# European Fiscal Compact

Mon 13 August 2018

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union; also referred to as TSCG, or more plainly the Fiscal Stability Treaty is an intergovernmental treaty introduced as a new stricter version of the Stability and Growth Pact, signed on 2 March 2012 by all member states of the European Union (EU), except the Czech Republic and the United Kingdom. The treaty entered into force on 1 January 2013 for the 16 states which completed ratification prior to this date. As of 7 March 2018, it had been ratified and entered into force for all 25 signatories plus Croatia, which acceded to the EU in July 2013. The Fiscal Compact is the fiscal chapter of the Treaty (Title III). It binds 22 member states: the 19 member states of the eurozone, plus Bulgaria, Denmark and Romania, who have chosen to opt in. It is accompanied by a set of common principles. Member states bound by the Fiscal Compact have to transpose into national legal order the provisions of the Fiscal Compact. In particular, national budget has to be in balance or surplus, under the treaty's definition. An automatic correction mechanism has to be established to correct potential significant deviations. A national independent monitoring institution should be mandated to provide fiscal surveillance. The treaty defines a balanced budget as a general budget deficit not exceeding 3.0% of the gross domestic product (GDP), and a structural deficit not exceeding a country-specific Medium-Term budgetary Objective (MTO) which at most can be set to 0.5% of GDP for states with a debt‑to‑GDP ratio exceeding 60% – or at most 1.0% of GDP for states with debt levels within the 60%-limit. The country-specific MTOs are recalculated every third year, and might be set at levels stricter than the greatest latitude permitted by the treaty. The treaty also contains a direct copy of the “debt brake” criteria outlined in the Stability and Growth Pact, which defines the rate at which debt levels above the limit of 60% of GDP shall decrease.If the budget or estimated fiscal account for any ratifying state is found to be noncompliant with the deficit or debt criteria, the state is obliged to rectify the issue. If a state is in breach at the time of the treaty's entry into force, the correction will be deemed to be sufficient if it delivers sufficiently large annual improvements to remain on a country specific predefined “adjustment path” towards the limits at a midterm horizon. Should a state suffer a significant recession, it will be exempted from the requirement to deliver a fiscal correction for as long as it lasts.Despite being an international treaty outside the EU legal framework, all treaty provisions function as an extension to existing EU regulations, utilising the same reporting instruments and organisational structures already created within EU in the three areas: Budget discipline enforced by Stability and Growth Pact (extended by Title III), Coordination of economic policies (extended by Title IV), and Governance within the EMU (extended by Title V). The treaty states that the signatories shall attempt to incorporate the Fiscal Compact into the EU's legal framework, on the basis of an assessment of the experience with its implementation, by 1 January 2018 at the latest.

## History

### Background

Monetary policy in the eurozone (the EU countries which have adopted the Euro) is determined by the European Central Bank (ECB). Thus, the setting of central bank interest rates and monetary easing is in the sole domain of the ECB, while taxation and government expenditure remain mostly under the control of national governments, within the balanced budget limits imposed by the Stability and Growth Pact. The EU has a monetary union but not a fiscal union. In October 2007, then ECB president, Jean-Claude Trichet, emphasised the need for the European Union (EU) to pursue further economic and financial integration within certain areas (among others, labour mobility and flexibility and reaching retail banking convergence). If these fiscal policies were adhered to by all member states, the ECB believed that this would increase their competitiveness. In June 2009, recommendations were published by The Economist magazine which suggested that Europe establish a fiscal union comprising a: “Bailout fund, banking union, mechanism to ensure the same prudent fiscal and economic policies were pursued equally by all states, and common issuance of eurobonds”. Angel Ubide from the Peterson Institute for International Economics joined this view, suggesting that long-term stability in the eurozone required a common fiscal policy rather than controls on portfolio investment.

