Do you have a business in Spain? Then you are probably interested in knowing about the economic conditions in the country, the current regulations and agreements. So, in this article we tell you what is the EU Stability and Growth Pact and what is its current importance.

What is the EU Stability and Growth Pact?

In 1997, the European Council formed the EU Stability and Growth Pact in order to address budget surveillance in the member countries and to prevent the negative consequences of various economic policies.

It also sought to ensure the welfare of European public finances after the introduction of a single currency in the EU countries.

Subsequently, in 2005, the main regulations that constitute the Pact were modified, i.e. the principles that constitute the budgetary situations and the coordination of economic policies in Europe.

Following the COVID-19 pandemic, Eurozone finance ministers need to schedule a meeting to address the new challenges and review the fiscal rules that define the current EU Stability and Growth Pact.

But, have you heard what this pact is? It represents an agreement between the Member States of the European Union, whose main purpose is to maintain stability in the Economic and Monetary Union (EMU); based on articles 121 and 126 of the Treaty on the Functioning of the European Union.

In this regard, a maximum reference value for the public deficit of 3% of GDP and a public debt of 60% of GDP are set.

However, exceptional and temporary deficits in excess of 3% of GDP are allowed in the event of unusual circumstances or a severe economic downturn in any of the Member States.

In addition, for European Union member countries that fail to comply with the standards for three consecutive years, a penalty of a maximum of 0.5% of their Gross Domestic Product is established.

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EU Stability and Growth Pact objectives

However, for the proper functioning of this European agreement, a series of objectives are set out:

• Preventing the emergence of an excessive budget deficit in the euro zone

• Ensuring sound management of the euro zone’s public finances

• Early detection of problems such as real estate bubbles

• Establish an expenditure benchmark for EU member countries

• Set medium-term budget targets every three years.

• Provide advice to the governments involved in the agreement.

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Because of the COVID-19 pandemic, the regulations that make up the EU’s Stability and Growth Pact were suspended. However, some Member States are considering the idea of reinstating them as they operated in 1997.

On the other hand, there are different opinions on the matter, since some members of the European Union consider that the Pact would not meet current needs, and propose a reform of its regulations.

Likewise, it is common to find various criticisms regarding the fiscal rules; they are considered to be strict and inflexible, but the truth is that the European Commission and the Council of Finance Ministers are the bodies in charge of monitoring compliance year after year.

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