The Stability and Growth Pact (SGP) is a set of rules designed to ensure that countries in the European Union pursue sound public finances and coordinate their fiscal policies.
Some of the SGP’s rules aim to prevent fiscal policies from heading in potentially problematic directions, while others are there to correct excessive budget deficits or excessive public debt burdens.
Detailed guidance on how the European Commission will apply the existing rules of the Stability and Growth Pact to strengthen the link between structural reforms, investment and fiscal responsibility in support of jobs and growth:
Read more about the European Commission's Investment Plan for Europe.
The rules of the SGP’s ‘preventive arm’ bind EU governments to their commitments towards sound fiscal policies and coordination by setting each one a budgetary target, known as a Medium-Term Budgetary Objective (MTO).
These budget deficit (or surplus) targets are defined in structural terms, which means that they take into consideration business cycle swings and filter out the effects of one-off and other temporary measures.
Member States that share the euro as their currency outline how they intend to reach their MTOs in ‘Stability Programmes,’ while other EU Member States do so in ‘Convergence Programmes.’ These are assessed by the European Commission and EU governments during the European Semester.
In the ‘corrective arm’ of the SGP, the Excessive Deficit Procedure (EDP) ensures the correction of excessive budget deficits or excessive public debt levels. It is a step-by-step approach for reining in excessive deficits and reducing excessive debts.
The EU Treaty defines an excessive budget deficit as one greater than 3 % of GDP. Public debt is considered excessive under the Treaty if it exceeds 60 % of GDP without diminishing at an adequate rate (defined as a decrease of the excess debt by 5 % per year on average over three years).
Countries that fail to respect the SGP’s preventive or corrective rules may ultimately face sanctions.
For Member States sharing the euro currency, this could take the form of warnings and ultimately financial sanctions including fines of up to:
The Stability and Growth Pact has evolved significantly along with the EU’s economic governance rules.
The Commission issues guidance on how it will apply the SGP rules to strengthen the link between structural reforms, investment and fiscal responsibility in support of jobs and growth.
A review of the ‘Six Pack’ and ‘Two Pack’ rules , which was called for in the legislation, determined that the legislation had contributed to the progress of fiscal consolidation in the EU. The review highlighted some strengths as well as possible areas for improvement, which will be discussed with the European Parliament and Member States.
The importance of the budgetary targets set by the SGP’s preventive arm (the Medium-Term Objectives), are strengthened by a law known as the ‘Fiscal Compact’, which is part of an inter-governmental treaty known as the Treaty on Stability, Coordination and Governance (TSCG).
Adherence to the SGP is further strengthened by new laws, known as the ‘Two Pack,’ which reinforces economic coordination between Member States and introduces new monitoring tools. Further details on the implementation of the ‘Two Pack’ provisions are laid down in ‘Code of Conduct’ (last revised in November 2014).
The SGP is made more comprehensive and predictable with a major enhancement of the EU’s economic governance rules through a collection of new laws, known as the ‘Six Pack’. The monitoring of both budgetary and economic policies is organised under the European Semester and further details on the implementation of the SGP’s rules are laid down in a ‘Code of Conduct’ (last revised in September 2012).
EU lawmakers amend the SGP to allow it to better consider individual national circumstances and to add more economic rationale to the rules to be complied with.
The SGP’s corrective rules enter into force.
The SGP’s preventive rules enter into force.
EU Member States agree to strengthen the monitoring and coordination of national fiscal and economic policies to enforce the deficit and debt limits established by the Maastricht Treaty. The Stability and Growth Pact is born.
EU Member States sign the Maastricht Treaty, paving the way for the creation of the euro as the common currency of the EU. The treaty limits government deficits to 3 % of GDP and public debt levels to 60 %, so as to enable countries to share a single currency.