### Response to the sovereign debt crisis

Starting from early 2010, the proposal to create a much greater fiscal union, at least in the eurozone, was considered by many to be either the natural next step in European integration, or a necessary solution to the 2010 European sovereign debt crisis. Combined with the EMU, a fiscal union would, according to the authors of the Blueprint report, lead to much greater economic integration. However, the process of building a fiscal union is envisaged by them to be a long-term project. The presidents of the ECB, Commission, Council and Eurogroup published a blueprint for a deep and genuine EMU in November 2012, outlining the elements of a fiscal union which could be achieved in the short, medium and long-term. For the short term (0–18 months), only proposals within the existing competences of the EU treaties were considered, while more wide-reaching proposals requiring treaty amendments were only considered for longer time frames.The blueprint report mentioned that the potential introduction of a common issuance of eurobills with 1-year maturity could be implemented in the medium term (18 months – 5 years ahead), while eurobonds with 10-year maturity could be implemented as the final step in the long term (more than 5 years ahead). According to the authors of the Blueprint report, each step the EU take towards the sharing of common debt, the first of which is envisaged to include joint guarantees for debt repayment in conjunction with either a “debt redemption fund for excessive debt” or “issuance of some short-term eurobills”, will need to be accompanied by increased coordination and harmonization of fiscal and economic policies in the eurozone. As such, the two reforms of the Stability and Growth Pact known as the sixpack (which entered into force December 2011) and twopack (planned entry into force in summer 2013), and the European Fiscal Compact (a treaty which largely mirrors these two EU reforms), represents, according to the authors of the Blueprint report, the first step towards the increased sharing and adherence to the same fiscal rules and economic policies, which they argue potentially paves the way for ratification in the medium term of a new EU treaty allowing for the common issuance of eurobills.

### Proposal development: Sixpack, Twopack and Fiscal Compact

In March 2010, Germany presented a series of proposals to address the ongoing European sovereign debt crisis. They emphasised that the intention was not to establish a fiscal union in the short term, but to make the monetary union more resilient to crisis. They argued that the previous Stability and Growth Pact needed to be reformed to become more strict and efficient, and in return a European emergency bailout fund should be founded to assist states in financial difficulties, with bailout payments available under strict corrective fiscal action agreements – subject to approval by the ECB and Eurogroup. In case a non-collaborating state with an Excessive Deficit Procedure breached the called for adjustment path towards compliance, it should risk being fined or lose its payment of EU cohesion funds and/or lose its political voting rights in the Eurogroup. A call was also made to enforce the Coordination of economic policies between eurozone members, so that all states take an active part in each other's policymaking. Throughout the following three years, these German proposals materialised into new European agreements or regulations after negotiations with the other EU member states. The envisaged emergency bailout fund European Financial Stability Facility (EFSF) was the first proposal to become agreed to by the EU member states on 9 May 2010, with the facility being fully operational on 4 August 2010.As a part of the proposed reform of the Stability and Growth Pact, Germany also presented a proposal in May 2010 that all Eurozone states should be obliged to adopt a balanced budget framework law into its national legislation, preferably at the constitutional level, with the purpose of guaranteeing future compliance with the pacts promise of having a clear cap on new debt, strict budgetary discipline and balanced budgets. Implementation of the proposed debt brake was by-itself envisaged to imply much tighter fiscal discipline compared to the existing EU rules requiring deficits not to exceed 3% of GDP. This proposal was later adopted as part of both the Fiscal Compact and Twopack regulations. In late 2010, proposals were made to reform some rules of the Stability and Growth Pact to strengthen fiscal policy co-ordination. In February 2011, France and Germany had proposed the 'Competitiveness Pact' to strengthen economic co-ordination in the eurozone. Spain also endorsed the proposed pact. German Chancellor Angela Merkel has also verbally championed the idea of a fiscal union, as have various incumbent European finance ministers and the head of the European Central Bank.In March 2011, a new reform of the Stability and Growth Pact was initiated, aiming at strengthening the rules by adopting an automatic procedure for imposing penalties in case of breaches of either the deficit or the debt rules.By the end of 2011, Germany, France and some other smaller EU countries went a step further and vowed to create a fiscal union across the eurozone with strict and enforceable fiscal rules and automatic penalties embedded in the EU treaties. German chancellor Angela Merkel also insisted that the European Commission and the Court of Justice of the European Union must play an “important role” in ensuring that countries meet their obligations.In that perspective, strong European Commission “oversight in the fields of taxation and budgetary policy and the enforcement mechanisms that go with it could further infringe upon the sovereignty of eurozone member states”. Think-tanks such as the World Pensions Council (WPC) have argued that a profound revision of the Lisbon Treaty would be unavoidable if Germany were to succeed in imposing its economic views, as stringent orthodoxy across the budgetary, fiscal and regulatory fronts would necessarily go beyond the treaty in its current form, thus further reducing the individual prerogatives of national governments.

