal sustainability, or in times of implementation of major structural reforms. Articles 38-40 regulate the corrective mechanism procedure, activated after initiative of the Minister of Finance, the Fiscal Council, or automatically after recommendation by the European Council, in case of important deviations from the MTO or the adjustment path. They describe the procedure and the content for the adoption of a corrective action plan, whose implementation is monitored by the Fiscal Council with the regular publication of relevant reports. Finally, article 41 provides that, if the country is under an economic adjustment programme (which is the case of Greece), the fiscal rules of articles 35 f. and their adjustment path are defined in this programme, in which the corrective action plan is incorporated as well.[22]

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

Greece was expected to increase its primary surplus from 2.5% GDP in 2015 to 5.3% GDP in 2018. The debt/GDP ratio was expected to gradually decrease from 168.3% GDP in 2015 to 139.1% GDP in 2018.[23] In 2013 and 2014, Greece achieved its MTO. The objective, announced in the Medium term budgetary framework, should have been revised by April 30; however, though the procedure for its revision was initiated in March, the lack of agreement with Greece’s creditors has perturbed the process.[24]

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

According to article 35 of statute 4270/2014, the MTO is mentioned in the Medium term budgetary framework and in the introductory report of the Annual Budget. These documents are drawn up by the General Accounting Office of the State, a service of the Ministry of Finance (articles 20 and 21). The same article imposes that the Minister of Finance re-examines the MTO at least every three years, according to the procedures set in the Stability and Growth Pact.[25]

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

No serious political/legal difficulties were encountered by Greece about the implications of Regulation No 1177/2011. Generally, debates at the time were focused on the Economic Adjustment Programme. However, the “six-pack” was perceived by the opposition as a prolongation of budgetary surveillance and discipline in EU Member States. Chountis, an MEP of SY.RIZ.A., in a relevant question to the European Commission, argued that the “six-pack” and the “two-pack” limit Member States’ sovereignty and democratic rights. He further argued that these EU legal instruments “institutionalize unprecedented interventions by EU institutions and by strong Member States to the sovereign exercise of economic and fiscal policy at the domestic level, and render permanent a stringent austerity regime to the detriment of European peoples”.[26]

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

No serious political/legal difficulties were encountered by Greece about the implications of Regulation No 1173/2011. Generally, debates at the time were focused on the Economic Adjustment Programme. However, the “six-pack” was perceived by the opposition as a prolongation of budgetary surveillance and discipline in EU Member States. Chountis, an MEP of SY.RIZ.A., in a relevant question to the European Commission, argued that the “six-pack” and the “two-pack” limit Member States’ sovereignty and democratic rights. He further argued that these EU legal instruments “institutionalize unprecedented interventions by EU institutions and by strong Member States to the sovereign exercise of economic and fiscal policy at the domestic level, and render permanent a stringent austerity regime to the detriment of European peoples”.[27]

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?

Law 3871/2010 brought about important amendments to the Greek budgetary process, some months after the agreement of the First Economic Adjustment Programme (cf. questions II.1 f.). These amendments overlap with the “six-pack” rules. Subsequently, statute 4111/2013 established fiscal rules and practices for General Government institutions and services. Most importantly, every institution or service must set budgetary objectives according to the Annual Budget voted by Parliament.[28]

