Statement of the Governing Council on the Stability and Growth Pact
The principle of budgetary discipline enshrined in the Treaty and the Stability and Growth Pact are indispensable for Economic and Monetary Union (EMU)
EMU, with a single monetary policy and 12 governments responsible for budgetary policies, needs a fiscal institutional framework. The framework must be simple and enforceable and ensure that fiscal policies in Member States are sound and sustainable. Such a framework of fiscal policies fosters sustainable growth and employment, is conducive to economic stability and is a necessary complement of a monetary policy geared to price stability.
The Stability and Growth Pact has been successful in promoting sound public finances and fiscal convergence
Since agreement was reached on the fiscal rules in the Maastricht Treaty, generally fiscal balances have improved significantly in the Member States. Public debt ratios have been coming down in a sustained manner since the mid-1990s for the first time in decades. As a result, most Member States have now reached budget positions which are "close to balance or in surplus". These developments have supported, rather than hampered, growth in employment and real GDP.
The Stability and Growth Pact is in the interest of Member States
The main commitment of Member States under the Stability and Growth Pact is that the fiscal policies should result in medium-term budgetary positions which are "close to balance or in surplus". This, in conjunction with the Maastricht Treaty obligation to avoid excessive deficits and to apply appropriate implementation procedures, secures the sustainability of public finances and provides scope for dealing with the expected fiscal challenges caused by population ageing. Moreover, and contrary to the claims of its critics, the Stability and Growth Pact also provides sufficient flexibility after "close to balance or in surplus" positions have been reached, as automatic stabilisers can then operate fully. Problems have arisen not because the rules are inflexible, but as a result of some countries' unwillingness to honour their commitment to respect the rules.
The results of fiscal policy in several countries are very disappointing. In this context it is important to recall that the main reason why countries are in budgetary difficulties at present is because they have not used the situation of higher growth to substantially improve their fiscal position.
We continue to support the initiative of the Commission that all countries with remaining imbalances should commit themselves to implement a clear consolidation strategy with four key elements:
(i) a credible adjustment path, which requires the continuous adjustment of the underlying balance by at least 0.5% of GDP per year, (ii) realistic assumptions about the economic environment, (iii) well-specified measures to attain the objective and (iv) rigorous accounting rules and strict monitoring procedures for the implementation of the consolidation strategies. These commitments have to be honoured by rapid and decisive action.
The Stability and Growth Pact supports price stability
By ensuring sustainable public finances and by providing enough flexibility for the full operation of automatic stabilisers in periods of economic weakness as well as strength, the Stability and Growth Pact also has a favourable effect on macroeconomic stability. This facilitates achieving price stability and fosters confidence in the euro area's economic prospects.
Respecting the provisions of the Treaty and the full implementation of the Stability and Growth Pact remain fundamental to Monetary Union and to each individual Member State. Full compliance with the fiscal framework will also send an important message to accession countries.
Banco Central Europeu
Direção-Geral de Comunicação
- Sonnemannstrasse 20
- 60314 Frankfurt am Main, Alemanha
- +49 69 1344 7455
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