European Fiscal Compact

Fiscal Compact

Treaty on Stability, Coordination and Governance in the Economic and Monetary Union
Type	Intergovernmental agreement
Drafted	30 January 2012 (2012-01-30) (treaty finalised)
Signed	2 March 2012 (2012-03-02)
Location	Brussels, Belgium
Effective	1 January 2013
Condition	Ratified by twelve eurozone states
Signatories	25 EU member states (all except Croatia, Czech Republic and the United Kingdom) including all 19 eurozone states
Ratifiers	25 signatories
Depositary	General Secretariat of the Council of the EU
Languages	22 (All EU languages except Croatian & Czech)
at

Formula used to calculate the
cyclically adjusted debt-to-GDP ratio
for year t (the latest one with recorded data)

0
Bt + Ct + Ct-1 + Ct-2
b*t =	Yt-3 * (1 + Ypott)(1 + Pt) * (1 + Ypott-1)(1 + Pt-1) * (1 + Ypott-2)(1 + Pt-2)
000000000000000000000000000000000000000000000000000000000000
Bt stands for consolidated nominal gross debt of the general government in year t. Ct stands for the consolidated nominal gross debt generated by the cyclical component of the general government budget balance in year t (note: As the linked AMECO data series for Ct only display this figure as a percentage of 2010 potential GDP at current prices, it shall of course be recalculated back to its nominal figure by multiplying it with the 2010 potential GDP). Yt stands for nominal GDP at current market prices in year t. Ypott stands for potential growth rate in year t (table 13 in source). Pt stands for the GDP price deflator rate in year t (table 15 in source).

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union; also referred to as TSCG or more plainly the Fiscal Stability Treaty is an intergovernmental treaty introduced as a new stricter version of the Stability and Growth Pact, signed on 2 March 2012 by all member states of the European Union (EU), except the Czech Republic, the United Kingdom, and Croatia (subsequently acceding the EU in July 2013). The treaty entered into force on 1 January 2013 for the 16 states which completed ratification prior of this date. As of 1 April 2014, it had been ratified and entered into force for all 25 signatories.

The Fiscal Compact is the fiscal chapter of the Treaty (Title III). It binds 22 Member States: the 19 Member States of the Eurozone plus Bulgaria, Denmark and Romania who have chosen to opt-in. It is accompanied by a set of common principles.

Member states bound by the Fiscal Compact have to transpose into national legal order the provisions of the Fiscal Compact. In particular, national budget has to be in balance or surplus under the treaty's definition. An automatic correction mechanism has to be established to correct potential significant deviations. A national independent monitoring institution should be mandated to provide fiscal surveillance. The treaty defines a balanced budget as a general budget deficit not exceeding 3.0% of the gross domestic product (GDP), and a structural deficit not exceeding a country-specific Medium-Term budgetary Objective (MTO) which at most can be set to 0.5% of GDP for states with a debt‑to‑GDP ratio exceeding 60% - or at most 1.0% of GDP for states with debt levels within the 60%-limit. The country-specific MTOs are recalculated every third year and might be set at stricter levels compared to what the treaty allows at most. The treaty also contains a direct copy of the "debt brake" criteria outlined in the Stability and Growth Pact, which defines the rate at which debt levels above the limit of 60% of GDP shall decrease.

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Wikipedia