Tánaiste Eamon Gilmore TD

THE FISCALSTABILITY TREATY

CONTACT EAMON:

A Guide

80 St Stephen’s Green, Dublin 2 Phone: 01 408 2018/408 2019 Fax: 01 408 2690

Email: eamon.gilmore@oir.ieWeb: www.labour.ie

DOES THE STABILITY TREATY CONTROL IRELAND’S FISCAL AND ECONOMIC POLICY?No. A Member State is free to reach balanced budgets by their own policies, provided the targets are reached. Coordination ofeconomic policies is encouraged, but not harmonisation. Budgetary and economic programmes, including a detailed description ofstructural reforms, will be agreed with a Member State that is required to make corrections.

WHAT ABOUT THE STABILITY AND GROWTH PACT 2011? IS THIS NOT THE SAME THING?The Treaty targets are effectively the same as those in the revised Stability and Growth Pact 2011. Member States must follow thePact targets, even if the Treaty is not ratified. There are three key differences: 1. Access to funding under the European StabilityMechanism (ESM Treaty) is now linked with ratification, 2. The structural deficit target is subject to enforcement, 3. The targets mustbe incorporated into national legislation.

WHO MONITORS PROGRESS?

� On an ongoing basis the European Commission and Council willmonitor a State’s progress and a Member State can submit itsobservations on the Commission’s report. The Commission may thenrecommend to the Council that action must be taken.

WHAT TARGETS DOES THE STABILITY TREATY SET?(SEE ARTICLE 3)

� General government deficit must not exceed3% of GDP at market prices

� Structural government deficit must not exceed0.5% of GDP

� Ratio of debt to GDP should be 60% or lower

WHAT IS THE STABILITY TREATY?The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union was agreed in January 2012. It willenshrine fiscal rules in Irish law to create confidence and stability in the euro.

WHAT ARE THE GOALS OF THE STABILITY TREATY? (SEE PREAMBLE AND ARTICLE 1)It is intended to foster budgetary discipline (balanced budgets), strengthen coordination of economic policies, improve governanceof the euro and support the achievement of the EU’s objectives for sustainable growth, employment, competitiveness and socialcohesion.

HOW MANY STATES HAVE SO FAR SUPPORTED IT?25 EU States, including Ireland, supported the Treaty. Only the Czech Republic and UK opposed it; neither have the euro as theircurrency. Ireland is the only State to have a referendum.

WHAT IS A STRUCTURAL DEFIC

IT?

This is the share of the deficit

in

normal economic conditions,

stripping out the normal ups and

downs of an economy and one off

measures.

WHAT IS A BUDGETDEFICIT?This measures the gapbetween governmentincome and governmentspending. It must be bridged

through borrowing.

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EAMON GILMORE TD

80 St Stephen’s Green, Dublin 2

Phone: 01 408 2018 / 408 2019 Fax: 01 408 2690Email: eamon.gilmore@oir.ie Web: www.labour.ie

facebook.com/thelabourparty

@labour

WHAT HAPPENS IF THE TARGETS ARE NOT MET? (SEE ARTICLE 3-8)An ‘automatic correction mechanism’ or ‘debt brake’ will be triggered (see Article 3.1)

� States in breach must take corrective action to meet the targets within an agreed time.

� States in breach of the 60% debt to GDP ratio must reduce it at an average rate of one twentieth per year as a benchmark tofacilitate correction.

� Both the Commission and Council will monitor correction. Budgetary and economic partnership programmes, including adetailed description of structural reforms, must be agreed and implemented to facilitate correction.

WHAT IS THE ROLE OF THE EUROPEAN COURT OF JUSTICE?

� The role of the European Court of Justice is limited. It can impose a fine if the targets and the 'debt brake' have not been putinto national law.

CAN A DECISION AGAINST A STATE BE OVERTURNED? (SEE ARTICLE 7)

� To reverse a decision against a State, a qualified majority would be needed in the Council. A qualified majority is 55% of MemberStates who have the euro, representing 65% of the EU population.

WHAT HAPPENS IF THERE ARE ‘EXCEPTIONAL CIRCUMSTANCES’? COULDIRELAND EXCEED TARGETS? (SEE ARTICLE 3)Enforcement is made easier since this was the problem before. However:

� Under Article 3.3 if there are ‘exceptional circumstances’ such as a severeeconomic downturn or an unusual event beyond the control of thecontracting State happens, then a ‘temporary deviation’ from the terms ofthe Treaty is allowed, provided this does not endanger the stability of theEurozone.

� Medium Term Objectives, which are country specific and include atimeframe, may be deviated from in ‘exceptional circumstances’.

WILL THERE BE TRANSPARENCY? (SEE ARTICLE 12)

� Eurosummit meetings will bring together the Heads of State and Government whose currency is the euro, together with theCommission President. These meetings will take place when necessary and at least twice a year and will elect a President.

� Member States which do not have the euro will attend at least once a year.

� The Presidents of the European Central Bank and the European Parliament will attend. National parliaments will continue tomonitor national budgets.

WHEN WILL THE TREATY ENTER INTO FORCE?The Treaty is due to enter into force on 1 January 2013, provided that 12 Member States whose currency is the euro have ratifiedthe Treaty. In practical terms it will not affect Ireland before 2015, as we are already subject to the Troika rules.

WHAT ARE MEDIUM-TERM BUDGETARYOBJECTIVES (MTOS)?These objectives are different in eachcountry allowing for level of debt linkedwith ageing populations. It provides a safemargin in respect of the 3% deficit limitand allows room for budgetarymanoeuvre. Ireland has an MTO objectiveof 0.5% surplus.

You can read the Stability Treaty at: http://labr.ie/TheStabilityTreaty