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Stability and Growth Pact

The Stability and Growth Pact (SGP) was introduced as part of the third stage of economic and monetary union (EMU). It was designed to ensure that EU countries 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. Enforcement, however, was weak, resulting in serious fiscal imbalances in some EU countries, 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 8 EU regulations and one international treaty:

  • the 6-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 2-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 introduces 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 European 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.