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Stability and Growth Pact

The Stability and Growth Pact (SGP) pertains to the third stage of economic and monetary union (EMU), which began on 1 January 1999. It is intended to ensure that the Member States maintain budgetary discipline after the single currency has been introduced.

In formal terms, the Pact comprises a European Council resolution (adopted at Amsterdam on 17 June 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 operation of the SGP, the two regulations were amended in June 2005.

In the medium term, the Member States undertook to pursue the goal of a balanced or nearly balanced budget and to provide the Council and Commission with a stability programme by 1 March 1999 (and update it annually thereafter). Similarly, States not taking part in the third stage of EMU, i.e. those that have not (yet) introduced the euro, are required to submit a convergence programme.

The Stability and Growth pact establishes two main monitoring procedures;

  • A multilateral surveillance procedure (article 121 of the Treaty on the functioning of the European Union (TFEU)) intended to prevent the occurrence of an excessive deficit and promote the coordination of economic policies. When the economic policy of a Member State does not comply with the broad economic guidelines set out by the Council or may result in an excessive deficit, the Commission may address an "early warning" to the Member State concerned. The Council, on the basis of a Commission recommendation, may then address recommendations to the Member State;
  • An "excessive deficit procedure" laid down by article 126 TFEU. If the Commission considers that a Member State's deficit breaches the 3% of GED threshold of the Treaty, it should address an opinion to the Member State concerned. Where the existence of an excessive deficit is established, the Council should then issue recommendations to the Member State so that it corrects the deficit within a given period. If the Member State fails to take appropriate measures to end an excessive deficit, the Council may then decide to impose sanctions.

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