Statute 4270/2014 incorporated these changes into a systematic text and further harmonized the Greek budgetary process with the “six-pack” rules. Apart from the particular changes discussed in the previous questions (creation of an independent fiscal council, harmonization with the European semester, MTO and medium term budgetary framework etc.), the statute established the legal framework for the fiscal surveillance of General Government sub-sectors. Thus it imposes the adoption of specific fiscal rules at the level of General Government combined with clear economic objectives and with a clearly defined adjustment path for their achievement, as well as with a corrective mechanism in case of deviation from these objectives. The function of Authorizing Officer is separated from and incompatible with that of the Head of Financial Service of General Government institutions and the Head of Financial Service acquires more competences. Both the Authorizing Officer and the Head of the Financial Service of each institution must sign decisions concerning the assuming of obligations by General Government sectors (articles 24 f.). Further, the statute clearly defines the institutional framework of the budgetary process and the competences of the various authorities (articles 18 f.). It states the general principles governing the management of General Government finances (principle of reasonable financial management, of responsibility and reason giving, of transparency, of sincerity (article 33). The statute also enounces some principles concerning pluriannual fiscal planning (article 34): it should give priority to the repayment of the debt and to the consolidation of fiscal and economic stability, it should be unitary and concern all General Government sectors, it should be based on medium term forecasts, it should be transparent and subject to scrutiny by independent authorities.[29]

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

No information retrieved.

[1] Cf. the reportage on Papandreou’s speech after the Summit, To Vima, 16 September 2010, available at http://www.tovima.gr/finance/article/?aid=354834.

[2] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision (incorporation of Directive 1176/2011), public accounting and other provisions. For the situation before this statute, cf. European Commission, Occasional Paper on the European Economy, no 128, Interim Progress Report on the implementation of Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States, February 2013, available at http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/ocp128_en.pdf.

[3] Cf. http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=9be63580-976a-4580-a440-8bb787a2c0bc.

[4] Cf. question VII. 2.                                                

[5] Cf. Minutes of the Greek Parliament, 26 June 2014, http://www.hellenicparliament.gr/UserFiles/a08fc2dd-61a9-4a83-b09a-09f4c564609d/es20140626.pdf, 290 f.

[6] Cf. the relevant debates, cited above, at 295 f.

[7] Cf. ibid, 297 f.

[8] Cf. Part A’ of the Statute.

[9] Cf. question VII. 2.                                                

[10] Cf. Part A’ statute 4270/2014.

[11] Cf. the relevant question by N. Chountis, available at http://www.europarl.gr/el/greek-meps/meps-activity/meps-activity-2013/september/sepmep14.html;jsessionid=5AD5723EAD20226EBB639DF77A7880C4.

[12] See question II.2.

[13] Cf. Part B’ statute 4270/2014.

[14] See the explanatory report to statute 4270/2014, available at http://www.hellenicparliament.gr/UserFiles/2f026f42-950c-4efc-b950-340c4fb76a24/a-apred-eis-olo.pdf.

[15] Cf. question II.4.

[16] See the informative note accompanying the bill, http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=22cdbbfe-ed73-4fe5-8f49-d6a1c6f88494. See also the explanatory report to the bill, available at http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=22cdbbfe-ed73-4fe5-8f49-d6a1c6f88494.

[17] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision, public accounting and other provisions.

[18] Article 2 paragraphs 4 f.

[19] Cf. the relevant debates, cited above, at 295 f.

[20] Cf. ibid, 297 f.

[21] ΦΕΚ Α’ 143/28-6-2014, principles of fiscal management and supervision (incorporation of Directive 1176/2011), public accounting and other provisions, Part B’.

[22] See the explanatory report to statute 4270/2014, available at http://www.hellenicparliament.gr/UserFiles/2f026f42-950c-4efc-b950-340c4fb76a24/a-apred-eis-olo.pdf.

[23] Cf. the Medium term budgetary framework (Law 4263/2014), ΦΕΚ 117 Α‘/14.05.2014, available at http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=b65768b8-fbd9-42c8-ab30-627e8c36bdf1.

[24] Cf. circulars 2/16590/ΔΠΔΣΜ/6.3.2015 and 2/17310/ΔΠΓΚ/10.3.2015, published on 11/3/2015, available at https://diavgeia.gov.gr/.

[25] ΦΕΚ Α’ 143/28-6-2014.

[26] Cf. the relevant question by N. Chountis, available at http://www.europarl.gr/el/greek-meps/meps-activity/meps-activity-2013/september/sepmep14.html;jsessionid=5AD5723EAD20226EBB639DF77A7880C4.

