Stability and Growth Pact

rdf:langString Stability and Growth Pact

rdf:langString border-top:none;

rdf:langString BBLTC = 0.33×S2LTC

rdf:langString BBdebt reduction = 0.024×Dt-1 - 1.24

rdf:langString BBstable debt = -/

rdf:langString MTOILD = BBstable debt + BBdebt reduction + BBLTC

rdf:langString MTOMB = –3% – ε × ROG

rdf:langString ROG = × P5% state + × P5% EU27

rdf:langString Formula used to calculate the

rdf:langString MTO Minimum Benchmark

rdf:langString Formula for the MTO limit due to Implicit Liabilities and Debt

rdf:langString padding:0.3em 0.2em 0 0.2em; background:inherit; border:1px #aaa solid; border-bottom:none; background:#cfc;

rdf:langString The Stability and Growth Pact (SGP) is an agreement, among all of the 27 member states of the European Union, to facilitate and maintain the stability of the Economic and Monetary Union (EMU). Based primarily on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of the European Union, and the issuing of a yearly recommendation for policy actions to ensure a full compliance with the SGP also in the medium-term. If a Member State breaches the SGP's outlined maximum limit for government deficit and debt, the surveillance and request for corrective action will intensify through the declaration of an Excessive Deficit Procedure (EDP); and if these corrective actions continue to remain absent after multiple warnings, the Member State can ultimately be issued economic sanctions. The pact was outlined by a resolution and two council regulations in July 1997. The first regulation "on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies", known as the "preventive arm", entered into force 1 July 1998. The second regulation "on speeding up and clarifying the implementation of the excessive deficit procedure", known as the "dissuasive arm", entered into force 1 January 1999. The purpose of the pact was to ensure that fiscal discipline would be maintained and enforced in the EMU. All EU member states are automatically members of both the EMU and the SGP, as this is defined by paragraphs in the EU Treaty itself. The fiscal discipline is ensured by the SGP by requiring each Member State, to implement a fiscal policy aiming for the country to stay within the limits on government deficit (3% of GDP) and debt (60% of GDP); and in case of having a debt level above 60% it should each year decline with a satisfactory pace towards a level below. As outlined by the "preventive arm" regulation, all EU member states are each year obliged to submit a SGP compliance report for the scrutiny and evaluation of the European Commission and the Council of the European Union, that will present the country's expected fiscal development for the current and subsequent three years. These reports are called "stability programmes" for eurozone Member States and "convergence programmes" for non-eurozone Member States, but despite having different titles they are identical in regards of the content. After the reform of the SGP in 2005, these programmes have also included the Medium-Term budgetary Objectives (MTO's), being individually calculated for each Member State as the medium-term sustainable average-limit for the country's structural deficit, and the Member State is also obliged to outline the measures it intends to implement to attain its MTO. If the EU Member State does not comply with both the deficit limit and the debt limit, a so-called "Excessive Deficit Procedure" (EDP) is initiated along with a deadline to comply, which basically includes and outlines an "adjustment path towards reaching the MTO". This procedure is outlined by the "dissuasive arm" regulation. 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 economy's strong performance since the 1950s. The German government hoped to ensure the continuation of that policy through the SGP, which would ensure the prevalence of fiscal responsibility, and limit the ability of governments to exert inflationary pressures on the European economy. As such, it was also described to be a key tool for the Member States adopting the euro, to ensure that they did not only meet the Maastricht convergence criteria at the time of adopting the euro, but kept on to comply with the fiscal criteria for the following years.

rdf:langString * ε stands for the country-specific semi-elasticity of the government budget balance to output gap. Normally these figures are only recalculated every third year. However, after its latest recalculation in October 2012, the following 2014 revision by OECD of individual revenue and expenditure elasticities prompted the Commission to recalculate the semi-elasticities again in November 2014. * ROG stands for the Representative Output Gap, which gets recalculated every third year for the latest 25-year period . Based on the historic distribution of output gap data, the ROG figure attempts to identify the most negative output gap appearing across a full business cycle by a 95% likelihood. It is calculated by a formula comprising the following parameters: ** P5% state represents the 5% percentile of the distribution of the country-specific output gap series for the latest 25-year period . ** P5% EU27 represents the 5% percentile of the output gap data for all countries for the latest 25-year period . ** The above 5% percentiles are computed after outlier values are deleted. Outliers are defined as observations of the distribution for the entire sample – including all Member States – below and above, respectively the 2.5% and 97.5% percentiles. Exceptionally, it has also been decided to trim the country-specific series of their most negative value achieved in either 2009 or 2010, as this last financial economic crisis cannot be considered as a normal cyclical fluctuation. ** Ni and Nt stand for the number of country-specific and common annual observations available, respectively, over a period of 25 years. Meaning that Nt=25, while Ni can be lower for some states due to absence of available cyclically-adjusted budget data for them in the earliest years. For states with Ni=25, the ROG is the simple average of the two percentiles: (ROG = /2).

rdf:langString text-align:left