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The secret of stability and growth: Why must EU countries abide by the SGP?
As the global economy evolves, the EU faces increasing challenges. To address these challenges, the EU's Stability and Growth Pact (SGP) plays a crucial role. The agreement was signed by the 27 member states of the European Union and aims to maintain the stability of the economic and monetary union. Its core is to promote fiscal discipline among member states to ensure the healthy development of the overall economy.
The SGP aims to keep each member country's government deficit below 3% of its gross domestic product (GDP) and public debt below 60%.
These rules were established in response to historical reflection, as many countries faced economic instability in the 1990s. The SGP was originally created to ensure that member states can maintain responsible economic behavior and prevent the economic policies of individual countries from having a negative impact on the entire EU. If a member state violates fiscal rules, it will be monitored by the European Commission and the European Council and may even face economic sanctions.
The operation of the SGP relies on two main "weapons" - preventive measures and punitive measures. Preventive measures focus on countries developing appropriate fiscal plans before they may have problems. Punitive measures, on the other hand, are aimed at promoting corrective measures against countries that violate fiscal revenue and expenditure rules when economic conditions deteriorate.
The SGP is therefore not just a set of rules, but a long-term strategy to promote economic stability.
The applicability of SGP has faced challenges over the past few years. Between 2020 and 2023, due to the impact of the new crown epidemic, the EU activated the "general escape clause" and temporarily suspended fiscal rules so that countries could increase debt and expand spending to combat economic shocks. Likewise, energy prices and defense spending have both risen sharply due to the war in Ukraine, making fiscal discipline more urgent.
Even so, there are cases such as Romania, which was subject to the Excess Deficit Procedure (EDP) in April 2020, which shows the importance of fiscal discipline. The launch of the "EDP" means that the country needs to develop a plan to correct the existing fiscal deficit.However, maintaining fiscal discipline remains the key to protecting the economy, regardless of how the economic environment changes.
Sixteen Member States also encountered technical irregularities when analysing the 2022 and 2023 budgets; however, these irregularities did not result in new EDPs due to exceptional and temporary circumstances. In 2024, the compliance status of these countries will be reviewed again to see how they perform in the "National Reform Plan" and "Stabilization or Consolidation Plan" submitted by each country.
The new rules herald reforms, including allowing a slower adjustment path to comply with the SGP's deficit and debt rules, and extending the maximum duration of the EDP from four to seven years, provided that certain reform requirements are met. satisfy.Like past history, the evolution of SGP demonstrates the importance of economic governance. It is not only a fiscal strategy, but also the cornerstone for maintaining the economic stability of European member states.
In the future, the SGP will guide each member state to formulate a "National Medium-term Fiscal Structural Plan", which will cover the period from 2025 to 2028. This not only demonstrates the EU's emphasis on fiscal discipline, but also reflects its continued commitment to economic stability. .
In this complex economic environment, can countries effectively follow the guidance of the SGP to achieve sustained stability and growth?
