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Stability and Growth Pact

The Stability and Growth Pact is an agreement by European Union member states related to their conduct of fiscal policy, to facilitate and maintain Economic and Monetary 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 enforcement policies of mutual surveillance of fiscal positions and of an excessive deficit procedure defined in the treaty.

The pact was adopted in 1997 so that eurozone countries would maintain their fiscal discipline after they qualified for euro membership by having met the strict Maastricht convergence criteria.
The actual criteria that countries must respect after euro entry are:

  • an annual budget deficit lower than 3% of GDP
  • a public debt lower than 60% of GDP or approaching that value.

Future negotiations are likely to concentrate on the mechanisms of the Excessive Deficit Procedure, which is where the broad aspirations of the Treaty text are realized.

"The Stability and Growth Pact (SGP) is the ... answer to concerns on the continuation of budgetary discipline in Economic and Monetary Union (EMU). Adopted in 1997, the SGP strengthened the Treaty provisions on fiscal discipline in EMU foreseen by articles 99 and 104, and the full provisions took effect when the euro was launched on 1 January 1999." - from Commission page at link below.

The Pact has been criticised by some as being insufficiently flexible and needing to be applied over the economic cycle rather than in any one year. More eurosceptic commentators assert that it promotes neither stability nor growth, and remark (correctly) that it has been applied inconsistently, after the Council of Ministers failed to apply sanctions against France and Germany. The then President of the European Commission Romano Prodi described it as "stupid", but was still required by the Treaty to seek to apply its provisions. Furthermore, the pact has proved not to be enforceable against big countries such as France and Germany, which, ironically, was the biggest promoter of it when it was created. Indeed, these countries have run "excessive" deficits under the pact definition for some years now, yet the EU Council has not applied sanctions against them. In March 2005, the EU Council relaxed the rules to respond to these criticisms and to make the pact more enforceable.

As with most other pre-existing treaties, the provisions on which the pact is based are included unchanged in the draft European Constitution. However, the pact itself is a set of Council Regulations.

Bibliography

Brunila, Anne, Marco Buti & Daniele Franco , The Stability and Growth Pact, Palgrave, 2001.

External link

Last updated: 09-12-2005 02:39:13