Stability and Growth Pact

The Stability and Growth Pact (SGP) is an agreement by European Union member states related to their conduct of fiscal policy, to facilitate and maintain Economic and Monetary Union of the European Union.

It is based on Articles 99 [ [http://europa.eu/eur-lex/en/treaties/selected/livre223.html#anArt1 Article 99] ] and 104 [ [http://europa.eu/eur-lex/en/treaties/selected/livre223.html#anArt6 Article 104] ] of the European Community Treaty (with the amendments adopted in 1993 in Maastricht), and related decisions. It consists of fiscal monitoring, and sanctions [ [http://www.bportugal.pt/euro/emu/pacto_e.htm Banco De Portugal Article - English] ] against offending members.

The pact was adopted in 1997, [ [http://www.guardian.co.uk/eu/story/0,,1094666,00.html Guardian Unlimited article] ] so that fiscal discipline would be maintained and enforced in the EMU. Member states adopting the euro have to meet the Maastricht convergence criteria, and the SGP ensures that they continue to observe them.
The actual criteria that member states must respect:
*an annual budget deficit no higher than 3% of GDP (this includes the sum of all public budgets, including municipalities, regions, etc)
*a national debt lower than 60% of GDP or approaching that value.

The SGP was initially proposed by German finance minister Theo Waigel in the mid 1990s. Germany had long maintained a low-inflation policy, which had been an important part of the German strong economy's performance since the 1950s; the German government hoped to ensure the continuation of that policy through the SGP which would limit the ability of governments to exert inflationary pressures on the European economy.

Criticisms

The Pact has been criticised by some as being insufficiently flexible and needing to be applied over the economic cycle rather than in any one year. They fear that by limiting governments' abilities to spend during economic slumps it may hamper growth.

Some remark that it has been applied inconsistently, after the Council of Ministers failed to apply sanctions against France and Germany, despite punitive proceedings being started when dealing with Portugal (2002) and Greece (2005), though fines were never applied. In 2002 the European Commission President (1999-2004) [cite news | title=The Commissioners - Profiles, Portfolios and Homepages | work=The European Commission | url=http://ec.europa.eu/archives/commission_1999_2004/index_en.htm | accessdate=2007-03-21] Romano Prodi described it as "stupid" [ [http://news.bbc.co.uk/1/hi/business/2336823.stm BBC News article] ] , but was still required by the Treaty to seek to apply its provisions.

The pact has proved not to be enforceable against big countries such as France and Germany, which, ironically, were the biggest promoters of it when it was created. These countries have run "excessive" deficits under the pact definition for some years. The reasons that larger countries have not been punished include their influence and large number of votes on the Council of Ministers, which must approve sanctions; their greater resistance to "naming and shaming" tactics, since their electorates tend to be less concerned by their perceptions in the European Union; their comparatively weak commitment to the euro as compared to smaller states; the relatively greater role of government spending in their larger and more enclosed economies.

Reform

In March 2005, the EU Council relaxed the rules to respond to these criticisms and to make the pact more enforceable [ [http://www.ecb.int/press/key/date/2005/html/sp051013.en.html Speech by José Manuel González-Páramo] ] .As with most other pre-existing treaties, the provisions on which the pact is based are included unchanged in the draft European Constitution. However, the pact itself is a set of Council Regulations.

Member states by SGP criteria

The deficit criterion is applied to both Eurozone and non-Eurozone EU member states. [http://ec.europa.eu/economy_finance/about/activities/sgp/edp_list_en.htm]

Data from the EC's "Public Finances report" [http://ec.europa.eu/economy_finance/publications/european_economy/2006/ee306_en.pdf]

See also

* Convergence criteria for joining the Eurozone

Bibliography

* Matthias Belafi und Roman Maruhn (2005): [http://www.cap.lmu.de/download/2005/2005_swpeu2.pdf C·A·P-Position: Ein neuer Stabilitätspakt? Bilanz des Gipfelkompromisses] , Centrum für angewandte Politikforschung de_icon
* Anne Brunila, Marco Buti & Daniele Franco,: The Stability and Growth Pact, Palgrave, 2001
* Peter Bofinger (2003): [http://www2.wifak.uni-wuerzburg.de/vwl1/downloads/s.4-7forum.pdf »The Stability and Growth Pact neglects the policy mix between fiscal and monetary policy«] , in: Intereconomics, Review of European Economic Policy, 1, S. 4–7.
* Daniel Gros (2005): Reforming the Stability Pact, S. 14-17, in: Boonstra, Eijffinger, Gros, Hefeker (2005), Forum: The Stability and Growth Pact in Need of Reform, in: Intereconomics, 40. Jg., Nr. 1, S. 4–21.
* Friedrich Heinemann (2004): Die strategische Klugheit der Dummheit – keine Flexibilisierung des Stabilitätspaktes ohne Entpolitisierung, S. 62-71, in: Hefeker, Heinemann, Zimmermann (2004), Wirtschaftspolitisches Forum: Braucht die EU einen flexibleren Stabilitätspakt?, in: Zeitschrift für Wirtschaftspolitik, 53. Jahrgang, Heft 1, S. 53–80. de_icon

References

External links

* [http://ec.europa.eu/economy_finance/about/activities/sgp/sgp_en.htm European Commission SGP page]
* [http://www.destatis.de/basis/e/fist/fist029.htm Federal Statistical Office Germany page on General government consolidated gross debt as a percentage of GDP]
* [http://www.destatis.de/basis/e/fist/fist027.htm Federal Statistical Office Germany page on Share of net borrowing or net lending of general government in the gross domestic product]