13 January 2015

European Commission: Presentation of a Communication providing new guidance on the Stability and Growth Pact

Credible rules and respect for them are essential for the proper functioning of the Economic and Monetary Union. The Pact has been strengthened over the years in response to financial and economic developments, not least in 2011 following the crisis. This has been instrumental in restoring trust and confidence in our public finances.

The Stability and Growth Pact is the cornerstone of European economic governance. We remain fully committed to ensuring that the rules and the way in which they are implemented remain credible and effective in delivering sound fiscal policies.

But these rules also need to be well understood. Today’s clarifications are part of our continued efforts to reinforce the transparency and predictability of the often complex implementing mechanisms.

Today's guidance is also part of our overall strategy to improve the way our Economic and Monetary Union functions. This includes efforts to streamline the European Semester of economic policy coordination as we announced in the Annual Growth Survey last November. Our reflections on further deepening the EMU will be elaborated in the coming month.

Above all, we believe that using the flexibility in the existing rules of the Pact makes economic sense.

The recovery in Europe is still fragile. While all 28 EU economies are expected to grow this year, this growth will be too slow to address decisively the social consequences of the crisis, which many Europeans are still feeling.

Last November, we presented our Annual Growth Survey emphasised the need to work hard on three fronts to cement the recovery: increasing public and private investment; carrying out ambitious structural reforms to increase our competitiveness; and managing our public finances in a responsible way.

This guidance will support our work to achieve these objectives. It has three key aims:

• To encourage effective implementation of structural reforms;
• To promote investment, also in the context of the new European Fund for Strategic Investments (EFSI)
• And to take better account of the economic cycle in individual Member States.

We need growth as much as we need sound and sustainable public finances. We can achieve both. There is no trade-off.

[...]

From now on, for countries that are not in Excessive Deficit Procedure, we will take into account the implementation of all major structural reforms with positive and verifiable long-term budgetary effects, including a positive impact on the potential growth, and not only pension reforms as in the past.

Member States will be asked to present a structural reform plan adopted by Government and/or Parliament according to the relevant national procedures with well specified measures and credible timeline well-specified measures and credible timelines for their adoption and implementation. For Member States in the Excessive Imbalances Procedure the Corrective Action Plan referred to in the procedure will suffice.

Member States will also have to provide all the necessary information on the expected budgetary impact of such reforms and their effects on the long-term sustainability of public finances. The Commission will assess on that basis the eligibility of the reforms for the application of the clause.

Member States will be allowed to make a lower fiscal effort when implementing the reforms and to compensate for this with a greater effort later. This greater effort later should be easier since the implemented reforms are expected to translate into positive growth and budgetary effects.

In technical terms we are talking here about a temporary deviation from the medium-term budgetary objective or the adjustment path towards it.

As set out in the Pact, the clause can be used only for those Member States that keep their deficit below 3% of GDP, ensure an appropriate safety margin and achieve their medium-term budgetary objective by the end of the four-year horizon of their Stability or Convergence Programme, that is to say their medium-term fiscal plan presented to the Commission each spring.

Full speech

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