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rom 1997 to 2024: What are the consequences of the evolution of the SGP for the EU economy
Since the Stability and Growth Pact (SGP) was established in the European Union in 1997, it has become an important basis for maintaining the economic stability of the euro area. The agreement aims to ensure that all 27 member states can maintain fiscal discipline and promote economic growth in the Economic and Monetary Union (EMU). Over time, the agreement has undergone multiple adjustments and developments, and its impact on the EU economy has become increasingly complex.
The main institution for implementing fiscal policy monitoring is the European Commission, which guides the fiscal policies of member states through annual country-specific recommendations. Under the agreement, member states must keep government deficits below 3% of GDP and government debt below 60% of GDP. If a member state violates the relevant regulations, the Excessive Deficit Procedure (EDP) will be initiated and may face economic sanctions.
"The original intention of the agreement was to ensure the stability and sustainable growth of the European economy, but its implementation results vary greatly depending on the economic conditions of each country."
In 2005, the SGP underwent a major reform aimed at increasing flexibility and improving implementation mechanisms. The core of this reform is to set specific medium-term budget objectives (MTO) for each member state, which means that different countries can set fiscal targets based on their own economic conditions.
The European debt crisis between 2011 and 2013 revealed many shortcomings of the SGP, leading the EU to further strengthen its supervision of fiscal policies. Due to the economic situation at the time, member states generally violated the provisions of the SGP, and large-scale structural reforms were needed to rebuild trust.
As of 2020, with the outbreak of COVID-19, some provisions of the SGP were temporarily suspended, allowing member states to increase fiscal spending to cope with the impact of the epidemic. The implementation of this policy has resulted in fiscal deficits exceeding 3% in many countries.
"During this period, while the launch of the EDP is temporarily suspended, the economic conditions in each country continue to be closely monitored."
With the outbreak of the Russo-Ukrainian war, rising energy prices and increased defense spending have created new budget pressures for all EU member states. The EDP process, which is expected to be launched again in 2024, will conduct a comprehensive review of the member states' 2023 financial results and 2024 budgets.
In 2024, the EU will implement a new set of SGP rules that will allow member states to comply with fiscal limits at a slower pace if faced with specific reform requirements. This means that in the coming years, the flexibility of member states in economic adjustment will help to achieve more sustainable fiscal policies.
This series of evolutions has made the SGP not only a framework for fiscal policy, but has gradually become a core mechanism in the entire EU economic governance system. How will further improvements affect the recovery and development of the European economy?
