Every April, EU Member States are required to lay out their fiscal plans for the next three years. This exercise is based on economic governance rules in the Stability and Growth Pact, which aim to prevent the emergence or exacerbation of fiscal difficulties.
Member States sharing the euro currency do this in documents known as ‘Stability Programmes,’ while Member States that have not adopted the euro submit ‘Convergence Programmes,’ which include additional information about monetary policies.
These documents are used by the Commission and by finance ministers to assess whether Member States are on track towards reaching their Medium-Term Budgetary Objectives (MTOs) on the basis of two pillars: structural balance analysis and the expenditure benchmark.
The Expenditure benchmark is a rule which contains the growth rate of government spending at(or below) a country’s medium-term potential economic growth rate, unless the excess is matched by additional measures on the revenue side.
Guidelines on the content and format of the programmes are covered by a code of conduct .
Stability Programmes and Convergence Programmes contain:
Convergence Programmes should be based on sound fiscal scenarios.
Stability Programmes submitted by euro area Member States should be based on macroeconomic forecasts produced or endorsed by independent bodies. These forecasts are compared with those of the Commission and, when appropriate, with those of other independent bodies. Any significant differences between the scenarios adopted by governments and the Commission’s forecasts should be explained.
As part of the EU’s annual economic governance cycle, the Commission assesses Stability Programmes and Convergence Programmes both before and after implementation. This allows the Commission to identify and discuss any risks of non-compliance before they occur, and to identify any actual instances of non-compliance that could ultimately warrant sanctions.
In addition to Stability Programmes, EU Member States sharing the euro currency must each year submit Draft Budgetary Plans.