### Negotiations

On 9 December 2011 at the European Council meeting, all 17 members of the eurozone agreed on the basic outlines of a new intergovernmental treaty to put strict caps on government spending and borrowing, with penalties for those countries who violate the limits. All other non-eurozone countries except the United Kingdom said they were also prepared to join in, subject to parliamentary vote. Originally EU leaders planned to change existing EU treaties but this was blocked by British prime minister David Cameron, who demanded that the City of London be excluded from future financial regulations, including the proposed EU financial transaction tax, thus a separate treaty was then envisaged, outside the formal EU institutions, as it had been with the first Schengen treaty in 1985. On 30 January 2012 after several weeks of negotiations, all EU leaders except those from United Kingdom and Czech Republic endorsed the final version of the fiscal pact at the European summit in Brussels, though the treaty was left open to accession by any EU member state and Czech prime minister Petr Nečas said his country may join in the future. The treaty only becomes binding on the non-eurozone signatory states after they adopt the euro as their currency, unless they declare their intention to be bound by part, or all, of the treaty at an earlier date. The new treaty was signed on 2 March and will come into force on 1 January 2013, if it has been ratified (which requires the approval of national parliaments) by at least 12 countries that use the euro. Ireland held a referendum on the treaty on 31 May 2012, which was approved by 60.3%.EU countries that signed the agreement will have to ratify it by 1 January 2013. Once a country has ratified the Treaty it has another year, until 1 January 2014, to implement a balanced budget rule in their binding legislation. Only countries with such rule in their legal code by 1 March 2013 will be eligible to apply for bailout money from the European Stability Mechanism (ESM).

### Incorporation into EU law

Although the European Fiscal Compact was negotiated between 25 of the then 27 member states of the EU, it is not formally part of European Union law. It does, however, contain a provision to attempt to incorporate the pact into EU law within five years of its entering into force, i.e. January 2018.An updated EMU reform plan issued in June 2015 by the five presidents of the Council, European Commission, ECB, Eurogroup and European Parliament outlined a roadmap for integrating the Fiscal Compact and Single Resolution Fund agreement into the framework of EU law by June 2017, and the intergovernmental European Stability Mechanism by 2025. A proposal by the European Commission to incorporate the substance of the Fiscal Compact into EU law was published in December 2017.

## Content

The treaty is divided into 6 titles. The first explains that the aim of the treaty is to “strengthen the economic pillar of the economic and monetary union” and that the treaty should be fully binding on Eurozone countries. Title II defines its relation to EU laws and the Treaties of the European Union, applying the Fiscal Compact only “insofar as it is compatible”. Title VI contains the final clauses regarding ratification and entry into force. Three Titles (III-V) contain rules regarding fiscal discipline, coordination and governance.

### Title III – Fiscal Compact

Balanced budget rule: General government budgets shall be “balanced” or in surplus. The treaty defines a balanced budget as a general budget deficit not exceeding 3.0% of the gross domestic product (GDP), and a structural deficit not exceeding a country-specific Medium-Term budgetary Objective (MTO) which at most can be set to 0.5% of GDP for states with a debt‑to‑GDP ratio exceeding 60% – or at most 1.0% of GDP for states with debt levels within the 60%-limit. The country-specific MTOs are recalculated every third year, and might be set at stricter levels compared to what the treaty allows at most. The rule is based upon the existing Stability and Growth Pact (SGP) deficit rule, where the concept of country-specific MTOs was integrated into the preventive arm of the pact in 2005, with an upper limit for structural deficits at 1.0% of GDP applying to all eurozone and ERM-II member states. The novelty of the Fiscal Compact, was to introduce a varying upper limit which depends on the debt-level of the state. When comparing the Fiscal Compact's new MTO rule with the applying country-specific SGP MTOs in 2012, it can be concluded that if the fiscal provisions of the treaty had applied immediately towards all EU member states, then only Hungary and the UK would have been required to introduce a stricter MTO (revising it down to 0.5% of GDP) – as a consequence. As per the already applying Stability and Growth Pact, Member States with a fiscal balance not yet at their MTO, are required to ensure rapid convergence towards it, with the time-frame for this “adjustment path” being outlined by the Council on basis of a European Commission proposal taking the country-specific sustainability risks into consideration. Debt brake rule: Member States whose government debt-to-GDP ratio exceeds the 60% reference level in the latest recorded fiscal year, shall reduce it at an average rate of at least one twentieth (5%) per year of the exceeded percentage points, where the calculated average period shall be either the 3-year period covering the latest fiscal year and forecasts for the current and next year, or the latest three fiscal years. Rising debt levels for both of the rolling 3-year periods, are allowed for as long as the debt-to-GDP ratio of the state does not exceed 60% in the latest recorded fiscal year. If the European Commission had decided the interim values in the 3-year periods should have no direct influence on the reduction requirement at the end point of the period, then the formula would have been quite simple (i.e. for a debt-to-GDP ratio recorded to be 80% by the end of the year preceding the latest fiscal year, then it should for the period covering the latest fiscal year and the subsequent forecast two years decline with at least: 1/20 * 20% = 1.0 percentage point per year, resulting in a limit of 77.0% three years later). As the European Commission decided interim values in the 3-year periods also should impact the final debt reduction requirement, they came up with this slightly more complicated benchmark calculation formula: bbt = 60% + 0.95*(bt-1-60%)/3 + 0.952*(bt-2-60%)/3 + 0.953*(bt-3-60%)/3. The bb-value is the calculated benchmark limit for year t, and the formula feature three t-year-indexes for backwards-checking. When checking forwards, the same formula is applied, just with all the t-year-indexes being pushed two years forward: bbt+2 = 60% + 0.95*(bt+1-60%)/3 + 0.952*(bt-60%)/3 + 0.953*(bt-1-60%)/3. The year referred to as t in the listed backward-looking and forward-looking formula, is always the latest fiscal year with available recorded data. For example, a backward-check conducted in 2014 will always check whether the recorded 2013 debt-to-GDP ratio respected the 2013 debt reduction benchmark calculated on basis of recorded debt-to-GDP ratio data from 2010+2011+2012, while the forward-looking check will be all about whether the forecast 2015-data will respect the 2015 debt reduction benchmark calculated on basis of debt-to-GDP ratio data for 2012+2013+2014. It shall be noted, that whenever a b input-value (debt-to-GDP ratio) is recorded/forecast below 60%, its data-input shall be replaced by a fictive 60% value in the formula. Beside of the backward-looking and forward-looking debt-brake compliance check, a third cyclically adjusted backward-looking debt-brake check (same backward-looking formula applied, but now checking if the cyclically adjusted debt-to-GDP ratio respects the calculated benchmark-limit), also form part of the assessment whether or not the state is in abeyance with the debt-criterion.If just one of the four quantitative debt-requirements (including the first one requesting the debt-to-GDP ratio to be below 60% in the latest recorded fiscal year) is complied with: bt

