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Encyclopedia > 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. Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ... In economics, a monetary union is a situation where several countries have agreed to share a single currency among them. ...


It is based on Articles 99[1] and 104[2] of the European Community Treaty (with the amendments adopted in 1993 in Maastricht), and related decisions. It consists of fiscal monitoring, and sanctions[3] against offending members. The European Community (EC) was originally founded on March 25, 1957 by the signing of the Treaty of Rome under the name of European Economic Community. ...


The pact was adopted in 1997,[4] 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: This is an article about European Politics, Convergence criteria is also a mathematical term regarding series Convergence criteria, also known as the Maastricht criteria, are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union (EMU) and adopt the euro. ...

  • 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 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. Theodor Waigel (born April 22, 1939) is a German politician of the Christian Social Union in Bavaria party. ...

Contents

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. An abstract business cycle The business cycle or economic cycle refers to the ups and downs seen somewhat simultaneously in most parts of an economy. ...


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)[5] Romano Prodi described it as "stupid"[6], but was still required by the Treaty to seek to apply its provisions. The Commission seat in Brussels The European Commission (formally the Commission of the European Communities) is the executive body of the European Union. ...   (born 9 August 1939) is an Italian politician. ...


The pact has proved not to be enforceable against big countries such as France and Germany, which, ironically, was the biggest promoter 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 Community; 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.


To external obervers of the pact in countries where there is a movement to join the eurozone, such as in Denmark, and Sweden, the failure of the pact to enforce its provisions on France and Germany is seen as a reason against joining the eurozone. This is cited as another example of Franco-German bullying of other member states when it suits them. François Mitterrand and Helmut Kohl in Verdun in 1984 The Franco-German Cooperation or Franco-German Partnership or Amitié franco-allemande are terms to describe the high collaboration between the countries of France and Germany in the post-1945 world. ...


Reform

In March 2005, the EU Council relaxed the rules to respond to these criticisms and to make the pact more enforceable[7]. 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. The Treaty establishing a Constitution for Europe, commonly referred to as the European Constitution, is an international treaty intended to create a constitution for the European Union. ...


Member states by SGP criteria

The deficit criteria is applied to both Eurozone and non-Eurozone EU member states. [1] The Eurozone (also called Euro Area, Eurosystem or Euroland) refers to the European Union member states that have adopted the euro currency union. ...

Country Government finances Past breach
periods
for deficite
Deadline for
compliance
for deficite
Past breach
periods
for debt
Deadline for
compliance
for debt
annual government deficit to GDP gross government debt to GDP
Reference value min. -3% max. 60%
Austria -1.9% 62.4% 2003-  ?
Germany -1.7% [2] 68.9% 2003-2006 2007 2003-  ?
France -3.0% 66.9% 2003-2007 2005 2003-  ?
Italy -4.1% 107.4% 2003- 2007 2003-  ?
Luxembourg -1.8% 7.9%
Netherlands -1.2% 51.2% 2004-2005 2005
Belgium -0.3% 90% 2003-  ?
Spain +0.9% 40.0%
Portugal -5.0% 68.4% 2002; 2005- 2002; 2008 2005-  ?
Finland +2.8% 39.7%
Ireland +0.1% 27.2%
Greece -2.6% [3] 105.0% 2003-2006 2006 2003-  ?
Slovenia -1.9% 29.9%
Sweden +2.2% 47.6%
United Kingdom -4% 44.1% 2006 2007
Denmark +3.9% 30.0%
Cyprus -2.1% 65% [4] 2004-2006 2006 2004-  ?
Malta -2.6% [5] 65.9% [6] 2004-2006 2006 2004-  ?
Estonia +1.4% 3.6%
Latvia -1.0% 11.3%
Lithuania -0.6% 18.9%
Poland
80% 2004- 2007
Hungary -6.7% 59.9% 2004- 2008
Czech Republic -3.2% 31.5% 2004- 2008
Slovakia -3.1% 34.3% 2004- 2007
Romania -2.5% 20.3%
Bulgaria +3.1% 29.9%
Eurozone -2.4% 70.5% 2003- NA
EU27 -2.3% 63.2% 2003- NA


     criteria breach      criteria breach for 3 consecutive years Data from the EC's "Public Finances report" [7] The Eurozone (also called Euro Area, Eurosystem or Euroland) refers to the European Union member states that have adopted the euro currency union. ... Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time. ... A budget deficit occurs when an entity (often a government) spends more money than it takes in. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Government debt (also known as public debt or national debt) is... The Eurozone (also called Euro Area, Eurosystem or Euroland) refers to the European Union member states that have adopted the euro currency union. ...


See also

This is an article about European Politics, Convergence criteria is also a mathematical term regarding series Convergence criteria, also known as the Maastricht criteria, are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union (EMU) and adopt the euro. ... The Eurozone (also called Euro Area, Eurosystem or Euroland) refers to the European Union member states that have adopted the euro currency union. ...

Bibliography

  • Matthias Belafi und Roman Maruhn (2005): C·A·P-Position: Ein neuer Stabilitätspakt? Bilanz des Gipfelkompromisses, Centrum für angewandte Politikforschung (German)
  • Anne Brunila, Marco Buti & Daniele Franco,: The Stability and Growth Pact, Palgrave, 2001
  • Peter Bofinger (2003): »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. (German)

References

  1. ^ Article 99
  2. ^ Article 104
  3. ^ Banco De Portugal Article - English
  4. ^ Guardian Unlimited article
  5. ^ "The Commissioners - Profiles, Portfolios and Homepages", The European Commission. Retrieved on 2007-03-21. 
  6. ^ BBC News article
  7. ^ Speech by José Manuel González-Páramo

Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... March 21 is the 80th day of the year (81st in leap years) in the Gregorian calendar. ...

External links

  • European Commission SGP page
  • Federal Statistical Office Germany page on General government consolidated gross debt as a percentage of GDP
  • Federal Statistical Office Germany page on Share of net borrowing or net lending of general goverment in the gross domestic product

  Results from FactBites:
 
SCADPlus: STABILITY AND GROWTH PACT AND ECONOMIC POLICY COORDINATION (149 words)
The Stability and Growth Pact is intended to ensure that Member States maintain budget discipline in order to avoid excessive deficits.
Resolution of the European Council on the Stability and Growth Pact
Revising the Stability and Growth Pact: Public Finances in EMU 2006
Stability and Growth Pact - Wikipedia, the free encyclopedia (584 words)
The Stability and Growth Pact 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.
To external obervers of the pact in countries where there is a movement to join the eurozone, such as in the UK, the failure of the pact to enforce its provisions on France and Germany is seen to have provided ammunition against joining the eurozone.
Anne Brunila, Marco Buti and Daniele Franco, The Stability and Growth Pact, Palgrave, 2001.
  More results at FactBites »

 
 

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