Coordination of Economic and Budgetary Policies

Economic and budgetary policies of Member States are coordinated with a view to ensuring a stable economic environment and prosperity in the EU. The two main instruments of coordination are the Stability and Growth Pact and the Broad Economic Policy Guidelines.

The Stability and Growth Pact (SGP) is a rule-based framework for the coordination of national budgetary policies. It was established to safeguard sound public finances, which are a necessary prerequisite for the proper functioning of the Economic and Monetary Union. Building on the convergence criteria for euro adoption, the Pact requires Member States to avoid deficits exceeding 3% of GDP and to keep their total government debt under 60% of GDP.

Under the preventive arm of the SGP, stability programmes are submitted every year by the euro area members, while other EU members prepare convergence programmes. In these programmes, Member States present the strategy which would ensure sustainability of their public finances in the long term. In recent years, increased attention has been paid to the impact of ageing populations on the long-term sustainability of public finances.

Breaching the 3% threshold triggers an excessive deficit procedure against the Member State concerned. To allow the Commission to propose abrogating the procedure, the Member State concerned has to reduce its deficit to less than 3% of GDP and show that the deficit reduction is credible and sustainable.

The Broad Economic Policy Guidelines (BEPGs), along with the Employment Guidelines (EGs), are the principal policy instrument for developing and implementing the Lisbon Strategy. They provide guidance on Member States’ macroeconomic and microeconomic policies in areas offering the greatest potential for enhancing growth and jobs.

The Guidelines form the basis for National Reform Programmes (NRPs), in which Member States set out plans for structural reforms at the national level and subsequently report on their implementation. Progress in implementation of NRPs is assessed by the Commission on a yearly basis. In addition, horizontal assessment of progress in key areas across the EU is conducted.

In 2008, the second cycle of the renewed Lisbon Strategy for Growth and Jobs covering the years 2008-2010 was launched by the Spring European Council. The Council reconfirmed the four priority areas for reform identified in 2006, which include knowledge and innovation, unlocking business potential, investing in people, modernising labour markets, and energy and climate change.

Last update: 16.8.2011 16:02

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