[27] Cf. the relevant question by N. Chountis, available at http://www.europarl.gr/el/greek-meps/meps-activity/meps-activity-2013/september/sepmep14.html;jsessionid=5AD5723EAD20226EBB639DF77A7880C4.

[28] Cf. Law 4111/2013, ΦΕΚ 18 Α‘/25.01.2013, available at http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-Nomothetikou-Ergou?law_id=3cde3e1c-d018-4244-af66-c69249f657f6.

[29] See the explanatory report to the statute, available at http://www.hellenicparliament.gr/UserFiles/2f026f42-950c-4efc-b950-340c4fb76a24/a-apred-eis-olo.pdf.

Hungary

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

Negotiation
VII.1
What positions did Hungary 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?

The Six-Pack was the main concern of the Hungarian EU Presidency from January 2011. According to press information the Hungarian Government was highly committed to finalize the Six-Pack during the presidency. (The deal of the member states’ Ministers of Finance on the Pack was made on the 15th of March, 2011. That day is a national holiday in Hungary, and Prime Minister Viktor Orbán held a speech in Budapest with the punch line: ‘we won’t let Brussels control us’, that enlightens the real contradiction between the two communication schemes of the Government: one to the citizens and one to the outside world.)

According to the consuetude in Brussels the state in charge of the presidency takes part in the negotiation as a neutral actor and is interested in the compromise. Hungary stuck to this practice in the case of the six pack and there was no public debate about the topic.

Eventually, the final decision on the Six-Pack was made after the Hungarian presidency finished in June 2011.

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)?

On December 9, 2013 Act CCXXII of 2013[1] was accepted by the Parliament.[2] The law required the majority of the votes of the MPs, the votes divided as 248 in favor (mostly governmental), 32 against (mostly from Jobbik) and 42 abstentions (mostly from socialist party MSZP).

The act amends the Act CXCV of 2011 on State Finances to bring it in accordance with Directive 2011/85/EU.

The main amendments are the following. Macro economical and budgetary forecast have to be prepared and published by the Government at least twice a year. Middle term planning is prepared for three years (following the current year). The IT system of the Hungarian State Treasury is transformed and the changes have to be published on the website of the Treasury. A new rule is introduced concerning the budgetary planning, that has three main elements: according to the balance of the whole governmental sector the public debt has to decrease; the deficit of the balance of the whole governmental sector cannot exceed the 3% of the GDP; the structural balance cannot exceed the middle term budgetary target that is specified in the convergence programme. These rules can only be ignored temporarily if it is justified by the unfavorable developments of the economical cycle, but this divergence has to be reasoned in details in the proposal for the budgetary act.

The act also amended some of the dates of the budgetary process. According to the new rules, the minister responsible for state finances prepares and publishes the detailed plan of the budgetary planning until the 30th of June[3] and the Government presents the proposal of the budgetary act to the Parliament no later than the 15th of October.[4]

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

On December 9, 2013 Act CCXXII of 2013[5] was accepted by the Parliament.[6] The law required the majority of the votes of the MPs. Since the Governmental coalition held the two-third majority of the seats in the Parliament the passing of the required no political consent of the opposition parties. The implementation of the directive did not caused any legal problems.

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)?

In the Convergence Programme, the Hungarian authorities report their intention to modify legislation to require the State Audit Office and/or the Fiscal Council to assess the macroeconomic and budgetary forecasts presented in the convergence programme and to make this assessment public.[7] However, the Fiscal Council currently in office is not an unbiased institution, as discussed in answer VII.5.

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

There is a Fiscal Council in Hungary. It was constituted by Act LXXV of 2008[8], entering into force on 1 January 2009, in accordance with an agreement made with the International Monetary Fund. Forming the Council was one of the conditions imposed by the IMF to provide financial support to Hungary.

