Exploring the Stability Growth Pact: Implications for Economic Policy and Fiscal Discipline

Introduction

The Stability Growth Pact (SGP) is a cornerstone of the economic governance framework of the European Union (EU), designed to ensure fiscal discipline among member states and promote sustainable economic growth. Introduced in the late 1990s, the SGP emerged in response to the need for a cohesive set of rules governing public finances in the Eurozone, particularly in light of the introduction of the euro. This report aims to explore the key tenets of the Stability Growth Pact, its implications for economic policy, and the impact it has on fiscal discipline among EU member states. The purpose of this examination is to evaluate the effectiveness of the SGP in promoting economic stability and growth, considering both its strengths and limitations.

Main Body

The SGP is fundamentally composed of two main components: the preventive arm and the corrective arm. The preventive arm focuses on the coordination of fiscal policies to prevent excessive deficits, while the corrective arm is activated when member states violate the fiscal rules established by the pact. Specifically, the SGP stipulates that member states must maintain a budget deficit of no more than 3% of their Gross