Stability and Growth Pact
EU regulations set a framework for the management of public finances in the Member States. Key treaties include the Treaty on the Functioning of the European Union and the Stability and Growth Pact.
The Treaty sets the following reference values for Member States:
- general government deficit 3 per cent of GDP
- general government debt 60 per cent of GDP.
The Stability and Growth Pact (SGP) is a rules-based framework for the coordination of national fiscal policies in the European Union. The SGP comprises two parts:
- The cornerstone of the preventive arm is the Medium-Term Budgetary Objective (MTO) defined by the Member State for the structural balance of general government finances. The Commission and the Council monitor progress towards the MTO. A Member State is within the preventative arm if it is not in an Excessive Deficit Procedure (EDP).
- The corrective arm of the SGP relates to the reference values of 3 per cent of GDP for general government deficit and 60 per cent of GDP for general government debt, as defined in the Treaty. If the Commission and the Council find that a Member State is in breach of the deficit or debt criteria, an EDP may be initiated. A Member State is within the corrective arm if is in an EPD.
The SGP is comprised of the Resolution of the European Council of 1997, Regulation 1466/97 regarding the preventive arm of the SGP and Regulation 1467/97 regarding the corrective arm of the SGP.
The EU revised the SGP in 2005 and 2011. The EU further supplemented the related legislation in 2013 with two regulations concerning euro-area countries. The inter-governmental Fiscal Compact entered into force at the start of 2013. The legislation is supplemented by a code of conduct clarifying the application of the law.
Finland passed the Financial Policy Act (2012) and the Government Decree on the General Government Fiscal Plan (2014), which implement the Fiscal Compact and the Budgetary Framework Directive.
Review of functioning
The Stability and Growth Pact regulations include a review clause according to which the effectiveness of the regulations is to be assessed every five years. The first assessment, which was carried out in 2014, noted that very little time had passed since the changes and it was too early to assess how they had functioned.
The European Commission launched a review process at the start of 2020, but the process was interrupted by the COVID-19 crisis. The Commission relaunched discussions in October 2021. In November 2022, the European Commission issued a communication on reforming economic policy coordination.
Stability and Growth Pact (European Commission)
European Commission press release on the communication (19 November 2022)
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