Fiscal policy and the Stability and Growth Pact in the EU

Abstract

On the 1st of January 1999, 11 countries adopted the Euro as the single currency under stage three of Economic and Monetary Union (EMU). In accordance with Council Regulation (EC) 1466/97 and according to the declaration by the ECOFIN Council on 1 May 1998, 11 Member States of the Euro zone will each year go through the exercise of having their public finances monitored. The stability programme, which forms part of the procedure of the surveillance of the budgetary positions of member states and the surveillance and coordination of their economic policies, has to demonstrate that the budgetary policy of a member state provides for a safety margin to ensure the avoidance of an excessive deficit, in accordance with the definitions of the Stability Pact. It must also facilitate the closer coordination of economic policies and be consistent with the broad economic policy guidelines (BEPG). The stability programme should not therefore be seen as an isolated document. Its natural complements are the repo rts on the reforms of the goods, services and capital markets, and on structural reform, which will follow. These reports together will form the basis for the broad economic policy guidelines. The government's budgetary policy therefore essentially looks beyond the cyclical and is based essentially on structural aspects. The best way of ensuring public finance stability is to promote the good health of the national economy: in order to achieve the public finance stability, government has conducted an active structural policy and continues to do so.