The EU Stability and Growth Pact was an agreement among the 27 members of the EU in 1998 to coordinate national fiscal policies within the EMU (Economic Monetary Union). The pact requires each member of the EMU to submit a budget for review to ensure that no budget deficit of over 3 percent is foreseen.
The original pact states that governments that fail to comply with the stipulated regulations—to allow a high budget deficit and ignore the recommended corrective measures suggested by other members and the European Commission—will be subject to a series of fines. Already in 2003, France, Germany, Portugal, Greece, and Italy had already violated this pact—without being fined.
In the current Eurozone crisis, the many flaws in this pact have been dragged into the harsh light of day. It has proved impossible for the members of the EU to ensure that outside governments with sovereign control of their own budgets and finances observe fiscal discipline. Considering current events, the SGP’s failure has been subject to extensive criticism.
About the Author: Gilles Thieffry is a highly experienced international finance and business lawyer who has written extensively about the Euro and the EMU, predicting even from its inception the failure of the system. His many publications on the subject can be found on his website: http://www.gtlaw.ch/index.html.