≤\ \ \ \ {\displaystyle \scriptscriptstyle \leq }\ 60% or bt\ \ \ \ \ ≤\ \ \ \ {\displaystyle \scriptscriptstyle \leq }\ bbt or b*t\ \ \ \ \ ≤\ \ \ \ {\displaystyle \scriptscriptstyle \leq }\ bbt or  bt+2\ \ \ \ \ ≤\ \ \ \ {\displaystyle \scriptscriptstyle \leq }\ bbt+2, then a state will be declared to be in abeyance with the debt brake rule. Otherwise the Commission will declare a breach of the debt-criterion by the publication of a 126(3) report, and provided no specialbreach exemptionscan be found to exist by this report (i.e. finding the debt breach was solely caused bystructural improving pension reformsorpayment of bailout funds to financial stability mechanismsorpayment of national funds to the new European Fund for Strategic Investmentsorappearance of an EU-wide recession), then the Commission will recommend the Council to open up a debt-breached EDP against the state by the publication of a 126(6) report. The concept of the Fiscal Compact, however, is that national legislation instead shall ensure an automatic correction will be implemented immediately when such a potential 126(6) situation is detected, so that the state can manage automatically to correct it in advance, and hereby avoid the Council will ever decide to open up a 126(6) debt-breached EDP against the state.

