The Stability and Growth Pact, agreed upon in 1997, introduced the target of a budgetary position close to balance or in surplus as a medium-term objective for Member States. With monetary policy being conducted for the euro area as a whole, fiscal policy can be an important instrument in the hands of national governments to stabilise domestic demand and output.
Disciplined and sound fiscal policies support the ECB's stability-oriented policy by reducing risks to price stability. The so-called automatic stabilisers are one mechanism which can cushion fluctuations in demand and price developments at national level. Automatic fiscal stabilisers are mechanisms built into tax codes  4  BIS Review 20/2002  and social legislation.