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08/12/2016

Czech Republic makes about-turn, joins EU fiscal treaty

Future EU

Czech Republic makes about-turn, joins EU fiscal treaty

Bohuslav Sobotka. Prague, October 2013. [Shutterstock]

The Czech cabinet agreed on Monday (24 March) to join the European Union’s fiscal compact on budget stability, in a move it said underlined Prague’s support for closer EU integration after a period of relatively eurosceptic government.

Apart from the Czech Republic, the only other member states not to have adopted the compact are Britain and EU newcomer Croatia, which joined the bloc last year.

The Czech parliament must still approve the decision by Prime Minister Bohuslav Sobotka’s new centre-left cabinet. The previous centre-right government had refused to join the compact, which enshrines tough and legally binding fiscal rules.

“With this decision, we return to the mainstream of European integration. It is an important step which naturally is on the path to the future adoption of the common European currency,” Sobotka told reporters.

Sobotka’s government has said it will not set a euro adoption date during its four-year term. Sobotka has said he could see the Czech Republic joining the euro zone around 2020.

The compact, championed by Europe’s biggest economy Germany, obliges signatory countries, among other things, to keep their budget in balance or surplus with a structural deficit no higher than 0.5% of national output under normal circumstances.

>> Read our LinksDossier: Europe’s new treaty: Towards a multi-speed Union

Like other non-euro zone countries, the Czechs will not for now adopt clauses in the compact that would entail penalties if they fail to meet the fiscal targets. They will only join that part of the accord on joining the euro.

The government’s legal advisers have said parliamentary ratification will require a constitutional majority, or 120 of 200 lawmakers, in the lower house, and three fifths of lawmakers present in the upper house.

Sobotka’s three-party ruling coalition lacks the necessary majority but plans to negotiate on the support of other parties. The opposition conservative TOP09 party has been supportive of joining the fiscal compact.

Background

All EU countries – except Britain and the Czech Republic – have agreed on a new treaty for tighter fiscal discipline and deeper economic integration to save the euro currency.

The treaty came into force on 1 January 2013.

>> Read our LinksDossier: Europe's new treaty: Towards a multi-speed Union