30th March 2014

Economic Policy: Government approved the Fiscal Compact

At its last session on 24 March, the Government approved the accession of the Czech Republic to the Fiscal Compact (the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union). The Treaty, which was introduced in 2012, forms the underlying principle of current governance of the Eurozone. The Treaty broadens the previous Stability and Growth Pact. The current Treaty requires that in one year after implementation the member state should introduce a domestic implementation law that would establish mechanism of early warning and even self-correcting mechanisms in terms of national state budget balance.

Firstly, the Treaty stipulates that a member state should keep its general budget deficit less than 3.0 per cent of GDP. Secondly, a structural deficit should be less than 1.0 per cent GDP if the of debt to GDP ratio is significantly below 60 per cent. The Treaty also enables the surveillance of the European Commission over national states budgets. Some provisions of the Treaty would apply to the Czech Republic after implementing Euro. It necessary to point out that regardless of the Fiscal Compact the previous Government introduced the Financial Constitution that stipulated most of the provisions of the Fiscal Compact.

Members of the American Chamber of Commerce in the Czech Republic