2012: Treaty on Stability, Coordination and Governance (TSCG)

On 2 March 2012, the Heads of State or Government of all EU Member States with the exception of the United Kingdom and the Czech Republic signed a Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. This Treaty aims at safeguarding the stability of the euro area as a whole. It entered into force on 1 January 2013. The fiscal part of the TSCG is referred to as "Fiscal Compact".

Fiscal compact

The TSCG requires national budgets to be in balance or in surplus. This rule has to be incorporated into national law within one year of the entry into force of the treaty, using provisions that are guaranteed to be adhered to throughout national budgetary processes. The rule will be deemed to be respected if the country-specific medium-term budgetary objective (MTO) as defined in the revised Stability and Growth Pact is met, with a lower limit of a structural deficit of 0.5% of GDP. If significant deviations from this objective or the adjustment path towards it are observed, a correction mechanism will be triggered automatically. The mechanism includes an obligation to implement suitable measures over a defined period of time.

Economic policy coordination and convergence

The Treaty also provides for economic policy coordination and convergence: the contracting Parties have to report on their public debt issuance plans and to make sure that major economic policy reforms are discussed beforehand and, where appropriate, coordinated among themselves.