Stability Pact

Posted in Finance, Accounting and Economics Terms, Total Reads: 647
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Definition: Stability Pact

With the establishment of the European Union and the Euro, it resulted in a global monetary policy but a local fiscal policy for the member countries of the European Union. Thus to maintain the fiscal discipline amongst the members, the Stability and Growth Pact was introduced.


With this unification, the objective of the SGP was to control the financial policies of the member countries through the interest rates and controlled debt and spending to establish a strong currency – the euro.


Example: 

According to the rules of the SGP, the fiscal budget deficit of each member must not be greater than 3% of the GDP and national debt-to-GDP ratio must not be more than 60%.


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