Transcript Short-Run Costs

The Stability and Growth Pact
Frederick University
2013
The Stability and Growth Pact
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Adopted in 1997
to facilitate and maintain the stability of
the EMU
to avoid damages caused by debt
politics followed by EMU Member State
which would impact the whole Eurozone
The SGP
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Enables the continuity of budgetary
discipline efforts after the introduction
of the Euro
Sets medium term objective of
budgetary positions close to balance or
in surplus
The Six Pack Rules
“Six Pack” of five regulations and one
directive for economic and fiscal
surveillance
- institutionalize the austerity policies
as a “new model of economic
governance.”
- Entered into force in December 2011
Budget deficits.
Member countries in excessive
deficit procedure that are not taking
adequate actions to bring their
budget deficits below 3% of GDP
should comply with specific
recommendations within a period of
three years and can be subjected to
financial sanctions.
•
Public debt

If the 60% reference for the debt-to-GDP
ratio is not respected, the Member State
concerned will be placed in excessive
deficit procedure (even if its deficit is below
3%!), after taking into account all relevant
factors and the impact of the economic
cycle, if the gap between its debt level and
the 60% reference is not reduced by
1/20th annually (on average over 3 years).
Public debt
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A negative assessment of the progress made
towards compliance with the debt benchmark
during the transition period could lead to the
opening of an excessive deficit procedure.
New expenditure benchmark
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A country specific medium-term
budgetary objective provide guidance
for budgetary planning and execution
and places a cap on the annual
growth of public expenditures in
accordance
with
equivalent
permanent
revenues
growth.
Deviations from this benchmark can
lead to a financial sanction.
Reducing macroeconomic
imbalances
An Excessive Imbalances Procedure
is set up to identify and correct
macroeconomic
imbalances
and
serious gaps in competitiveness. It
relies on the following main
elements:
 Preventive and corrective action
 Rigorous enforcement
Preventive and corrective
action
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The Commission and the Council are allowed to
adopt preventive recommendations at an early stage
before the imbalances become large. In more serious
cases, there is also a corrective arm where an
excessive imbalance procedure can be opened for a
Member State. In this case, the Member State
concerned will have to submit a corrective action plan
with a clear roadmap and deadlines for implementing
corrective action. Surveillance will be stepped up on
the basis of regular progress reports submitted by
the Member States concerned.
Rigorous enforcement
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A new enforcement regime is established for euro
area countries. It consists of a two-step approach
whereby an interest-bearing deposit can be
imposed after one failure to comply with the
recommended corrective action. After a second
compliance failure, this interest-bearing deposit
can be converted into a fine. Sanctions can also
be imposed for failing twice to submit a sufficient
corrective action plan.
An early warning system
An alert system is established
based on an economic reading of a
scoreboard consisting of a set of
ten indicators covering the major
sources
of
macro-economic
imbalances
An early warning system
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3 year backward moving average of
the current account balance as a
percent of GDP, with the a threshold of
+6% of GDP and - 4% of GDP;
net international investment position as
a percent of GDP, with a threshold of 35% of GDP;
An early warning system
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5 years percentage change of export
market shares measured in values, with
a threshold of -6%;
3 years percentage change in nominal
unit labor cost, with thresholds of +9%
for euro-area countries and +12% for
non-euro-area countries.
An early warning system
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3 years percentage change of the real
effective exchange rates based on
HICP/CPI deflators, relative to 35 other
industrial countries, with thresholds of /+5% for euro-area countries and /+11% for non-euro-area countries;
private sector debt in % of GDP with a
threshold of 160%;
An early warning system
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private sector credit flow in % of
GDP with a threshold of 15%;
year-on-year changes in house
prices relative to a Eurostat
consumption deflator, with a
threshold of 6%;
An early warning system
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general government sector debt in % of
GDP with a threshold of 60%;
3-year backward moving average of
unemployment rate, with the threshold
of 10%
Treaty on Stability,
Coordination and Governance
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Intergovernmental agreement
“Fiscal Compact”
Ensure convergence towards the country
specific medium term objective, with a lower
limit of structural deficit of 0.5% of GDP
Budget rules to be implemented in national
law
Independent institutions
The European Semester
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yearly cycle of EU economic policy guidance
and country-specific surveillance
each year the European Commission
undertakes a detailed analysis of EU Member
States' programs of economic and structural
reforms
and
provides
them
with
recommendations for the next 12-18 months
The two pack
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the latest piece of the EU's economic
governance revamp
joins other instruments such as the
European Semester, the "six pack" and
the Fiscal Compact in ensuring that the
EU's economic and monetary union is
less fragmented and that its component
countries run fiscally sound policies.
The “Two Pack” regulations
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Countries will need to
present their draft
budgets to the
European Commission
by October 15 for
assessment
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Setting of specific rules
and procedures for
enhanced surveillance
of any Eurozone
country in distress
Fiscal compliance 2013