13/11/2012

The Council of the EU adopted the Stability and Growth Pact (SGP) in 1997 and revised it in 2005. The Pact was further strengthened through the legislative package on economic governance (the "six-pack"), adopted by the Council and the European Parliament in 2011.

Its purpose is to ensure fiscal discipline in the EU by setting reference values for annual national budget deficits (3% of GDP) and public debt (60% of GDP).

Although the Pact applies to all EU members, it has stricter enforcement mechanisms for euro area members.

Preventive arm

The Stability and Growth Pact consists of two parts, the preventive and corrective arms.

Preventive arm and the European Semester

The preventive arm of the Stability and Growth Pact is part of the European Semester. The European Semester aims to coordinate at European level the main economic and budgetary planning exercises of member states. 

Every year in April, euro area member states submit Stability Programmes, while member states outside the eurozone submit Convergence Programmes. 

These programmes, outlining the main elements of the member states’ budgetary and other economic policy measures, are assessed by the Commission.

An important part of this assessment addresses member states’ compliance with the minimum annual benchmark figure set for each individual country’s structural budget balance. 

The 2011 legislation also introduced an expenditure benchmark. This benchmark implies that government expenditure should not grow at a faster rate than the economy, unless the faster growth can be offset by appropriate countermeasures. Examples of such countermeasures include increases in government revenue.

This process helps countries to comply with the reference values for debt and deficit.

Council recommendations for action

Based on the Commission's country-specific recommendations, the Council adopts opinions on the Stability and Convergence Programmes in July. These include recommendations for appropriate policy actions. 

Furthermore, the Council adopts recommendations on economic policies that apply to the euro area as a whole.

• European Semester

Corrective arm

The corrective part of the Stability and Growth Pact is the Excessive Deficit Procedure (EDP).

This procedure is triggered if a member state exceeds the deficit reference value (3% of GDP).

When the Council decides that the deficit is excessive, it makes recommendations to the member state concerned and sets a deadline for bringing the deficit back below the reference value.

When it addresses decisions and recommendations to euro area member states, only euro area ministers have the right to vote. Therefore, preliminary discussions on these matters may take place in the Eurogroup, on the eve of the Council meeting.

Excessive deficit procedure in the euro area:

Country	Deadline for correction of the excessive deficit	Excessive deficit corrected*
Belgium	2012
Germany	2013	2011
Ireland	2015
Greece	2016
Spain	2014
France	2013
Italy	2012
Cyprus	2012
Malta	2011	2011
The Netherlands	2013
Austria	2013
Portugal	2014
Slovenia	2013
Slovakia	2013
Finland	2011	2010

*Assessment for countries with the deadline in 2012 will take place in the first semester of 2013, when full 2012 data are available.

New rules on excessive public debt

The Excessive Deficit Procedure is now also applicable to public debt levels as well as to annual deficits.

Under additional legislation on economic governance adopted in 2011, member states with excessive public debt should reduce their debt levels at a comparatively faster average rate. This rate is defined as one twentieth of the difference between their public debt level and the reference value (60% of GDP).

• Excessive Deficit Procedure - How are the fiscal data compiled?

Enforcing the rules

If the member state fails to comply, the Council can impose sanctions. Whereas the Stability and Growth Pact applies to all EU countries, the sanctions can only be imposed on euro area members.

In 2011, the legislative package on economic governance (the "six-pack") reinforced the process for imposing these sanctions. 

As a result of the changes, the imposition of sanctions has become semi-automatic, and starts from an earlier phase in the procedure. Before 2011, the Council could only impose sanctions if a country repeatedly missed its deadlines for the correction of the deficit. Now, the process starts as soon as the first deadline is not complied with. Sanctions are imposed unless rejected by qualified majority in the Council.