The European Union Stability and Growth Pact (SGP) gains new force, effective Tuesday 13^th December 2011. Proposed by the European Commission and approved by all 27 member states and the European parliament last October, this legislation grants the EU council the power to impose financial sanctions upon a member state on the basis of a Commission recommendation. Currently, member states enter “Excessive Deficit Procedure” (EDP) if they fail to keep budgetary deficits below 3% of GDP and government debt below 60% of GDP. Of the 27 member states, 23 (including the UK) are currently subject to EDP and must comply with correctional recommendations and deadlines decided by the EU council. Member states failing to comply with the recommended corrective action may be subject to in-depth reviews (the results of which will be made public) carried out by the EU Commission in collaboration with the European Central Bank.

Report Criteria (according to www.europa.eu)

· 3 year backward moving average of the current account balance as a percent of GDP, with a threshold of +6% of GDP and -4% of GDP
· Net international investment position as a percent of GDP, with a threshold of -35% of GDP
· 5 years percentage of change of export market shares measured in values, with a threshold of -6%
· 3 years percentage change in nominal unit labour cost, with thresholds of +9% for euro-area countries and +12% for non-euro-area countries
· 3 years percentage change of the real effective exchange rates based on HICP/CPI deflators, relative to 35 other industrial countries, with thresholds of -/+5% for euro-area countries and -/+11% for non-euro-area countries
· Private sector debt in % of GDP with a threshold of 160%
· Private sector credit flow in % of GDP with a threshold of 15%
· 3 years percentage change in nominal unit labour cost, with thresholds of +9% for euro-area countries and +12% for non-euro-area countries
· Year-on-year changes in house prices relative to a Eurostat consumption deflator, with a threshold of 6%
· General government sector debt in % of GDP with a threshold of 60%
· 3-year backward moving average of unemployment rate, with a threshold of 10%

This legislation comes into effect only two days after British Prime Minister David Cameron’s veto of the latest EU treaty proposals, which include a cap of 0.5% of GDP on countries’ annual structural deficits, “automatic consequences” for countries whose public deficit exceeds 3% of GDP, and a requirement of member states to submit their national budgets to the European Commission, which will have the power to request that they be revised.

Be Sociable, Share!

• 
•