‘The Council’s original design established it as a body consisting of three non-partisan members independent from the government and political parties.’[9]Back then the head of the Council was appointed by the President, while two other members were appointed by the Head of the Hungarian National Bank and the Head of the State Audit Office.

A recent report from the IMF concludes that: ‘The Council had not even been in operation for two years before the newly elected government suggested significant revisions to its legal framework. This followed a period of tension between the Government and the Council. The Council criticized the Government’s medium-term budgetary plan in the 2011 budgetary bill and other aspects of the Government’s economic policy including temporary industry-specific taxes and the diversion of private-pension contributions to the state.’[10]

The legislation was amended in 2011 and the legal status of the Council is currently regulated by Act CXCIV of 2011[11], which is a normal act of Parliament, but some parts of it were passed and can only be amended by the two-third majority of the votes of the MPs.  Regulations concerning the Fiscal Council are included in these parts, because Paragraph (5) of Article 44 of the Fundamental Act of Hungary states that ‘The detailed rules of the functioning of the Budgetary Council shall be regulated in a cardinal Act of Parliament’.

The three members currently are: Head of the State Audit Office elected by the two thirds of the votes of the MPs for a 12-years-long term[12], Head of the Hungarian National Bank, appointed by the President of the Republic for a six-years-long term[13], and the President of the Fiscal Council appointed by the President of the Republic for a six-years-long term[14]. At first sight it seems to be an advisory body, but in fact, it has absolute veto over the Budget Bill.[15]

‘[The Council was s]ignificantly weakened following 2011 reorganization, which eliminated its dedicated staff and reduced its budget to near zero.’[16]

‘The Fiscal Council examines compliance with the debt rule, delivering an opinion every six months on the state of play of the budget and the trends in public debt; furthermore, it is entitled to express an opinion on any issue related to the planning and implementation of the budget, as well as to management of other public spending. The amendment results in a broader scope of authority for the Fiscal Council; the Government shall submit to the Council for an opinion, in addition to the budget, the proposals which the budget is based on, including proposals for acts establishing payment obligations (taxes), and the Fiscal Council may express an opinion on such proposals.’[17]

 

The Fiscal Council has an important part in the budgetary process: according to Article 44 paragraph 3 of the Fundamental Act of Hungary, it has to give its consent to the budgetary proposal before it can be presented to the Parliament. If the Council does not approve the proposal, the Government is required to revise it until the Council finds it in accordance with the stability rules of the Fundamental Act and the CXCIV Act of 2011 on Economic Stability.[18]

Although the Council may refuse to give consent only in specific cases (for example if the Budget Bill would allow state debt to exceed half of the GDP) its decision cannot be reviewed or annulled. If no state budget is accepted until the 31st of March of the running year, the President has the opportunity to dissolve Parliament, which gives an excessive power to the Fiscal Council. In case of a future government formed by current opposition parties, the Fiscal Council will have the opportunity to prevent the budgetary act being accepted by refusing to give its consent.[19]

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 Hungary 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?

There was no real debate about the issue, not even in the Parliament.

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 processare made to accommodate the amended Medium-term Budgetary Objective (MTO) Procedure?

There has been no change to accommodate the amended Medium-term Budgetary Objective (MTO) Procedure.

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)?

There were no changes to the budgetary process itself. The deadlines and steps of the Hungarian budgetary process make it possible to prepare and present a Convergence Program to the European Commission and to incorporate its recommendations into the final budgetary act. See the details of the budgetary process in the answer to question II.1.

 

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

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)?

‘In accordance with the deadline set for the application of Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States, transposition will take place in the second half of 2013. Related legislative amendments, such as the proposals for the amendment of the act on the state budget or that of the act on the economic stability of Hungary, are planned to be discussed by the Parliament in October and will be adopted by the end of 2013.’[20]

This happened on December 9, 2013 Act CCXXII of 2013[21], which includes a medium term budgetary rule. According to this rule the structural balance cannot exceed the middle term budgetary target that is specified in the convergence programme. Act CXCV of 2011 on State Finances[22] has been also amended and in Article 2 paragraph 1 point z it applies the definition of Medium-term Budgetary Objective according to the consolidated Regulation 1466/97.