### Title IV – Economic policy co-ordination and convergence

Coordination of policies improving competitiveness, employment, public fiscal sustainability and financial stability: All states bound by this provision shall “work jointly towards an economic policy that fosters the proper functioning of the economic and monetary union and economic growth through enhanced convergence and competitiveness”. To this end, each state is required to “take the necessary actions and measures in all the areas which are essential to the proper functioning of the euro area in pursuit of the objectives of fostering competitiveness, promoting employment, contributing further to the sustainability of public finances and reinforcing financial stability”. The state shall report through its annual National Reform Programme, how its economic policies comply with this provision, while the Commission and Council subsequently publish their non-legally-binding opinion if the actions taken are considered to be sufficient or insufficient. As such, this rule can be argued to be similar to the commitments in the Euro Plus Pact. Coordination and debate of economic reform plans: For the purpose of working towards a more closely coordinated economic policy, all major economic policy reforms a member state plans, shall be discussed ex-ante and – where appropriate – coordinated among all states bound by Title IV. Any such coordination shall involve the institutions of the European Union. To this end, a pilot project was conducted in July 2014, which recommended the design of the yet to be developed Ex Ante Coordination (EAC) framework, should be complementary to the instruments already in use as part of the European Semester, and should be based on the principle of “voluntary participation and non-binding outcome” with the output being more of an early politically approved non-binding “advisory note” put forward to the national parliament (which then can be taken into notice, as part of their process to complete and improve the design of their major economic reform in the making). As such, this rule can be argued to be similar to the earlier made commitment in the Euro Plus Pact, in which each Member State committed themselves to put any “major economic reform proposal with potential spillover effects” into a non-binding ex ante consultation with its Euro Plus partners. Enhanced fiscal coordination and enhanced cooperation: Contracting parties are committed “to make active use whenever appropriate and necessary” of two additional instruments:“Measures specific to those Member States whose currency is the euro, as provided for in article 136 of the TFEU” (which relates to the already existing enhanced and more strict Stability and Growth Pact regulations applying only for Eurozone member states – i.e. the Two-pack regulation, as well as adoption of the part of the Broad Economic Policy Guidelines which concern the eurozone generally and only apply for Eurozone member states – based on article 121(2) of the TFEU – currently reflected by “guideline 3” of the Europe 2020 Integrated Guidelines) “Enhanced cooperation, as provided for by the existing article 20 in the Treaty on European Union...on matters that are essential for the proper functioning of the euro area without undermining the internal market”.

### Title V – Governance of the Eurozone

Meetings for policy governance: Title V of the treaty provides for Euro summits to take place at least twice a year, chaired by the President of the Euro summit to be appointed by Eurozone countries for a term that runs concurrent to the term of the President of the European Council. The meeting members include all heads of state from the Eurozone and the President of the European Commission, while the President of the European Central Bank is also invited. Agendas for the summits are limited to “questions relating to the specific responsibilities which the Contracting Parties whose currency is the euro share with regard to the single currency, other issues concerning the governance of the euro area and the rules that apply to it, and strategic orientations for the conduct of economic policies to increase convergence in the euro area.” All heads of state from non-eurozone states which have ratified the treaty are also invited to take part in the meetings for agenda items related to “competitiveness for the Contracting Parties, the modification of the global architecture of the euro area and the fundamental rules that will apply to it in the future, as well as, when appropriate and at least once a year, in discussions on specific issues of implementation of this Treaty”. The Eurogroup has been tasked with preparing and conducting the follow up work between Euro summit meetings, and for that purpose the President of the Eurogroup may also be invited to attend the summits.The Fiscal Compact supplements pre-existing EU regulations for the Stability and Growth Pact (extended by Title III), coordination of economic policies (extended by Title IV), and governance within the EMU (Title V formalises a regulation for the existing Euro summit meetings of Eurozone members). Finally a tie exists to the European Stability Mechanism, which requires its Member States to have ratified and implemented the Fiscal Compact into national law as a pre-condition for receiving financial support.

### Stability and Growth Pact regulation

The fiscal provisions introduced by the Fiscal Compact treaty (for those states legally bound by these measures) function as an extension to the Stability and Growth Pact (SGP) regulation. The SGP regulation applies to all EU member states, and has been designed to ensure that each state's annual budgetary plans are compliant with the SGP's limits for deficit and debt (or debt reduction). Compliance is monitored by the European Commission and by the Council. As soon as a Member State is considered to breach the 3% budget deficit ceiling or does not comply with the debt-level rules, the Commission initiates an Excessive Deficit Procedure (EDP) and submits a proposal for counter-measures for the member state to correct the situation. The counter measures will only be outlined in general, identifying the size and the time-frame of the needed corrective action to be undertaken, while taking into consideration country-specific risks for fiscal sustainability. Progress towards and respect of each specific state's Medium-Term budgetary Objective (MTO) shall be evaluated on the basis of an overall assessment with the structural balance as a reference, including an analysis of expenditure net of discretionary revenue measures. If a eurozone member state repeatedly breaches its “adjustment path” towards respecting the state's MTO and the fiscal limits outlined by the SGP, then the Commission may fine the state a percentage of its GDP. Such fines can only be rejected if the Council subsequently votes against the fine with a qualified 2/3 majority. EU member states outside the eurozone cannot be fined for breaches of the fiscal rules.

