The Stability and Growth Pact ( SGP ) is an agreement, among the 28 EU member states, to facilitate and maintain the stability of the Economic and Monetary Union (EMU)). Based mainly on Articles 121 and 126 of the Agreement on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of Ministers, and issues annual recommendations for policy actions to ensure full compliance with SGP as well in the medium term. If Member States violate the maximum limit set by the SGP for government deficits and debts, the oversight and demand for corrective action will increase through the Declaration of Excessive Deficit Procedures (EDP); and if these corrective actions continue to be absent after several warnings, Member States may finally issue economic sanctions. The agreement was outlined by a resolution and two board rules in July 1997. The first rule "on strengthening the oversight of budgetary positions and monitoring and coordinating economic policy", known as the "prevention arm", came into force on 1 July 1998. The second regulation "accelerates and clarifies execution of excessive deficit procedures ", known as" dissuasive arm ", entered into force on 1 January 1999.
The purpose of the agreement is to ensure that fiscal discipline will be retained and enforced at the EMU. All EU member states automatically become members of the EMU and SGP, as this is determined by the paragraphs in the EU Agreement itself. Fiscal discipline is guaranteed by the SGP by requiring each Member State, to implement fiscal policies aimed at keeping the state within the limits of government deficit (3% of GDP) and debt (60% of GDP); and in case of having a debt level above 60% then every year should decrease at a satisfactory pace to the level below. As outlined by the "preventative" regulation, all EU Member States must submit an SGP compliance report for the monitoring and evaluation of the European Commission and the Council of Ministers, which will present the expected fiscal developments of the country for now. and the next three years. These reports are called "stability programs" for the Member States of the European Zone and "convergence programs" for non-eurozone Member States, but despite having different titles they are identical in terms of content. Following the SGP reform in 2005, these programs also incorporate the Medium-Term Budget Goals (MTO's), calculated individually for each Member State as a sustainable medium-term average for the country's structural deficit, and the Member States also have the obligation to disentangle steps to be applied to achieve its MTO. If EU Member States do not comply with the limit of deficits and debt limits, the so-called "Excessive Deficit Procedure" (EDP) begins with a deadline to comply, basically covering and outlining "the path of adjustment to achieve the MTO". This procedure is outlined by the "dissuasive arm" rule.
SGP was originally proposed by German finance minister Theo Waigel in the mid-1990s. Germany has long maintained a policy of low inflation, which has been an important part of Germany's strong economic performance since the 1950s. The German Government hopes to ensure the continuity of the policy through SGP, which will ensure the prevalence of fiscal responsibility, and limit the government's ability to inflate inflationary pressure on the European economy. Thus, it is also explained to be a key tool for Member States adopting the euro, to ensure that they not only meet the Maastricht convergence criteria at the time of adopting the euro, but continue to adhere to fiscal criteria for subsequent years.
Video Stability and Growth Pact
Criticism
The pact has been criticized by some as insufficiently flexible and needs to be applied during the economic cycle rather than within a year. They fear that by limiting the government's ability to spend time during the economic downturn, it can hamper growth. Conversely, other critics think that the Pact is too flexible; Economist Antonio Martino writes: "The fiscal constraints introduced with the new currency should be criticized not because they are undesirable - in my view they are an important component of the liberal order - but because they are ineffective." This is clearly demonstrated by the "creative accounting" is used by many countries to achieve the required deficit against the GDP ratio of 3 percent, and immediately leave fiscal prudence by some countries as soon as they are included in the euro club.Also, the Stability Pact has been made easier by Germany and France.
Some statements that it has been applied inconsistently: The Council of Ministers failed to impose sanctions on France and Germany, while the punishment process began (but the fine was never applied) when dealing with Portugal (2002) and Greece (2005). In 2002 the President of the European Commission (1999-2004) Romano Prodi described him as "foolish", but it is still required by the Treaty to try to apply its provisions.
This pact proved unenforceable to major powers such as France and Germany, who were the strongest promoters when they were created. These countries have run an "excessive" deficit under the definition of the Pact for several years. The reason that the major powers have not yet been punished includes their influence and a large number of votes in the Council of Ministers, which must approve sanctions; their greater resistance to "naming and shaming" tactics, because their voters tend to be less concerned with their perceptions in the EU; their weak commitment to the euro compared to the smaller countries; and the role of greater government spending in their larger and more enclosed economies. The pact was further weakened in 2005 to rule out French and German violations.