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

According to the Convergence Programme 2013[23], the MTO is set at a structural deficit of 1,7% of GDP throughout the Programme period.[24] There is no information available of an intended revision.

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

The Convergence Programme is presented by the Government, while the planning is conducted by the Ministry of National Economy. There is no formal procedure that the Government has to follow while adopting the Medium-term Budgetary Objectives.

 

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

No debates have arisen.

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

No specific debates have arisen.

Former Article 37 paragraph (6) of the Fundamental Law of Hungary constituted a right to the Parliament to impose extra taxes if there was an obligation of the state to pay a fine, based on the decision of an international court or law enforcer. This rule was not specially made to solve the problem of the sanctions of the six pack but opened the possibility for the Government to do so in the future.

This provision was removed from the Fundamental Law by the Fifth Amendment of the Fundamental Law of Hungary on 23 September 2013, mostly because of the heavy criticism on this rule coming from the European Commission, according to which the possibility of these extra taxes would cause a strong insecurity in the rule of law in Hungary.[25]

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?

Not relevant for Hungary.

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

No further relevant information.

[1]The text of the act is available here: http://www.complex.hu/kzldat/t1300222.htm/t1300222.htm

[2] http://www.parlament.hu/internet/plsql/ogy_irom.irom_adat?p_ckl=39&p_izon=13216

[3] Article 13 paragraph 1 of Act CXCV of 2011 on State Finances

[4] Article 22 paragraph 2 of the amended Act CXCV of 2011 on State Finances

[5]The text of the act is available here: http://www.complex.hu/kzldat/t1300222.htm/t1300222.htm

[6] http://www.parlament.hu/internet/plsql/ogy_irom.irom_adat?p_ckl=39&p_izon=13216

[7] The Convergence Program of Hungary, 2012

[8] The text of the act is available here: http://www.complex.hu/kzldat/t0800075.htm/t0800075.htm

[9] Case Studies of Fiscal Councils – Functions and Impact, International Monetary Fund, July 16, 2013

[10] Case Studies of Fiscal Councils – Functions and Impact, International Monetary Fund, July 16, 2013

[11] The text of the act is available here: http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A1100194.TV

[12]Article 43 paragraph 2 of the Fundamnetal Act of Hungary

[13]Article 41 paragraph 3 of the Fundamnetal Act of Hungary

[14]Article 44 paragraph 4 of the Fundamnetal Act of Hungary

[15]The English webpage of the Fiscal Council: http://www.parlament.hu/kt/kt_eng.htm

[16] MarcoCangiano, Teresa R Curristine, Michel Lazare (editors): Public financial management and its emerging architecture, 2013, page 212

[17] The Convergence Program of Hungary, 2012

[18] See Article 44 paragraph 3 of the Fundamental Act of Hungary, Article 24 of Act CXCIV of 2011 on Economical Stability and Article 22 paragraph 6 of Act CXCV of 2011 on State Finances

[19] Article 23 to 26 of Act CXCIV of 2011 on Economical Stability

[20] Convergence Programme of Hungary 2013

[21]The text of the act is available here: http://www.complex.hu/kzldat/t1300222.htm/t1300222.htm

[22]The text of the act is available here: http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A1100195.TV

[23]Convergence Programme of hungary 2013, available at http://ec.europa.eu/europe2020/pdf/nd/cp2013_hungary_en.pdf

[24] Additional document to the 2013 budgetary bill: http://www.parlament.hu/irom39/04365/adatok/fejezetek/00_kitekintes.pdf

[25]See for example in Hungarian Helsinki Committee, Eötvös Károly Policy Institute and Hungarian Civil Liberties Union: Comments on the Fifth Amendment to the Fundamental Law of Hungary, 18 Sptember 2013, available here: http://helsinki.hu/wp-content/uploads/NGO_comments_on_the_5th_Amendment_to_the_Fundamental_Law_October2013.pdf

Ireland

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

Negotiation
VII.1
What positions did Ireland 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?

