Interpreting the Close to Balance Provision of the Stability and Growth Pact: Legal and Conceptual Aspects

David Cronin
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David Cronin: Central Bank and Financial Services Authority of Ireland

No 3/RT/00, Research Technical Papers from Central Bank of Ireland

Abstract: This paper sets out to interpret the close to balance provision of the Stability and Growth Pact and what it requires of member states in setting their budgetary targets. Among the conclusions reached are that a budgetary position of close to balance or in surplus can be objectively calculated by deducting a safety margin from the Treaty deficit limit of 3 per cent of GDP. It is argued that the safety margin should at least take account of those factors whose impact on the budget balance in the medium term can not be forecast with certainty. In this respect, both cyclical and random factors must be included in the safety margin. This safety margin can be thought of as a minimum safety margin - it indicates the safety margin required to avoid an excessive deficit in the medium term. It is also argued that an additional, supplementary margin for long-term factors should be considered.

Pages: 28 pages
Date: 2000-12
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