## Ratification and implementation

In December 2012, Finland became the twelfth eurozone state to ratify the treaty, thus triggering its entry into force on 1 January 2013. For subsequent ratifiers, entry into force is on the first day of the month following their deposit of the instrument of ratification. Slovakia became a party to the treaty on 1 February 2013, as did Hungary, Luxembourg and Sweden on 1 June 2013, Malta on 1 July 2013, Poland on 1 September 2013, the Netherlands on 1 November 2013, Bulgaria on 1 February 2014 and the last signatory Belgium on 1 April 2014. The non-eurozone countries Denmark and Romania have declared themselves to be bound in full, while Bulgaria declared itself bound by Title III. Latvia became bound by the fiscal provision on 1 January 2014 when it adopted the euro. Croatia, which acceded to the EU in July 2013, also acceded to the Fiscal Compact on 7 March 2018. The ratification processes is summarised in the table below. 23 countries submitted laws for ratification of the treaty according to a standard parliamentary ratification procedure. In Cyprus, ratification was performed by a governmental decree without involving the parliament. In Ireland, a referendum was held to approve a constitutional amendment that empowered the government to ratify the treaty.

Notes

### Ratification process

After a country has completed its domestic ratification, it must deposit an instrument of ratification with the depositary (the General Secretariat of the Council of the European Union) to complete the process. If a legal complaint is filed with a constitutional court, this can delay the deposit and ratification, or even stop it if the court upholds the complaint. The list below summarises the progress of the ratification process.

Belgium: On 14 March 2012 a motion was submitted to the Chamber of Representatives by members of the opposition calling for a referendum on the treaty. A similar motion was submitted to the Senate on 9 May, but a referendum was ultimately not held. Croatia: With their accession to the EU on 1 July 2013, Croatia became eligible to accede to the Fiscal Compact, which they did in March 2018. France: French President François Hollande promised during the 2012 presidential election campaign that he would only ratify the Fiscal Compact if the European Council agreed to a supplemental “Growth Pact”. After the Compact for Growth and Jobs was adopted on 29 June 2012, the combined Fiscal Compact and Growth Pact bill, having received the support of the French government and president, was passed by both chambers of the National Assembly. Germany: Ratification was stalled following a complaint to the Federal Constitutional Court on the consistency of the Fiscal Compact with the German Basic Law. However, on 12 September 2012 the court rejected all applications for injunctions against ratification of the treaty, and on 18 March the court released their decision which found that all the complaints against the Fiscal Compact were either inadmissible or unfounded. Ireland: A constitutional amendment, which authorised the government to ratify the Fiscal Compact, was approved by a referendum. However, the government opted to wait until the Fiscal Responsibility Bill 2012, which implemented the provisions required by the treaty into national law, was passed before formally completing their ratification of the treaty. Poland: 20 members of parliament submitted a proposal on 31 January 2012 calling on the parliament to schedule a referendum on the ratification of the Fiscal Compact, but the proposal was never voted on. On 5 December, the bill to ratify the Fiscal Compact was submitted to the parliament with an attached legal evaluation stating that ratification only required a simple majority for approval in both chambers, rather than the constitutional 2/3 majority. In March, Sejm parliamentarians from the opposition Law and Justice (PiS) party challenged the ratification of the Fiscal Compact with the Constitutional Tribunal of the Republic of Poland, listing 14 violations of the Polish Constitution. They argued that ratification of the Compact required a two-thirds majority and that the text of the treaty is incompatible with the constitution. A separate challenge was filed by PiS Senators in early April claiming that they were not given sufficient time to consider ratification of the Compact, though it was subsequently combined with the original case by the court. On 21 May 2013, the Tribunal rejected both challenges on procedural grounds, arguing that the treaty had not been fully ratified by Poland, and thus its constitutionality could not yet be challenged and judged.

### Non-signatory EU members

Any non-signatory EU member state may accede to the Fiscal Compact without prior negotiations.