The Government, speaking after the European Council Summit of November 2011, described itself as in favour of greater economic and budgetary coordination within the Eurozone. It accepted that states within a monetary union would have to accept their interdependence and that surveillance of each other’s economic and budgetary policies was necessary and legitimate.[1] The six-pack was welcomed as addressing the ‘root causes’ of the crisis rather than simply reacting to events. However, while broadly in favour of further reform efforts, ministers were in favour of reforms that could be achieved within the existing Treaty framework and would only be in favour of Treaty changes if necessary.[2] Finally in the negotiations Ireland was in favour of ‘institutional balance’ and in particular for maintaining a role for the European Commission rather than taking an intergovernmental route.[3]

Much of the debate concerned Ireland’s banking debt and the broader Eurozone crisis including the second bailout for Greece. One Senator from the main opposition party did note that the six-pack consisted of more intrusive detailed policy constraints thereby potentially involving a more significant loss of sovereignty than even under the EU/IMF Programme of Financial Assistance.[4] In her reply the Minister for State spoke of the broader developments in the Eurozone and acknowledged the need to balance the need for action and leadership by larger Member States such as France and Germany while avoiding domination.[5] At the same time, when speaking the Minister acknowledged the need for ‘a solution to the urgent and serious crisis we face’ that that the issue of institutional design and democratic governance of the Euro was ‘a discussion for another day.’[6]

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)?

Irish law currently (July 2013) meets some of the requirements of Directive 2011/85/EU (the Directive) and accordingly no legislative change is envisaged in those areas. That is the case for provisions relating to the production and publication of financial statistics and auditing arrangements. Government is considering publishing Local Authority (the principal form of Local Government) financial information that is already transmitted on a quarterly basis to the European Commission as part of the financial assistance programme. 

Financial forecasting is currently undertaken by the Department of Finance. This may change with the adoption of the Two Pack (see below) with the Irish Fiscal Advisory Council (IFAC) assuming this role. The IFAC, established in June 2011 and placed on a statutory basis under the Fiscal Responsibility Act 2012, conducts an ex-post assessment of the Department’s forecasts.

Fiscal rules have been implemented via the Fiscal Responsibility Act 2012, which contains two fiscal rules:[7]

§  A budgetary rule requires the Government to either maintain its budgetary position in balance or surplus (the ‘budget condition’)[8] or to ensure that the annual structural general government balance is converging towards the medium term budgetary framework as set out in accordance with the Regulation 1467/97/EC as amended (Excessive Deficit Regulation) (the ‘adjustment condition’).[9]

§  A debt rule applies when the government debt to GDP ration exceeds 60% and requires that the ratio be reduced in accordance with the Excessive Deficit Regulation.[10]

Finally, provisions for medium term budgetary framework are contained in the Ministers and Secretaries (Amendment) Act 2013.[11] The Bill was presented before the Dáil on 26 September 2012, was debated by the Dáil in June of 2013 and by the Seanad in July of 2013. It received the signature of the President on the 23 July 2013. It amends s 17 of the Ministers and Secretaries (Amendment) Act 2011. Under the new s 17 the Government, upon a proposal of the Minister for Finance, shall make an annual decision fixing the upper limit of government expenditure for the subsequent three years, broken down per year. At the same time annual expenditure ceilings will be provided for individual departments.

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

The only significant piece of legislation to have been adopted in the implementation of the Directive was the Fiscal Responsibility Act 2012 (the 2012 Act). Furthermore, that Act was seen as implementing the Fiscal Compact and no reference was made to Directive 2011/85/EU. At the same time the Department of Finance intends to implement Directive 2011/85/EU by a combination of the Fiscal Responsibility Act 2012 and statutory instruments (a form of secondary legislation by Ministers). Debate in Parliament focused on the fiscal rules and the placing of the Irish Fiscal Advisory Council on a statutory footing.