Maps Stability and Growth Pact
Reform 2005
In March 2005, the Council of the European Union, under French and German pressure, relaxed the rules; The European Commission said it responded to criticisms that were not flexible enough and made the agreement more workable.
Ecofin approved the SGP reform. The 3% ceiling for budget deficits and 60% for public debt is maintained, but the decision to state a country in excessive deficits can now depend on certain parameters: cyclically adjusted budgetary behavior, debt levels, duration of slow growth periods and the likelihood that deficits related to productivity improvement procedures.
In March 2011, after the European sovereign debt crisis of 2010, EU member states adopted a new reform under the Open Method of Coordination, which aims to straighten the rules, for example by adopting automatic procedures to impose penalties in cases of either deficit or debt rules. The new "Euro Plus Pact" is designed as a more stringent successor to the Stability and Growth Pact, which has not been consistently implemented. His steps are controversial not only because of the closed manner in which he is developed but also for the argued purposes.
Four broad strategic objectives are:
- boost competitiveness
- build a job
- contribute to public finance sustainability
- strengthen financial stability.
Additional fifth issues are:
- tax policy coordination
Overall - looking at the new European economic governance framework, it appears to be in front of a "mix" of different acts adopted at different levels of territory and characterized by different legal properties. In particular, three actions shall be deemed to arise from the domain of international norms: (1) the European Financial Stability Facility (EFSF), made by the Euro Member States following the decision adopted on 9 May 2010 within the framework of the ECOFIN Council. In particular, the EFSF's mandate is to maintain financial stability in Europe by providing financial assistance to the European macroeconomic adjustment program; (2) Agreement establishing the European Stability Mechanism (ESM) was signed on 2 February 2012, following a decision adopted by the Council of Europe (December 2010). Designed as a permanent crisis resolution mechanism for euro-area countries, the ESM issues debt instruments to finance loans and other forms of financial assistance to the Member States involved; (3) Agreement on Stability, Coordination and Governance (TSCG), the final version of which was signed on 2 March 2012 by the leaders of all members of the euro area and eight other EU Member States, and entered into force on 1 January 2013. TSCG has been generally labeled "Fiscal Compact", originally intended to promote the launch of a new international economic cooperation enforced by EU Member States that is also part of the so-called.
Strictly speaking, the mentioned mechanism is the newly introduced "legal" mechanism, and should therefore be distinguished from measures in lieu of adaptation of pre-existing rules. The latter are the EU's "custom" secondary norms that contribute to the creation of the legal structure underlying the new European economic governance:
- in the so-called "Six-Pack" case, five rules and a directive are at stake starting December 13, 2011, with a view to strengthening the Stability and Growth Pact (SGP) - a rule-based framework for coordinating national fiscal policy in the EU whose details will be mentioned under. - given the higher potential for spillover effects of budget policy in the common currency area, in November 2011 the Commission proposed two further regulations to strengthen oversight of the euro area budget. This reform package, called "Two Packages", entered into force on May 30, 2013 in all Euro-member Member States. These new measures are intended to increase transparency in their budget decisions and stronger coordination in the 2014 budget cycle, as well as to recognize the special needs of Euro Member States under severe financial pressure. - The "Euro Plus" Pact, approved in Spring 2011 by 17 Member States of the Euro region (and joined Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania), is intended to strengthen the economic pillar of the monetary union and achieve a new quality of economic policy coordination, with the aim of enhancing competitiveness and thus leading to higher convergence rates that strengthen the social market economy
- The "European Semester" was introduced by the ECOFIN deliberation dated September 7, 2010. It is specifically intended to better coordinate former economic and budgetary policies of member states - integrating specifications on the implementation of the Stability and Growth Pact. Latteer regulates fiscal discipline in the EU, with the aim of ensuring fiscal discipline within the Union in Europe2020. Although this Treaty applies to all EU members, it has a stricter enforcement mechanism for members of the Euro region:
- "the preventive arm" is part of the European Semester. In particular - every year in April, Euro member countries send the Stability Program, while the member countries outside the euro area submit the Convergence Program. These documents outline the major elements of the member country's budget plan and are assessed by the Commission. An important part of this assessment discusses compliance with the minimum annual benchmark established for each of the individual structural budget balances of each country. Based on its assessment of the Stability and Convergence Program, the Commission prepared a special recommendation of the country in which the Council adopted its opinion in July. This includes recommendations for appropriate policy actions. Furthermore, the Council adopted the economic policy recommendations that apply to the euro area as a whole.
