© Reuters. FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, July 14, 2021. REUTERS/Yves Herman
By Jan Strupczewski
BRUSSELS (Reuters) – The European Union on Tuesday launches a consultation on a fourth reform of the fiscal rules known as the Stability and Growth Pact which underpin the value of the euro currency.
The pact is complex but is built on two crucial principles: an upper limit for a country’s national budget deficit, and an upper limit for its total public debt. Below are key dates in its often turbulent history.
1992 – EU countries sign the Treaty of Maastricht, establishing a ceiling for national budget deficits at 3% and for debt at 60% of national output – with a discipline procedure for breaches.
1995 – German Finance Minister Theo Waigel proposes countries adopting the euro agree to toughen rules on budget deficits and impose financial sanctions against deficit violators.
1997 – Stability and Growth Pact rules are written up formally as regulations so that governments can coordinate fiscal policy in the soon-to-be-launched monetary union.
1999 – To great fanfare, the euro currency is introduced in a historic moment for European integration.
2002 – Only three years later comes the first major challenge to the pact’s credibility as euro founders France and Germany run deficits above the 3% limit. They are requested to cut them.
2003 – But rather than fall, the deficits of France and Germany rise further above the limit. The Commission asks the council of EU finance ministers – essentially, a grouping of all the EU national capitals – to approve harsher disciplinary action against Paris and Berlin. But the two countries organise a blocking minority and prevent tougher steps against them.
2004 – The European Commission goes to the EU’s top court to sue the Council of finance ministers for blocking pact rules. It wins, but partly only on procedural grounds.
2005 – In the aftermath, the EU reforms the rules for the first time. Crucially, a new set of goals give more leeway to national capitals taking into account the cyclical and structural factors in their deficits. Governments get more time to cut excess gaps and cannot be disciplined for minor or temporary breaches.
2011 – Amid a sovereign debt crisis triggered after Greece hid the dire state of its finances from pact monitors, the rules are reformed again. Enter the so-called “six-pack”, named after the six regulations that broaden the scope for fines and introduce new debt-cutting requirements, government spending ceilings and the monitoring of “excessive imbalances” in national economies.
2013 – Still reeling from the sovereign debt crisis and keen to prevent a new one, the EU amends the rules yet again through two regulations, this time dubbed the “two-pack”. The main change is that every year by Oct. 15, euro zone governments have to send to the Commission the main assumptions of their budgets for the following year for vetting whether they are in line with EU rules.
If not, the Commission can demand they write a new budget.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.