25 years of the Stability and Growth Pact – no cause for celebration

The European Taxpayers’ Association (TAE) is calling for clear and sustainable fiscal rules for the eurozone.

The eurozone’s key fiscal rules – the Stability and Growth Pact – were adopted 25 years ago. The aim of the Pact was, and remains, to prevent budget deficits in EU Member States and to promote the harmonisation of economic conditions. The results of this 25th anniversary are sobering for the European Taxpayers’ Association (TAE), explains President Rolf von Hohenhau. The rules imposed by the countries themselves are not being applied consistently.

Neither the ceiling on public debt of 60 per cent of gross domestic product (GDP) nor the new ceiling on borrowing of a maximum of 3 per cent of GDP is being adhered to. This has been evident not just since the start of the COVID-19 pandemic in 2020. The result: the eurozone’s debt currently stands at just under 100 per cent. Large countries such as Italy, Spain and France have public debt levels of 151 per cent, 118 per cent and 113 per cent respectively, and are thus well above the 60 per cent threshold set by the Stability and Growth Pact. But Germany, too, significantly exceeds this limit, at over 70 per cent.

Since 1997, the Pact has been watered down on several occasions, and exceptions have been made, which has made it unnecessarily complicated. The European Commission, which is responsible for ensuring compliance with the Stability and Growth Pact, has far too often turned a blind eye to budgetary breaches. As a result, the Pact has degenerated into a toothless tiger, which is currently also paralysed due to the consequences of the 2020 pandemic. The eurozone countries have thus lost their fiscal framework.

The Taxpayers’ Association warns: the Stability and Growth Pact must be reactivated as soon as possible to prevent public debt in the eurozone from spiralling out of control! Furthermore, the European Taxpayers’ Association calls on the debt supervisory authority – that is, the European Commission – to fulfil its original remit by effectively monitoring compliance with the rules and consistently penalising breaches. In short: the Pact must be transformed into a clear and sustainable set of rules with enforceable provisions, so that the public finances and economies of the eurozone are in a better state than they are today! Future generations will thank us for it!

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Munich/Brussels, 17 June 2022