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The Stability and Growth Pact and the New “Flexibility” Rules

In: Public Finance and National Accounts in the European Context

Author

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  • Joaquim Miranda Sarmento

    (University of Lisbon)

Abstract

The euro currency imposes three conditions: price stability, fiscal sustainability, and exchange rate stability. The Stability and Growth Pact (SGP) has created two budgetary limits: 3% of GDP for deficit and 60% for public debt. If a country violates these limits, sanctions can be applied. However, there are two exceptions: economic recession or temporary excessive deficit resulting from extraordinary events. After the 2005 reform (and reinforced by the Fiscal Treaty), the Medium-Term Objective (MTO) was created (usually for a structural deficit of 0.5% of GDP). Recently, there has also been a “relaxation” of the SGP’s rules and targets for contributions to the “Juncker Investment Plan”, and in those countries with a budget deficit below 3%, there has also been a change concerning how the SGP deficit limit of 3% is accounted for, as well as the funding of cofinanced projects, structural reforms, and the cyclic component.

Suggested Citation

  • Joaquim Miranda Sarmento, 2018. "The Stability and Growth Pact and the New “Flexibility” Rules," Financial and Monetary Policy Studies, in: Public Finance and National Accounts in the European Context, chapter 0, pages 1-35, Springer.
    • Handle: RePEc:spr:fimchp:978-3-030-05174-7_1
    DOI: 10.1007/978-3-030-05174-7_1
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