Stability and Growth Pact

The Stability and Growth Pact (SGP) was introduced as part of the third stage of economic and monetary union. It was designed to ensure that EU Member States maintained sound public finances after the single currency was introduced.

In formal terms, the pact originally comprised a European Council resolution (adopted in 1997) and two Council regulations of 7 July 1997 laying down detailed technical arrangements (one on the surveillance of budgetary positions and the coordination of economic policies and the other on implementing the excessive deficit procedure).

Following discussions on the SGP’s operation, the regulations were amended in 2005. However, enforcement was weak, resulting in serious fiscal imbalances in some Member States, which became exposed when the economic and financial crisis struck in 2008.

Since the crisis, the EU’s economic governance rules have been strengthened by means of eight EU regulations and one international treaty:

the six-pack (which introduced a system to monitor broader economic policies, so as to detect problems like real estate bubbles or falling competitiveness early on);
the two-pack (a new cycle of monitoring for the euro area, with countries – except those with macroeconomic adjustment programmes – submitting their draft budgetary plans to the European Commission every autumn);
the 2012 Treaty on Stability, Coordination and Governance (fiscal compact) which introduced stricter fiscal provisions than the SGP.

This set of measures is now an integral part of the European semester, the EU’s economic policy coordination mechanism.

In January 2015, following a review, the Commission issued detailed guidance on how it will apply the existing SGP rules so as to strengthen the link between structural reforms, investment (particularly in view of the recently created European Fund for Strategic Investments) and fiscal responsibility in support of jobs and growth.

In February 2020, the Commission published a review that aimed to assess the effectiveness of the current framework for economic and fiscal surveillance, especially the six-pack and two-pack reforms, and launched a public debate.

In November 2022, the Commission came forward with its orientations (guidelines) for a reform of the economic governance framework, which proposed a wide-ranging reform of the design and operation of the SGP.

In March 2023, the Commission adopted a communication providing Member States with guidance on the conduct and coordination of fiscal policy in 2024.