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The Stability and Growth Pact: Pursuing Sound Public Finances and Coordinating Fiscal Policies in the EU Member States

Journal: Journal of Innovations and Sustainability (Vol.4, No. 3)

Publication Date:

Authors : ;

Page : 53-68

Keywords : EU; stability; growth; sovereign debt;

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The so-called Stability and Growth pact was created in the 1990s with the idea of imposing upon member states (MS) which were already part of the Eurozone budgetary requirements. The Eurozone countries were initially complying with said budgetary requirements, but once they were granted admission into the “euro club”, they no longer had any incentives to maintain budgetary prudency. Hence, many countries started having excessive budgetary deficits which ultimately led, inevitably, to the accrual of higher debts. This was in violation of the current Article 126 TFEU which prohibits MS from having excessive government deficits, where deficit was to be assessed based on: the ratio of the planned/actual government deficit to gross domestic product, and the ratio of government debt to gross domestic product. The exact reference values of the acceptable levels of deficit and of debt are currently found in Protocol No 12 annexed to the Treaties, which puts the bar at 3% for deficit and 60% for debt.

Last modified: 2018-11-03 17:02:26