The Stability and Growth Pact
The Stability and Growth Pact (SGP) and the Excessive Deficit Procedure (EDP)
The Stability and Growth Pact requires the Member States to maintain budgets in the medium term close to balance or in surplus. This allows them to deal with cyclical fluctuations while keeping their public finance deficits below 3% of GDP. A deficit above this threshold is considered excessive unless it is exceptional and temporary.
This system has a preventive and warning element. Prevention is based on regular surveillance and on an early warning system, which allows corrections to be made where necessary. Member States submit stability programmes (euro area countries) or convergence programmes (non-euro area countries) in which they set out their medium-term objectives and the path towards those objectives. The programmes are assessed by the European Commission. This assessment forms the basis for the opinion of the Council, which monitors the implementation of the programmes. In the event that the Council identifies a significant divergence from the programme, it makes a recommendation to the Member State concerned to correct the deficit within a certain period of time.
Legislation relating to the Stability and Growth Pact
The Stability and Growth Pact was revised between autumn 2004 and mid-2005. The relevant Council regulations, i.e. the preventive and corrective parts of the Pact, were amended as a result. The outcome of this process, which was aimed mainly at strengthening and improving the implementation of the Pact, was a relative strengthening of the preventive part (e.g. differentiation of medium-term budgetary objectives across countries and minimum annual adjustments of the cyclically adjusted budgetary position) and a weakening of the corrective part (e.g. the extension of some time limits and the taking into account of unforeseen economic circumstances and other relevant factors).
The Lisbon Treaty strengthened the Commission’s powers with regard to the implementation of the SGP. An amendment of the implementing regulations of the SGP is being prepared (see the six legislative proposals of the European Commission).
The changeover preparations were accompanied by relatively extensive and expensive preparation of the financial services sector and especially of banks, as for them the introduction of only non-cash euro meant a relatively long period of parallel existence of two currencies at the national level.