This exercise is based on economic governance rules in the Stability and Growth Pact, which aim to prevent the emergence or exacerbation of fiscal difficulties.
Member States sharing the euro currency do this in documents known as "Stability Programmes", while Member States that have not adopted the euro submit "Convergence Programmes", which include additional information about monetary policies.
These documents are used by the Commission and by finance ministers to assess whether Member States are on track towards reaching their Medium-Term Budgetary Objectives (MTOs) on the basis of two pillars: structural balance analysis and the expenditure benchmark.
Guidelines on the content and format of the programmes are covered by a code of conduct:
Content of Stability Programmes and Convergence Programmes
- A Medium-Term Objective (MTO), is a budgetary target set for each Member State which is defined in structural terms. Member States must also set out yearly targets on the way towards the MTO and forecast the expected path of their debt-to-GDP ratios.
- Underlying economic assumptions about growth, employment, inflation and other important economic variables.
- A description and assessment of policy measures to achieve the programme objectives.
- An analysis of how changes in the main economic assumptions would affect the budgetary and debt position.
- Information covering several years including: one year of budgetary execution, the current budgetary year, and plans for the three following years.
- If applicable, an explanation for why targets are not being met.
Assessment of Stability Programmes and Convergence Programmes
Stability Programmes submitted by euro area Member States should be based on macroeconomic forecasts produced or endorsed by independent bodies. These forecasts are compared with those of the Commission and, when appropriate, with those of other independent bodies. Any significant differences between the scenarios adopted by governments and the Commission’s forecasts should be explained. Convergence Programmes should be based on sound fiscal scenarios.
As part of the EU’s annual economic governance cycle, the Commission assesses Stability Programmes and Convergence Programmes both before and after implementation. This allows the Commission to identify and discuss any risks of non-compliance before they occur, and to identify any actual instances of non-compliance that could ultimately warrant sanctions.
In addition to Stability Programmes, EU Member States sharing the euro currency must each year (by 15 October) submit Draft Budgetary Plans.