Agreement between the States of the European Union (EU) by which they undertake to maintain healthy public finances, as a means of strengthening the conditions for achieving price stability and strong and sustainable growth that favors job creation. The Stability and Growth Pact sets a maximum reference value for the public deficit (3% of GDP) and public debt (60% of GDP). However, the Pact allows States to incur exceptional and temporary deficits greater than the aforementioned proportion when it is due to unusual circumstances beyond their control or a serious economic recession. Within the framework of the Pact, the EU States that have adopted the euro must present each year to the Council of the EU and the European Commission a stability program in order for both institutions to assess the degree of compliance with the Pact by each state. This program must include the situation with respect to the objectives of budgetary balance and public debt, forecasts on the evolution of the most relevant macroeconomic variables, the measures that are going to be adopted to achieve the objectives of the Pact and the analysis of the changes in the expected economic scenario on the achievement of the objectives. The EU states that have not yet adopted the euro must present each year to the Council and the Commission a convergence program similar to the one described above, but also including the objectives of monetary policy and their relationship with price stability and rates exchange. The European Commission and the Economic and Financial Committee analyze the stability and convergence programs and report to the Council of the EU on their adequacy. The Council, if significant deviations have been observed regarding the achievement of the objectives, formulates recommendations to the corresponding State. If the affected State does not take the appropriate measures, the recommendations become warnings and can end in economic sanctions.
Origin: Bank of Spain
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