The Fiscal Compact, the European Semester, and the Two-Pack and Six-Pack

Abstract

The Fiscal Compact was introduced to reinforce the objective of the fiscal balance of the National Accounts in the Member States of the European Union. This fiscal balance, obtained through specific rules in line with those approved in the Stability and Growth Pact, enables the preservation of the stability of the euro zone and economic growth. The Treaty uses the Fiscal Compact to establish an objective of a structural fiscal balance corrected from the economic cycle of below −0.5% of GDP. The Fiscal Compact has the purpose of reinforcing the economic pillar from the Economic and Monetary Union, adopting a set of rules which are intended to promote fiscal discipline, to reinforce the coordination of the economic policies, and to improve the governance of the euro zone. Mechanisms of automatic correction are established for those cases where the structural deficit limit or the adjustment path towards the same are jeopardised. However, there is a certain margin of flexibility, depending on the recessive economic cycle or exceptional situations. Those countries subject to an Excessive Deficit Procedure are forced to present an adjustment programme. When the value of public debt exceeds 60% of GDP, the country in question must reduce its public debt ratio to an average rate of one-twentieth per year as a reference pattern. The European Semester establishes the calendar of fiscal planning, namely, the delivery date of the Stability Programme (April) and the national budget for the following year (October). In this way, Member States are permitted to discuss, several times during the year, their economic and budgetary plans with the remaining countries and the various European entities. The Six-pack and the Two-pack reinforce the surveillance of the control of the Excessive Deficit Procedure and the correction of macroeconomic imbalances.