The Bill was presented before the Dáil on the 16 July 2012 and debated between the 9 and 11 of October of 2012. The Seanad discussed the Bill on the 14 November 2012. It was signed by the President on the 27 November 2011. The government and the main opposition party were in favour of the rules. A number of parliamentarians made reference to the fact that the Act was merely implementing the referendum on the Fiscal Compact and hence people’s directly expressed will (see question IX.2).[12] The measures were seen as restoring credibility to the management of Irish budgetary policy and would facilitate a return to the financial markets at the end of the programme of financial assistance.[13] In contrast to Sinn Féin accusations that the Act would see a diminution of economic sovereignty (see below) some contributors to the debate were of the opinion that Ireland’s economic sovereignty had already been ‘ripped from our hands when the troika arrived into town on a bleak October morning.’[14] The implementation of these rules, by avoiding a reoccurrence of that incident, would in fact promote Ireland’s economic sovereignty in the future. Similarly Michael McGrath (spokesperson for the main opposition party, Fianna Fáil) highlighted the fact that while future governments would be obliged to keep spending within certain limits the policy choices, including levels of expenditure and taxation, spending within those limits would remain a national prerogative.[15]

The Bill was opposed by Sinn Féin and a number of smaller parties and independent members. Sinn Féin argued that the rules would not have prevented Ireland’s financial crisis (Ireland would have easily complied with the rules until 2007), that it would prolong austerity policies currently imposed under the programme of financial assistance and that finally it would exchange the tutelage of the Troika for that of the European institutions, particularly in the event that Ireland breached obligations under the Stability and Growth Pact.[16]

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 Department of Finance currently conducts detailed economic forecasting. It will continue to fulfil this role although there are indications this may change with the adoption of the Two Pack (section forthcoming). The Irish Fiscal Advisory Council will then conduct evaluations of these forecasts.[17]

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

The Irish Fiscal Advisory Council was established in June of 2011. It was placed on a statutory footing by the Fiscal Responsibility Act 2012.[18] It was established as part of a reform of Irish budgetary procedures under the EU-IMF programme of financial assistance.

It is composed of 5 members of national or international standing for terms of 4 years. Its independence is assured by a fixed budget of €800,000 provided for by statute and index linked to inflation. Independence is also guaranteed by security of tenure. Removal shall be for stated reasons of incapacity or stated misbehaviour and shall only take place upon a resolution of the Dáil (lower house of parliament).

Its main functions are to conduct and publish periodic reviews of government economic forecasts, Government budgetary policies and of Government compliance with the fiscal rules contained in the Fiscal Responsibility Act 2012.

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 Ireland 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 legal or political difficulties have arisen, nor have debates taken place on the implications of the regulation for sovereignty, constitutional law and the budgetary process outside the broader debates on Euro governance.

Ireland as a programme country was subject to a separate surveillance procedure and was not covered by the alert mechanism for 2012 or 2013.[19]

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 MTO is now included in the Stability Programme Update laid before the Dáil annually in April.

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)?

The Stability Programme Update (SPU) was published on the same day as the general budget towards the end of December of the year preceding the reference year of the budget (ie Budget 2011 would be announced by the Minister for Finance before the Dáil in December 2010). The SPU is now laid before the Dáil in April and discussed with the Minister for Finance by the Joint Committee on Finance, Public Expenditure and Reform.[20]

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

No political or legal difficulties were encountered nor were there debates specific to Regulation 1175/2011/EU outside the general debate on the six pack (see answer to question VII.1 above).

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

The Medium Term Budgetary Objective (MTBO) has been incorporated within the ‘budgetary rule’ contained in s 3 of the Fiscal Responsibility Act 2012 requiring that the annual structural balance of the general government be at the MTBO or converging towards the MTBO in accordance with Regulation 1466/97/EC.[21] The MTBO is defined in s 5 of the Fiscal Responsibility Act 2012.

