Stability and Growth Pact

The Stability and Growth Pact (SGP) is an agreement by European Union member states related to their conduct of fiscal policy, to facilitate and maintain Economic and Monetary Union of the European Union. It is based on Articles 99 and 104 of the European Community Treaty (with the amendments adopted in 1993 in Maastricht), and related decisions. It consists of fiscal monitoring, and sanctions against offending members. The pact was adopted in 1997, so that fiscal discipline would be maintained and enforced in the EMU. Member states adopting the euro have to meet the Maastricht convergence criteria, and the SGP ensures that they continue to observe them.The actual criteria that member states must respect:an annual budget deficit no higher than 3% of GDP (this includes the sum of all public budgets, including municipalities, regions, etc)a national debt lower than 60% of GDP or approaching that value.
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The Stability and Growth Pact consists of two EU Council Regulations, on "the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies" and on "speeding up and clarifying the implementation of the excessive deficit procedure", and of a European Council Resolution on the Stability and Growth Pact adopted at the Amsterdam summit on 17 June 1997. More specifically, budgetary positions close to balance or in surplus are required as the medium-term objective for Member States since this would allow them to deal with normal cyclical fluctuations while keeping their government deficit below the reference value of 3% of GDP. In accordance with the Stability and Growth Pact, countries participating in EMU will submit annual stability programmes, while non-participating countries will continue to provide annual convergence programmes.

The Stability and Growth Pact has to be seen against the background of the third stage of economic and monetary union, which began on 1 January 1999. Its aim is to ensure that the Member States continue their budgetary discipline efforts once the single currency has been introduced.

In practical terms the Pact comprises a European Council resolution (adopted at Amsterdam on 17 June 1997) and two Council Regulations of 7 July 1997 laying detailed technical arrangements (one on the surveillance of budgetary positions and coordination of economic policies and the other on implementing the excessive deficit procedure).

In the medium term the Member States have undertaken to pursue the objective of a balanced or nearly balanced budget and to present the Council and the Commission with a stability programme by 1 March 1999 (the programme will then be updated annually). Along the same lines, States not taking part in the third stage of EMU are required to submit a convergence programme.

The Stability and Growth Pact opens the way for the Council to penalise any participating Member State which fails to take appropriate measures to end an excessive deficit. Initially, the penalty would take the form of a non-interest-bearing deposit with the Community, but it could be converted into a fine if the excessive deficit is not corrected within two years.

See:

•Convergence criteria
•Economic and monetary union (EMU)