Treaty on Stability, Coordination and Governance in the Economic and Monetary Union - guide

02 February 2012
by eub2 -- last modified 02 February 2012

At the informal summit on 30 January a new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union was finalised by all EU Member States with the exception of the United Kingdom and the Czech Republic. The Treaty aims to strengthen fiscal discipline through the introduction of more automatic sanctions and stricter surveillance, and in particular through the "balanced budget rule".

Main rules of the fiscal compact

The new Treaty requires national budgets to be in balance or in surplus. This will be achieved if the annual structural government deficit does not exceed 0.5% of nominal GDP. If a member state deviates from this rule, an automatic correction mechanism will be triggered. The mechanism will fully respect the prerogatives of national parliaments.

Furthermore, the member states will have to incorporate this "balanced budget rule" into their national legal systems, preferably at constitutional level. The deadline for doing so is one year at the latest after the entry into force of the treaty.

Should a member state fail to transpose the "balanced budget rule" rule on time, the EU Court of Justice will have jurisdiction to take a decision on the matter. The Court's decision will be binding, and, if not implemented, can be followed up with a penalty of up to 0.1% of GDP. This amount will be payable to the European Stability Mechanism if the country's currency is the euro, otherwise to the general budget of the EU.

The excessive deficit procedure will also be more automatic. Euro area member states commit to support the Commission's proposals except when a qualified majority of them would be against the decision.

Coordination mechanism

The member states parties to the new treaty will report their public debt issuance plans to the European Commission and to the Council. They will coordinate among themselves and with the EU institutions in advance all of the major economic reforms that they plan to undertake.

Governance in the euro area

The euro area member states will hold meetings at least twice a year and will elect the president of the euro area summit by a simple majority of votes. Reports of the meetings will be presented to the European Parliament (EP). The President of the EP may be invited to be heard at the euro summit.

Further steps

The treaty will be signed in March and will enter into force once it has been ratified by at least 12 euro area member states. It will be legally binding as an international agreement and will be open to the EU countries which do not sign it at the outset.

The aim is to incorporate it into EU law within five years of its entry into force.

Treaty establishing the European Stability
 Mechanism (ESM) - full text|

Treaty on Stability, Coordination and 
Governance in the Economic and Monetary Union - full text

Source: European Commission