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Saeima approves EU fiscal discipline treaty

  • 2012-05-31

RIGA - Today, Saeima ratified the European Union's new fiscal discipline treaty.

As reported, on January 31, 25 EU member states agreed on the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. The Czech Republic and Great Britain will not take part in the agreement.

By the treaty, EU member states agree to strengthen the economic pillar of the Economic and Monetary Union by adopting a set of rules intended to foster budgetary discipline through a fiscal compact, to strengthen the coordination of economic policies and to improve the governance of the euro area, thereby supporting the achievement of the European Union's objectives for sustainable growth, employment, competitiveness and social cohesion.

The treaty envisages several important rules.

The budgetary position of the general government must be balanced or in surplus.

This rule will be deemed to be respected if the annual structural balance of the general government is at its country-specific medium-term objective as defined in the revised Stability and Growth Pact with a lower limit of a structural deficit of 0.5 percent of the gross domestic product (GDP) at market prices.

The Contracting Parties will ensure rapid convergence towards their respective medium-term objective. The time frame for such convergence will be proposed by the European Commission taking into consideration country-specific sustainability risks.

Where the ratio of government debt to GDP at market prices is significantly below 60 percent and where risks in terms of long-term sustainability of public finances are low, the lower limit of the medium-term objective can reach a structural deficit of at most 1.0 percent of GDP at market prices.

The previously mentioned rules will take effect in the national law of the Contracting Parties at the latest one year after the entry into force of the treaty through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.

When the ratio of their general government debt to GDP exceeds 60 percent of GDP, the Contracting Parties will reduce it at an average rate of one twentieth per year as a benchmark.

The Contracting Parties subject to an excessive deficit procedure under EU treaties will put in place a budgetary and economic partnership program including a detailed description of the structural reforms which must be put in place and implemented to ensure an effective and durable correction of their excessive deficits.

With a view to better coordinating the planning of their national debt issuance, the Contracting Parties will report ex-ante on their public debt issuance plans to the European Commission and to the Council.