The "corrective" section includes Excessive Deficit Procedure (EDP). This procedure is triggered if the member state budget deficit exceeds 3% of GDP. The European Commission (DG Eurostat) is responsible for providing data used for EDP. Council Regulation (EC) 479/2009 requires that "If there is any doubt concerning the correct application of ESA 95 [now to be understood as ESA 2010] accounting rules, the Member State shall seek clarification from the Commission (Eurostat) Commission (Eurostat) ) shall promptly examine the matter and communicate clarification to the Member State concerned and, where appropriate, to the CMFB For cases of a complex nature or a common interest in the views of the Commission or the Member States concerned, the Commission (Eurostat) shall take decisions after the CMFB consultation. "When the Council, on the basis of Eurostat data, decided that the deficit was excessive, it made a recommendation to the member country concerned. and set a deadline to bring the deficit back below the reference value. The Council may grant this deadline extension if it is found that the country concerned has made good progress in implementing the initial recommendations but has not been able to fully correct its deficit due to its remarkable economic context. When addressing decisions and recommendations for euro-area member states, only euro area ministers have the right to vote.
Prior to the adoption of such measures, however, coordination of economic and employment policies is still underway through the guidelines of the ECOFIN Council - established every three years.
Member state by SGP criteria
Deficits and debt criteria apply to Eurozone and non-Eurozone euro zone member states. The data in the table is for fiscal year 2011, published as part of the EC's economic forecast in May 2012. And the last years with SGP violations, identified by the annotated table 53B and 55B of the report.
Notes
Medium Term Budget Reference (MTO)
1999-2005
In the first seven years, since the entry into force of the Stability and Growth Pact, all EU Member States are required to strive toward a public MTO that is "to reach a budget position that is close to a balance or surplus beyond that of a complete business cycle - while providing a continuous security margin honor the government's 3% deficit limit ". The first part of this MTO, interpreted by the Commission's Staff Services to mean continually achieves annually throughout the business cycle "adjusted budget balance at least from one-time and temporary actions" (also referred to as "structural balances") at least 0.0% . In 2000, the second section was interpreted and operationalized into the calculation formula for MTO also to honor the so-called "Minimum Benchmark" (later referred to as "MTO Minimum Benchmark"). When assessing the annual Convergence/Stability program of Member States, the Service Commissions Commission checks whether the state structural balance meets the general criteria of "close to balance or surplus" and "Minimum Benchmark" criteria of a particular country. The final round under the scoring scheme occurred in Spring 2005, while all subsequent assessments were made in accordance with the new reformed scheme - introducing the concept of a single country-specific MTO as the overall steering anchor for fiscal policy.
After the 2005 reform
To ensure long-term compliance with SGP deficits and debt criteria, member countries since the SGP reform in March 2005 are striving to achieve their country's specific Medium-Term (MTO) Budget Goals. The MTO is a set threshold, that the structural balance relative to GDP needs to be the same or above for each year in the medium term. Each country chooses its own MTO, but must be equal to or better than minimum calculated requirements (MTO Minimum) ensuring long-term sustainability of government accounts (calculated based on potential future GDP growth, future government debt costs, and upgrades future age-related costs). The structural balance is calculated by the European Commission as a balance adjusted to the cycle minus "one-time measures" (ie one-time payments due to reforming pension schemes). The cycle-adjusted balance sheet is calculated by adjusting the general government balance achieved (in% of GDP) compared to the relative economic growth position each year in the business cycle (referred to as the "output gap"), which is found by the reduction of achieving GDP growth with GDP growth potential. So if one year is accounted for by the average GDP growth in the business cycle (equal to the potential GDP growth rate), the output gap will be zero, which means that the "cyclically adjusted balance" will then be equal to the "government budget balance". In this way, being resistant to changes in GDP growth, structural balance is considered neutral and comparable across business cycles (including years of recession and "overheated year"), making it perfect for consistent use as a medium of long-term budget objectives.
