The Stability and Growth Pact, which complements and further specifies the EU Treaty, provides a set of rules for the national fiscal authorities with the aim to ensuring fiscal soundness, by avoiding excessive deficits and safeguarding government finances, as defined by the attainment in the medium-term of budgetary positions “close to balance or in surplus”.
Far from being a straightjacket on national policymakers, these rules derive from the experience accumulated in past decades showing that increased debt ratios - as well as the implicit debt associated with social security systems in ageing societies - cast a permanent shadow over long term output growth and constantly limit the scope for fiscal policy to act as a stabilising instrument.