Czech Republic: The Czech government did not sign the treaty in 2012, in part due to objections to the increased liabilities and that non-eurozone states were not granted observer status at all Eurogroup and Euro-summit meetings. Then Czech Prime Minister Petr Nečas also argued that there was no moral obligation for net-paying, fiscally sound countries outside the Eurozone, such as the Czech Republic, to ratify the fiscal responsibility treaty. There was also uncertainty over the domestic ratification process, with then President Vaclav Klaus, a staunch eurosceptic, stating that he would not give his assent to the treaty. However, Nečas stated that his country may join in the future. During the treaty negotiations, the Civic Democratic Party (ODS), which Nečas led, suggested that a referendum should decide whether the country ratified the treaty, while their junior coalition partner, TOP 09, opposed the idea and wanted only parliamentary approval for the treaty.In January 2013, Top 09 stated that they would only sign a revised coalition agreement for the remainder of the government's term if its partners, ODS and LIDEM, agreed to accede to the fiscal compact by the end of 2013. ODS rejected this ultimatum and stated that a constitutional amendment implementing the Fiscal Compact's debt and deficit provisions should be approved before ratifying the Fiscal Compact. Negotiations between the government and opposition to pass this proposed constitutional amendment, which will require a 3/5 majority, started in February 2013. The opposition Social Democratic Party (ČSSD) announced that they would support the Financial Constitution on 5 conditions, one of which was the ratification of the Fiscal Compact, and a bipartisan working group, with representation from all parliamentary parties, was established on 13 March 2013 to draft the proposed amendments. After Jiří Rusnok took over as caretaker Prime Minister following a government corruption scandal, he stated that a decision on the Czech Republic ratifying the Fiscal Compact would not be made until after parliamentary elections scheduled for October.President Miloš Zeman, who took over in March 2013 after winning the January presidential election, is considered to be “pro-EU” and supports the Czech Republic's accession to the Fiscal Compact, although not before they join the Eurozone, which he believes shouldn't occur before 2017. Following the parliamentary election, ČSSD, ANO and KDU-ČSL formed a coalition government which agreed to ratify the Fiscal Compact. ČSSD Prime Minister Bohuslav Sobotka supports ratifying the treaty, and his party has opposed holding a referendum on it. The opposition Top 09 party's election campaign called for parliamentary ratification of the Fiscal Compact as soon as possible. In late February 2014, Sobotka's government obtained the confidence of Parliament, and committed to starting the ratification of the Fiscal Compact within two months. Sobotka expected that ratification would be finalized within eight months. The cabinet approved accession to the Fiscal Compact on 23 March 2014, and the bill was introduced to the Chamber of Deputies on 11 April. The bill called for accession without a declaration on the full application of all treaty titles immediately, meaning that only Title V will apply until the state adopts the euro. To be approved, the bill needs the consent of a constitutional majority of 60% in both houses of parliament and a final consent of the Czech president.The Czech senate approved accession to the treaty on 27 August 2014. However, the governing parties did not have sufficient votes in the Chamber of Deputies to have the bill passed alone, and require the support of TOP 09. While TOP 09 supports the Fiscal Compact, they have said they will only support ratification if the Czech Republic declares itself bound by all provisions of the treaty immediately, rather than once they adopt the euro. In February 2015 the Czech government introduced bills which would enact some provisions of the Fiscal Compact into Czech law. A constitutional amendment was also proposed to embed the provisions in the Czech constitution. The draft reform package would introduce a debt rule for the general government as a whole as well as separately for local governments, transpose into national legislation crucial elements of Council Directive 2011/85/EU on budgetary frameworks, implement a modified expenditure rule that is consistent with the Medium-Term Objective, establish an independent fiscal council and provisions to improve transparency and fiscal data reporting. At the first reading of the constitutional fiscal responsibility bill, TOP 09 notified the ruling coalition that it would only support the constitutional bill if the Czech Republic's ratification of Fiscal Compact included a declaration for full Title III and IV commitments. The bills, but not the constitutional amendment, were approved by the Chamber in October 2016.Andrej Babiš, who took over as Prime Minister of the Czech Republic following elections in October 2017, has committed to pushing for the ratification of the agreement by the country. On 14 February 2018, the minority cabinet approved the Fiscal Compact and sent it to the Chamber of Deputies. The bill proposes that the Czech Republic accede without making a declaration to be bound by Titles III or IV.United Kingdom: UK refused to sign the Fiscal Compact and future joining is not under consideration. The UK intends leave the European Union in March 2019.

### Entry into force, applicability and implementation

The provisions regarding governance (Title V) are applicable to all signatories since the treaty's entry into force on 1 January 2013. For eurozone members that ratify, the treaty applies in full, pursuant to article 14. Non-eurozone countries will automatically become bound by all treaty provisions the moment they adopt the euro. Prior to that, only Title V applies to them, unless they by their own initiative make a declaration to the depositary “to be bound at an earlier date by all or part of the provisions in Titles III and IV”. The applicability of the treaty's provisions to each country is summarized in the table below. The last column of the table reflects the status of compliant implementation laws, and denotes whether the Title III provisions (the “balanced budget rule” and “automatic correction mechanism”) have been embedded into national legislation through an ordinary law subject to later revisions by simple majority, or also by a constitutional amendment of which later revisions will require a higher constitutional majority. The background color of the last column indicates whether or not the implementation law of the state is compliant with Title III, where green indicates compliance, while yellow and red indicate that existing national fiscal rules are non-compliant. As of January 2015, the compliance assessments are only based on unofficial sources and/or assessments made by a parliamentary committee of the concerned state. The first official independent assessment of the treaty compliance of the listed national implementation laws has been scheduled to be conducted by the European Commission in September 2015, for each of the states bound by the fiscal provisions (Title III).The European Commission adopted in February 2017 a report on the transposition across the 22 Member States concerned