Whenever a country does not achieve its MTO, it is necessary in subsequent years to carry out annual improvements for its structural balance equal to a minimum of 0.5% of GDP, although it should be noted that some sub-rules (including "benchmark spending") have potential little to change this requirement. When Member States are in the process of improving their structural balance until they reach their MTOs, they are referred to as being on an "adjustment track", and they must annually report on the updated target year when they expect to reach their MTO. It is the responsibility of each Member State through a record in their annual Convergence/Stability report, to select their contemporary MTO at the same point or above the "minimum MTO" calculated every third year by the European Commission (last October 2012). The "minimum MTO" that "national MTO selected" should be respected, equal to the strictest of the following three borders (which since the method change in 2012 is now automatically rounded to the lowest ¼ value, if is counted to the last two digits after the punctuation is different from 00/25/50/75, ie -0.51% will be rounded to -0.75%) :
(1) MTO MB (Minimum Benchmarking, adding public budget security margin to ensure 3% -limit will be respected during economic downturn)
(2) MTO ILD (minimum value ensuring the long-term sustainability of the public budget by taking into account Implicit Liabilities and Debt, which aims to ensure convergence across the long-term horizon of the debt ratio to a wise level below 60% taking into account the estimated budgetary impact of an aging population)
(3) MTO ea/erm2/fc (SGP regulation explicitly defines the -1.0% limit for eurozone countries or ERM2 members already in 2005, but if it has committed to that requirement tighter through the ratification of Fiscal Compact - then this tighter boundary will replace it) .
The third minimum limit listed above (MTO ea/erm2/fc ), means that EU member states have ratified the Compact Fiscal and are bound by their fiscal provisions, shall choose an MTO that does not exceed a structural deficit of 1.0 % of GDP maximum if they have a debt to GDP ratio significantly below 60%, and 0.5% of the maximum GDP if they have a debt to GDP ratio above 60%. In January 2015, the following six countries are not bound by the fiscal compact provisions of the Fiscal Compact (note that for non-Eurozone countries to be bound by fiscal provisions, it is not enough just to ratify the Compact Fiscal, they also need to attach a statement of intention to be bound with fiscal provisions, before this happens): England, Czech Republic, Croatia, Poland, Sweden, Hungary. Those from non-eurozone countries not being Members of ERM-2 or having no commitment to respect the fiscal provisions of the Fiscal Compact will still be required to establish a national MTO that respects the "minimum MTO" calculated equal to the most stringent requirements ( 1) (2). The only EU Member States excluded to comply with this MTO procedure are the UK, as per EU agreement protocol is excluded from complying with the SGP. In other words, while all other member states are required nationally to vote on MTOs honoring their calculated Minimum MTOs, the Minimum MTO calculated for the UK is only presented for suggestions, without the obligation for it to establish an appropriate national MTO in structural terms.
The MTO Minimum is recalculated every third year by the Alternate of the Economic and Financial Committee , based on the procedures described above and the formula, which among others require the previous publication of the Quarterly Aging Report Commission. Member States may also have an updated MTO Minimum updated out of the ordinary schedule, when implementing structural reforms with major impact on the long-term sustainability of public finances (ie major pension reforms) - and subsequently submitting official requests for recalculation extraordinary. The collapsed table below shows input data and calculates the MTO Minimum of the most recent regular recalculation (April 2009, October 2012 and September 2015).
Country-selected MTO
Each time the "MTO Minimum" is recalculated for a country, the announcement of the nationally selected "MTO equal to or above" Minimum MTO "recalculated will occur as part of the following regular stability/convergence report, while only compliance applies - wise for a fiscal account (s) in the years after a new "national election" has been announced. The table below lists all country-specific MTOs selected by the national government during 2005-2015, and is colored annually red/green to show whether a nationally selected "MTO" is achieved, in accordance with the latest revisions of structural balance data such as those calculated by the "European Commission method". Some states, Denmark and Latvia, apply national methods to calculate structural equilibrium figures reported in their convergence reports (which are very different from the Commission's method results), but in order to present comparable results for all Member States, "MTOs achieve" table coloring (and if not fulfilled also the year the forecast recorded achieving it) was decided solely by the Commission's method of calculation.
