Flexibility of the SGP rules: strengthening the link between investment, structural reforms and fiscal responsibility
SUMMARY OF:
Communication (COM(2015) 12 final) – Making the best use of the flexibility within the existing rules of the Stability and Growth Pact
WHAT IS THE AIM OF THE COMMUNICATION?
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It provides guidance on how best to make use of the flexibility offered by the existing rules of the Stability and Growth Pact (SGP).
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This would strengthen the link between structural reforms, investment and fiscal responsibility so as to stimulate job creation and growth in the European Union (EU).
KEY POINTS
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The guidance has 3 main objectives:
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The degree of flexibility depends on whether an EU country is in the preventive arm (i.e. it has a public deficit not exceeding 3 % of gross domestic product (GDP) and public debt below 60 % of GDP or that is falling sufficiently) or does not and is then subject to an excessive deficit procedure under the corrective arm of the SGP. The latter countries are subject to stricter conditions.
Clarifications on structural reforms
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The Commission explains that it can take into account the impact of structural reforms if these reforms:
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are major;
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have verifiable, long-term positive budgetary effects, including by raising potential sustainable growth; and
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are fully implemented.
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For reform measures to be taken into account ex ante (in advance), EU countries must present a reform plan with detailed information and realistic deadlines.
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The Commission evaluates reforms before recommending to the Council possible temporary deviations from the medium-term budgetary objective (MTO) or the fiscal adjustment path towards it.
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For countries that are not in an excessive deficit procedure (preventive arm), a deviation of a maximum of 0.5 % of GDP can be authorised, provided that it is closed within 4 years of the activation of the structural reform clause.
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For countries in the excessive deficit procedure (corrective arm), the Commission can give them more time to get back within the limit of 3 % of GDP, on condition that the reforms are undertaken and that they have made sufficient efforts to correct their excessive deficits.
Clarifications regarding investment
The Commission states the following.
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EU countries’ contributions to the EFSI will not count when defining the fiscal adjustment under either the preventive or the corrective arm of the SGP, as the specific targets exclude one-off measures. If a country sees its deficit exceed 3 % of GDP, the Commission will not launch an excessive deficit procedure if this is due to the contribution, provided that the deviation is limited and expected to be temporary.
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Countries not having an excessive deficit procedure may deviate temporarily from the MTO or from the fiscal adjustment path towards it, especially in cases of negative growth or large negative output gaps, if they invest directly in projects co-financed by the EU under the structural and cohesion policies (including projects co-financed under the youth employment initiative), trans-European networks and the Connecting Europe Facility, as well as projects co-financed by the EFSI.
Clarifications regarding cyclical conditions
To better take into account the fluctuations of the economic cycle, the Commission will use a matrix that specifies the appropriate fiscal adjustment expected from countries in the preventive arm of the SGP. This means that these countries must make a greater fiscal effort when times are better.
BACKGROUND
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The communication follows the commitment made in President Juncker’s political guidelines and the European Council conclusions of 26 and 27 June 2014, in which it reaffirmed the need to respect the SGP, while making the most of the flexibility introduced into the SGP’s existing rules, which were reformed in 2005 and 2011.
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For more information, see:
MAIN DOCUMENT
Communication from the Commission to the European Parliament, the Council, the European Central Bank, the Economic and Social Committee, the Committee of the Regions and the European Investment Bank: Making the best use of the flexibility within the existing rules of the Stability and Growth Pact (COM(2015) 12 final, 13.1.2015)
last update 30.03.2017
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