European Economy. Public Finances in EMU-2001. European Economy 2001.3

Abstract

This is the second report dedicated to public finances inEMU. In addition to reviewing Member States’ budgetaryperformance in 2000 and assessing the short and medium-term prospects, it contains an in-depth examination ofsome of the most important questions in the fast-evolvingdebate on budgetary policy at EU level. This debate isbeing shaped by several factors, not least a growingunderstanding of the challenges and constraints facingMember States in running budgetary policies in EMU.Four issues dominate the discussions on EU budgetarypolicy as follows: The Stability and Growth Pact (SGP) target of budgetpositions that are ‘close to balance or in surplus’, animportant goal not yet reached in several Member StatesHaving achieved impressive budgetary consolidation inthe run-up to EMU, Member States committed them-selves in the broad economic policy guidelines (BEPG) toreach the SGP target of budget positions that are ‘close tobalance or in surplus’, as a rule, by the end of 2001.Respect of the SGP target is vital for the smooth func-tioning of EMU as it would safeguard the 3% of GDPdeficit ceiling and allow the automatic stabilisers to oper-ate fully in the event of an economic slowdown. With adeterioration in budget balances projected this year andmounting downside economic risks, attaining the SGPtarget remains an important budgetary goal for the coun-tries that continue to have sizeable structural deficits.