The Stability and Growth Pact (SGP) is an agreement, among the 27 Member states of the European Union, to facilitate and maintain the stability of the Economic and Monetary Union. Based primarily on Articles 121 and 126[1] of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of Ministers and, after multiple warnings, sanctions[2] against offending members.
The pact was adopted in 1997[3] 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 are:
The SGP was initially proposed by German finance minister Theo Waigel in the mid 1990s. Germany had long maintained a low-inflation policy, which had been an important part of the German economy's strong performance since the 1950s. The German government hoped to ensure the continuation of that policy through the SGP, which would limit the ability of governments to exert inflationary pressures on the European economy.
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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.[4] They fear that by limiting governments' abilities to spend during economic slumps it may hamper growth. On the contrary, other critics think that the Pact is too flexible; economist Antonio Martino writes: "The fiscal constraints introduced with the new currency must be criticized not because they are undesirable—in my view they are a necessary component of a liberal order—but because they are ineffective. This is amply evidenced by the “creative accounting” gimmickry used by many countries to achieve the required deficit to GDP ratio of 3 percent, and by the immediate abandonment of fiscal prudence by some countries as soon as they were included in the euro club. Also, the Stability Pact has been watered down at the request of Germany and France."[5]
Some remark that it has been applied inconsistently: the Council of Ministers failed to apply sanctions against France and Germany, while punitive proceedings were started (but fines never applied) when dealing with Portugal (2002) and Greece (2005). In 2002 the European Commission President (1999–2004)[6] Romano Prodi described it as "stupid",[7] but was still required by the Treaty to seek to apply its provisions.
The Pact has proved to be unenforceable against big countries such as France and Germany, which were its strongest promoters when it was created. These countries have run "excessive" deficits under the Pact definition for some years. The reasons that larger countries have not been punished include their influence and large number of votes on the Council of Ministers, which must approve sanctions; their greater resistance to "naming and shaming" tactics, since their electorates tend to be less concerned by their perceptions in the European Union; their weaker commitment to the euro compared to smaller states; and the greater role of government spending in their larger and more enclosed economies. The Pact was further weakened in 2005 to waive France's and Germany's violations.[8]
In March 2005, the EU Council, under the pressure of France and Germany, relaxed the rules; the EC said it was to respond to criticisms of insufficient flexibility and to make the pact more enforceable.[9]
The Ecofin agreed on a reform of the SGP. The ceilings of 3% for budget deficit and 60% for public debt were maintained, but the decision to declare a country in excessive deficit can now rely on certain parameters: the behaviour of the cyclically adjusted budget, the level of debt, the duration of the slow growth period and the possibility that the deficit is related to productivity-enhancing procedures.[10]
The pact is part of a set of Council Regulations, decided upon the European Council Summit 22–23 March 2005.[11]
In March 2011, following the 2010 European sovereign debt crisis, the EU member states adopted a new reform under the Open Method of Coordination, aiming at straightening the rules e.g. by adopting an automatic procedure for imposing of penalties in case of breaches of either the deficit or the debt rules.[12][13] The new Euro Plus Pact is designed as a more stringent successor to the Stability and Growth Pact, which has not been implemented consistently. The measures are controversial not only because of the closed way in which it was developed but also for the goals that it postulates.
The four broad strategic goals are:
An additional fifth issue is:[14]
The European Fiscal Union is a proposal for a treaty about fiscal integration described in a decision adopted on 9 December 2011 by the European Council. The participants are the Eurozone member states and all other EU members without the United Kingdom. Treaty text is still to be drafted and participation approvals from national parliaments are still to be granted.[15]
The deficit criterion is applied to both Eurozone and non-Eurozone EU member states. Data in the table are for the year 2010 from the European Commission's report "Public Finances in EMU 2011"[16]
| criteria breach | criteria breach for three consecutive years |
| Country | Government finances | Past breach periods for deficit |
Deadline for compliance for deficit |
Past breach periods for debt |
Deadline for compliance for debt |
|
|---|---|---|---|---|---|---|
| annual government deficit to GDP | gross government debt to GDP | |||||
| Reference value | min. −3% | max. 60% | ||||
| Austria | −4.6% | 72.3% | 1995–1997; 2009− | ? | 2003– | ? |
| Belgium | −4.1% | 96.5% | 2009− | ? | 2003– | ? |
| Bulgaria | −3.2% | 16.2% | 2009− | ? | ||
| Cyprus | −5.3% | 60.8% | 2004–2006; 2009− | ? | 2004– | ? |
| Czech Republic | −3.2% | 35.3% | 2004–2007; 2009− | ? | ||
| Denmark | −2.7% | 43.6% | 2008 | |||
| Estonia | +0.1% | 6.6% | ||||
| Finland | −2.5% | 48.4% | ||||
| France | −7.0% | 81.7% | 2003– | ? | 2003– | ? |
| Germany | −3.3% | 83.2% | 1994; 1996; 2003–2006, 2009− | ? | 2003– | ? |
| Greece | −10.5% | 142.8% | 2003– | ? | 2003– | ? |
| Hungary | −4.2% | 80.2 | 2004– | ? | 2007− | ? |
| Ireland | −32.4% | 96.2% | 2008− | ? | 2009− | ? |
| Italy | −4.6% | 119% | 2003− | ? | 2003– | ? |
| Latvia | −7.7% | 44.7% | 2008− | ? | ||
| Lithuania | −7.1% | 38.2% | 2008− | ? | ||
| Luxembourg | −1.7% | 18.4% | ||||
| Malta | −3.6% | 68.0% | 2004–2006; 2008− | ? | 2004– | ? |
| Netherlands | −5.4% | 62.7% | 2004–2005; 2009− | ? | 2009− | ? |
| Poland | −7.9% | 55.0% | 2004– | 2007 | ||
| Portugal | −9.1% | 93.0% | 2002; 2005– | 2002; 2008 | 2005– | ? |
| Romania | −6.4% | 30.8% | 2008− | ? | ||
| Slovakia | −7.9% | 41.0% | 2004–2006; 2009− | 2007; ? | ||
| Slovenia | −5.6% | 38.0% | 2009− | ? | ||
| Spain | −9.2% | 60.1% | 2008− | ? | 2010− | ? |
| Sweden | +0.0% | 38.5% | ||||
| United Kingdom | −10.4% | 80.0% | 2006− | 2007 | 2009− | ? |
| Eurozone | −6.0% | 85.5% | 2009– | NA | 2003– | NA |
| EU27 | −4.7% | 80.2% | 2009– | NA | 2003–2006; 2008− | NA |
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