Stability and Growth Pact

The EU's Stability and Growth Pact, agreed in 1997, lays out the budgetary rules that member states must follow and is designed to underpin Economic and Monetary Union (EMU). It builds on the Maastricht Criteria which EU member states have to meet in order to join the single currency, the euro. The main aim of the Pact is to prevent the occurrence of excessive budget deficits, defined as more than three percent of gross domestic product (GDP). Member states are also required to have total public debt of no more than 60 percent of GDP or be taking steps to reduce it to that level. The Pact requires a member state to engage in the prompt implementation of an 'excessive deficit procedure' if it is found to be in serious breach of the rules. The procedure takes the form of a timetable within which the member state's budget deficit must fall below three percent of GDP and the imposition of fines if it does not. EU finance ministers agreed on reforms to the Pact in March 2005. It was decided that an excessive deficit procedure will not be launched against a member state experiencing economic contraction or a prolonged period of low growth.

See also: http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/fiscal_policy528_en.htm