Note A: Setting country-specific MTOs is only mandatory starting from fiscal year 2006. However, Denmark and Sweden with their own initiative have done so for 2005. For countries without country-specific MTOs in the year 2005, the color of green/red compliance this year shows, if the country's structural balance satisfies both "close to balance or surplus" (min 0.0%) of the target and the specific "minimum benchmarks" per country. The latter was only more stringent for two countries in 2005, effectively setting a 0.8% target for Finland, 0.1% target for Luxembourg, and a 0.0% target for the rest of the state to be respected.
Note B: Because Eurostat implements significant method changes for the calculation of the budget balance (classifies "funded contribution-financed pension schemes" beyond the government budget balance), which technically reduces revenue and balance data budget of 1% of GDP for countries with such schemes, the earliest MTOs presented by Sweden and Denmark are technically adjusted to 1% lower, in order to be proportional to the structural balance data calculated by the latest Eurostat method. When compliance with MTO targets was examined in 2005-07, looking at structural balance data computed using the latest Eurostat method, this compliance check was conducted on "technically adjusted MTO targets" rather than "originally reported MTO". target "for Denmark and Sweden.
Notes on the UK: Paragraph 4 of Protocol No. 15, exempts Britain from obligations under Article 126 (1 9 11) of the Agreement on the Functioning of the EU to avoid excessive deficits of the general government, as long as the state chooses not to adopt the euro. However, Paragraph 5 of the same protocol still states that "the UK will seek to avoid excessive government deficits". On the one hand, this means that the Commission and the Council are still approaching the UK with EDP recommendations whenever excessive deficits are found, but on the other hand, they can not legally launch sanctions against the UK if they do not comply with the recommendations. Due to the special exemption, the UK also did not include additional MTO adjustment rules introduced by the SGP reform 2005 and the six-pack reforms. In contrast, the UK defines their own concept of budgets consisting of the "Golden rule" and "Continuing investment regulations" , which effectively run throughout 1998-2008, which is a national English interpretation how the SGP Rule text should be understood.
- The so-called Golden rule will only be met, if the Current Budget ("general government nominal budget balance" before costs are used for "public net investment") expressed as a ratio to GDP, calculated on average to be in equilibrium or surplus (equal to a minimum of 0.0%) during the period beginning in the first year of the economic cycle and ending with the last year of the economic cycle. In this way, it can not be determined exactly whether Golden rule has been met, before the entire economic cycle has been completed. Along the way, no specific year target is set for the Cycically-Adjusted Current Budget (CACB) balance, which is allowed to fluctuate throughout the cycle - though only to ensure that the
Golden rule will be filled at the end of the cycle. For comparisons to the Commission's structural balance calculation scheme, the UK CACB balance was found to average to be 1-2% higher than the structural budget balance figure for all reported medium-term periods since 1998, simply because the CACB equals: "Structural budget balance" "Public sector net investment" (reversed by 1-2% when averaged over five years) "reversed adjustment for one-time revenues" (close to 0% when averaged over five year) . - The so-called sustainable investment rule (also applies to 1998-2008), demands that "Public sector net debt as a proportion of GDP" should be held during an economic cycle at stable levels below 40 % -limit. With this target set in "net debt", that's different from SGP 60% -target associated with "gross debt".
- When the proven UK business cycle that stretched from 1997 to 2006 was over, the British government found that both the "Golden rule" and "Sustainable Investment rules" had been reached in this particular cycle. Starting from 2008-09 onwards throughout the current business cycle, two previous rules were replaced by a "temporary operating rule", because the current cycle is being foreseen abnormally (showing a prolonged recovery phase compared to the normal cycle). The "temporary operating rule" now targets: "to allow a sharp CACB decline in the short term (by implementing active loosening fiscal policy in addition to automatic stabilizers during 2008-09 and 2009-10) , and then after the economy has emerged from the downturn, to set policies to raise the CACB every year ahead, so as to achieve the balance and net debt begin to decline in the medium term ".
- Since there is no nationally selected MTO in the "structural equilibrium condition" - during the entire period covered by the table, the compliance color for the UK indicates whether its structural balance respects "Minimum MTO" each year as calculated in terms structural balance by the Commission.
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