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

Upon exit from the programme of financial assistance Ireland’s MTBO will be a balanced budget in structural terms from 2016 onwards.[22] There is no indication of when it will be revised.

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

Ireland’s MTBO is defined in section 5 of the Fiscal Responsibility Act and incorporated into the Stability Programme by the Department of Finance. Limits on government spending will be adopted by the Government upon a proposal of the Minister for Finance.[23]

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

No legal or political difficulties were encountered nor did any significant debates specific to Regulation 1177/2011/EU arise outside the general debate on the six pack (see answer to question VII.1). There are no known specific changes to the budgetary procedure to accommodate the amended excessive deficit procedure.
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 Ireland encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No legal or political difficulties were encountered nor did any significant debates specific to Regulation 1173/2011/EU arise outside the general debate on the six pack (see answer to question VII.1).

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?

There were no known changes to the rules on budgetary process to accommodate the possibility of sanctions for non-compliance with the MTBO.

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

No other relevant information


[1]               See comments of An Taoiseach (Prime Minister) Enda Kenny, Dáil Debates, 2 November 2011, Vol 745 No 2, 221. (‘As we have seen time and again over the past three years, what happens in one European country, particularly within the euro area, has the potential to spill over on to others’.)

[2]               Minister for Finance, Michael Noonan, ibid, 279. (‘Ireland is firmly in favour of improved, balanced governance that offers correct safeguards. We believe this is in all our interests. The urgency of the current situation demands prioritization of value-added measures that will be implemented quickly and preferably within the existing treaty.’).  See also comments by Minister for State at the Department of Foreign Affairs and Trade (with responsibility for European Affairs), Lucinda Creighton, Seanad Debates, 8 November 2011, Vol 211 No 4. , 321. No doubt this stance is attributable to the fact that in practice any general renegotiation of the Treaties requires a constitutional amendment and hence referendum in Ireland, something that can prove a challenge at times for Government and indeed the political establishment as the original failures of both the Nice and Lisbon referenda illustrate.

[3]               Minister for State Lucinda Creighton, Seanad Debates, 8 November 2011, Vol 211 No 4.

[4]               Senator Thomas Byrne, ibid, 228. (‘It may be necessary in the context of receiving aid from other countries but in terms of the normal run of countries we are ceding even more sovereignty to the European Commission because currently under the EU-IMF arrangement, we have broad capacity to decide what will be in our budget as long as we reach the targets set out in terms of annual deficits.’)

[5]               We clearly have a political crisis. I have spoken about it many times since my appointment as Minister of State with responsibility for European affairs. On the one hand some Members have talked about the unedifying intervention or interference in the democratic processes in sovereign member states, but on the other hand we want to see political leadership at European level…There is a double standard of which we are perhaps all guilty. It is clear that the engine of the European project has always been a Franco-German one. That is what rose from the ashes of the Second World War. We need that engine to maintain the political momentum and underpin the European project. That is in all of our interests. There is a fine line between that momentum becoming some sort of domination. We must be clear about that. That is where the institutional balance is so important.’ Minister for State Lucinda Creighton, ibid, 232.

[6] Ibid, 233.

[7]               The Fiscal Responsibility Act was described as implementing the requirements of the Fiscal Compact. However its provisions equally implement Directive 2011/85/EU.

[8]               Fiscal Responsability Act 2012, s 3(2).

[9]               ibid, s 3(3).

[10]             ibid, s 4.

[11]             Ministers and Secretaries (Amendment) Act 2013.

[12]             See contribution of Dara Murphy, Dáil Debates, 10 October 2012, Vol 778 No 1,  111.

[13]             See contribution of Alan Farrell, ibid, 90.

[14]             Paschal Donohoe, ibid, 99.

[15]             Micahel McGrath,