By prescribing a medium-term objective of budgetary positions close to balance or in surplus, the Stability and Growth Pact guarantees that fiscal policies will preserve the sustainability of public finances while providing sufficient flexibility for automatic fiscal stabilisers to operate.
While it is clear that, for many – partly formal – reasons, annual budgetary targets always need to be set in nominal terms, the assessment of fiscal policies naturally must take into account cyclical developments. Though the discussion surrounding this issue may, at times, appear confusing, it does not reflect a flaw in the Pact as some critics claim.