## Fiscal compliance

1 Did not sign the Fiscal Compact. 0000 2 EU 'balance of payments' programme. 0000 3 ESM/EFSM/EFSF programme. 0000 R Ratified, but not bound by fiscal provisions (Title III).T Transitional states, only required to have a declining debt-to-GDP ratio to the extent of ensuring full debt-criterion compliance by the end of their 3-year transition period following EDP abrogation.C Compliance: see Content/Title III/Debt brake – back: b2015

≤\ \ \ \ {\displaystyle \scriptscriptstyle \leq }\ bb2015 – forward: b2017\ \ \ \ \ ≤\ \ \ \ {\displaystyle \scriptscriptstyle \leq }\ bb2017 – transitional: fulfills old debt brake for each year of transition period.

The noted ongoing EDPs will be abrogated, as soon as the concerned state for the period encompassing the last completed fiscal year (based on final notified data) and for the current and next year (based on forecast data), succeeds in delivering a general government account in full compliance with the SGP's deficit criteria (budget deficit no more than 3.0% of GDP) and the debt criterion (debt‑to‑GDP ratio below 60% – or sufficiently declining towards this level). The deadlines for EDP abrogations will only be extended if extraordinary circumstances occur – like a recession or severe economic downturn. As part of the increased surveillance efforts introduced by the Sixpack, all EDP's are now evaluated three times per year, based upon data from the Commission's economic outlook reports published in February, May and November. Member states involved in bailout programs are evaluated even more frequently and more in depth, through the so-called “Programme Reviews”. EDP abrogations are normally announced in June, as they always await final notified data for the last completed fiscal year (being published in early May), but can occasionally also be announced later in the year (due to later arriving positive data revisions for recorded data or subsequent improvements materializing for its forecast data). The SGP and Fiscal Compact feature identical debt criteria, so they only differ compliance wise for the deficit criteria, where the Fiscal Compact sets the additional structural deficit criteria to be met as a main criteria (elevating its importance from the additional but less binding MTO adjustment path criteria).The debt-criterion has due to transitional reasons been split into three different requirements, being in place since the sixpack reform was implemented in November 2011. For states aspiring to have their ongoing 2011‑EDP abrogated based on compliance with the debt-criterion, this will require they deliver a declining debt-to-GDP ratio for the last year in the forecast horizon, which was even changed to “no declining requirement at all” – as per the latest revised procedure published in 2013. The second debt-criterion is the so-called “transitional criteria”, applying for states with an abrogated 2011‑EDP throughout a three-year transition period, in which the debt ratio is required to decline steadily towards full compliance with the debt brake benchmark rule by the end of the transition period – by annual improvements equal to the calculated Minimum Linear Structural Adjustment (MLSA) of its general government deficit. Finally in the fourth year after the 2011‑EDP has been abrogated, all transitional states will be assessed for compliance with the normal “debt brake benchmark rule” (which also apply towards states that never had a 2011‑EDP).The new “debt brake benchmark rule” require the state to deliver, either for the three year backward-looking or cyclically adjusted backward-looking or forward-looking period, an annual debt-to-GDP ratio decrease of at least 5% of the benchmark value in excess of the 60% limit. As Germany and Malta both had their 2011‑EDP abrogated in 2012, these two states will need to comply with the “debt brake benchmark rule” starting from Fiscal Year 2014, with their first official debt-reduction evaluation expected to be published shortly after the year has ended – and at the latest when the Commission publish its assessment of the next Stability Programmes of the member states in May 2015. Among the member states with a debt-to-GDP ratio above 60% in 2013, Croatia was the first one being required to comply with the new “debt brake benchmark rule” in January 2014, where the European Commission concluded no compliance was found, due to both its debt-to-GDP ratio and cyclically adjusted debt-to-GDP ratio exceeding its calculated backward-looking benchmark limit in 2013 (75.7%

≰\ \ \ \ {\displaystyle \scriptscriptstyle \nleq }\ 61.4%  and  71.3%*\ \ \ \ \ ≰\ \ \ \ {\displaystyle \scriptscriptstyle \nleq }\ 61.4%) and due to its forecast forward-looking debt-to-GDP ratio exceeding its calculated benchmark limit in 2015 (84.9%\ \ \ \ \ ≰\ \ \ \ {\displaystyle \scriptscriptstyle \nleq }\ 72.9%).