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Glossary

 Automatic stabilisers
Features of the tax and spending regime, which react automatically to the economic cycle and reduce its fluctuations. As a result, the budget balance in per cent of GDP tends to improve in years of high growth, and deteriorate during economic slowdowns.

 Budget balance
The balance between total public expenditure and revenue in a specific year, with a positive balance indicating a surplus and a negative balance indicating a deficit. For the monitoring of Member State budgetary positions, the EU uses general government aggregates. See also structural budget balance.

 Code of conduct
Policy document setting down the specifications on the implementation of the Stability and Growth Pact and the format and content of the stability and convergence programmes.

 Convergence programmes
Medium-term budgetary and monetary strategies presented by Member States that have not yet adopted the euro. They are updated annually, according to the provisions of the Stability and Growth Pact. See also stability programmes.

 Cyclical component of budget balance
That part of the change in the budget balance that follows automatically from the cyclical conditions of the economy, due to the reaction of public revenue and expenditure to changes in the output gap. See structural budget balance.

 Cyclically-adjusted budget balance
See structural budget balance.

 Discretionary fiscal policy
Change in the budget balance and in its components under the control of government. It is usually measured as the residual of the change in the balance after the exclusion of the budgetary impact of automatic stabilisers.

 European semester
Yearly cycle of economic policy coordination, which takes place over the first six months of the year. The European Commission undertakes a detailed analysis of EU Member States' programmes of economic and structural policies and the European Council and the Council of Ministers provide policy advice before Member States finalise their draft budgets.

 Excessive deficit
Is used to refer both to situations where either the deficit or the debt is above the Maastricht reference values (and debt is not diminishing at a satisfactory pace), in cases where the Excessive Deficit Procedure is the same whatever the cause of the breach.

 Excessive Deficit Procedure (EDP)
A procedure according to which the Commission and the Council monitor the development of national budget balances and public debt in order to assess and/or correct the risk of an excessive deficit in each Member State. Its application has been further clarified in the Stability and Growth Pact. See also stability programmes, Stability and Growth Pact and excessive deficit.

 Expenditure rules
A subset of fiscal rules that target (a subset of) public expenditure.

 Fiscal consolidation
An improvement in the budget balance through measures of discretionary fiscal policy, either specified by the amount of the improvement or the period over which the improvement continues.

 Fiscal framework
Comprises all arrangements, procedures, rules and institutions that underlie the conduct of budgetary policies of general government. The term fiscal framework can be used interchangeably with fiscal governance.

 Fiscal governance
Comprises all arrangements, procedures, rules and institutions that underlie the conduct of budgetary policies of general government. The term fiscal governance can be used interchangeably with fiscal framework.

 (Numerical) Fiscal rule
A permanent constraint on fiscal policy, expressed in terms of a summary indicator of fiscal performance, such as the government budget deficit, borrowing, debt, or a major component thereof. See also expenditure rules.

 General government
As used by the EU in its process of budgetary surveillance under the Stability and Growth Pact and the excessive deficit procedure, the general government sector covers national government, regional and local government, as well as social security funds. Public enterprises are excluded, as are transfers to and from the EU Budget.

 Maastricht reference values for public debt and deficits
Respectively, a 60 % general government debt-to-GDP ratio and a 3% general government deficit-to-GDP ratio. These thresholds are defined in a protocol to the Maastricht Treaty on European Union. See also Excessive Deficit Procedure.

 Medium-term budgetary framework
An institutional fiscal device that lets policy-makers extend the horizon for fiscal policy making beyond the annual budgetary calendar (typically 3-5 years). Targets can be adjusted under medium-term budgetary frameworks (MTBF) either on an annual basis (flexible frameworks) or only at the end of the MTBF horizon (fixed frameworks).

 Medium-term budgetary objective (MTO)
According to the reformed Stability and Growth Pact, stability programmes and convergence programmes present a medium-term objective for the budgetary position. It is country-specific to take into account the diversity of economic and budgetary positions and developments as well as of fiscal risks to the sustainability of public finances, and is defined in structural terms (see structural balance).

 Minimum benchmarks
The lowest value of the structural budget balance that provides a safety margin against the risk of breaching the Maastricht reference value for the deficit during normal cyclical fluctuations. The minimum benchmarks are estimated by the European Commission. They do not cater for other risks such as unexpected budgetary developments and interest rate shocks. They are a lower bound for the medium-term budgetary objectives (MTO).

 One-off and temporary measures
Government transactions having a transitory budgetary effect that does not lead to a sustained change in the budgetary position. See also structural balance.

 Output gap
The difference between actual output (i.e. GDP) and estimated potential output at any particular point in time. See also cyclical component of budget balance.

 Potential GDP
The level of real GDP in a given year that is consistent with a stable rate of inflation. If actual GDP rises above its potential level, then constraints on capacity begin to bind and inflationary pressures build; if GDP falls below potential, then resources are lying idle and inflationary pressures abate. See also output gap.

 Public debt
Consolidated gross debt for the general government sector. It includes the total nominal value of all debt owed by public institutions in the Member State, except that part of the debt which is owed to other public institutions in the same Member State.

 Significant divergence/deviation
A sizeable excess of the budget balance over the targets laid out in the stability or convergence programmes, as defined in the amended Regulation 1466/97 and been detailed in the code of conduct. It triggers the warning procedure of the Stability and Growth Pact.

 Stability and Growth Pact (SGP)
Approved in 1997 and reformed in 2005 and 2011, the SGP clarifies the provisions of the Maastricht Treaty regarding the surveillance of Member State budgetary policies and the monitoring of budget deficits during the third phase of EMU. The SGP consists of two Council Regulations setting out legally binding provisions to be followed by the European Institutions and the Member States and two Resolutions of the European Council in Amsterdam (June 1997). See also Excessive Deficit Procedure.

 Stability programmes
Medium-term budgetary strategies presented by those Member States that have already adopted the euro. They are updated annually, according to the provisions of the Stability and Growth Pact. See also convergence programmes.

 Structural budget balance
 
The actual budget balance net of the cyclical component and one-off and other temporary measures. The structural balance gives a measure of the underlying trend in the budget balance. See also budget balance.

 Sustainability
A combination of budget deficits and debt that ensure that the latter does not grow without bound. While conceptually intuitive, an agreed operational definition of sustainability has proven difficult to achieve.

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