The EU economic governance framework is the set of rules and procedures used by the EU to oversee and coordinate economic and fiscal policies across its Member States. Included in these rules are the Stability and Growth Pact for fiscal developments and the Macro-economic Imbalances Procedure for macro-economic developments.
The European Semester is the EU’s framework for the coordination and surveillance of economic and social policies, and a core part of that is implementing the EU economic governance framework. It is an annual exercise where EU Member States align their budgetary and economic policies with the objectives and rules agreed upon at EU level.
Stability and Growth Pact
The Stability and Growth Pact is a set of rules designed to ensure that EU Member States maintain sound public finances. At its core, the Stability and Growth Pact establishes criteria for debt and deficit levels to promote price stability and strong, sustainable and inclusive growth in the Economic and Monetary Union. Recent reforms have updated these rules to better take into account Member States’ respective public debt and economic challenges.
Under the reformed Stability and Growth Pact, Member States are required to submit medium-term plans for managing their public finances. Each national plan sets out the country’s multi-annual fiscal path and priority public investments and reforms, with the goal of reducing debt gradually while supporting sustainable and inclusive growth.
The implementation of these plans is monitored and assessed as part of the European Semester, ensuring alignment with the broader economic goals of the EU. The reforms also introduced a more effective corrective procedure for when countries deviate from the debt and deficit criteria. This so-called excessive deficit procedure requires countries to take corrective actions so that excessive fiscal imbalances don’t keep accumulating.
The European Fiscal Board, as an independent body has an advisory role in the implementation of the Stability and Growth Pact and advises on the overall direction of fiscal policy for the euro as a whole.
National Fiscal Frameworks in EU Member States support the implementation of the EU's fiscal rules. These frameworks consist of national rules and institutions that guide fiscal governance within individual countries, contributing to long-term fiscal responsibility. The frameworks typically include fiscal rules, budgetary procedures, and independent fiscal institutions that monitor compliance with national and EU fiscal standards.
Macroeconomic Imbalance Procedure
This procedure is designed to identify, prevent and correct problematic economic trends that could jeopardize stability, such as excessive trade imbalances, unsustainable debt levels, or housing market bubbles. Each year, the Commission’s Alert Mechanism Report highlights areas of concern that may require further review. This procedure is built into the European Semester, helping the EU to proactively manage any potential risks to economic stability in the Union.