Proposal for a Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States

Further information:

The proposed Directive strengthens fiscal responsibility and the medium-term budgetary orientation in the Member States and so aims to achieve, along with the existing provisions of the Stability and Growth Pact (SGP), the underlying objective of the Fiscal Compact. It builds on the observation that there cannot be an effective enforcement of the EU fiscal framework if only a top-down approach is taken.

The proposal lays down an obligation for Member States to have in place a framework of binding and permanent numerical fiscal rules which, while being consistent with the fiscal rules laid down in the Union framework, can embody specificities relevant to the Member State concerned.

The proposal is part of a broader set of initiatives to reform the Economic and Monetary Union (EMU) put forward by the European Commission.

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Background information:

In response to the financial crisis erupting in the late 00s, the European Union sought to strengthen the economic governance arrangements for the Union and the Eurozone, particularly by means of the legislative package known as the 'six-pack' (five Regulations and a Directive adopted in 2011) and ‘Two-pack’ (two Regulations adopted in 2013). However, it became apparent that the rules-based fiscal framework at EU level had to be complemented by binding provisions at the national level to foster sound budgetary policies in all Member States and act as a lasting mechanism against the emergence of excessive deficits.

However, due to a lack of unanimity in the European Council on these matters, the Member States that wanted to commit jointly to having such domestic rules went ahead on an intergovernmental basis, leading to the conclusion of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) as a stepping stone towards incorporating its provisions as soon as possible into the Treaties.

The TSCG was signed on 2 March 2012 by 25 Contracting Parties (all Member States except the Czech Republic and United Kingdom) and entered into force on 1 January 2013. The cornerstone of the TSCG is its Title III, which sets out the so-called 'Fiscal Compact'. Its main provision is the obligation for Contracting Parties to enshrine in binding and permanent national provisions, preferably constitutional, a balanced-budget rule in cyclically adjusted terms. The rule mirrors the requirement that is at the centre of the preventive arm of the SGP, namely the medium-term budgetary objective. Other parts of the TSCG aim to reinforce economic policy coordination and governance of the euro area.

The Contracting Parties agreed to seek integration of the core provisions of the TSCG into Union law at most within five years of the date of its entry into force, i.e. by 1 January 2018.

The European Commission adopted on 6 December 2017 a legislative initiative proposing the incorporation of the substance of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) into the legal framework of the European Union.