Previous Year Question
Consider the following statements:
The ‘Stability and Growth Pact’ of the European Union is a treaty that:
Limits the levels of the budgetary deficit of the countries of the European Union.
Makes the countries of the European Union share their infrastructure facilities.
Enables the countries of the European Union to share their technologies.
How many of the above statement(s) is/are correct?
Only one
Only two
All three
None
Correct Answer: A
Detailed Solution
Statement 1 is correct. The Stability and Growth Pact is a set of rules intended to ensure sound public finances and coordination of fiscal policies among European Union member countries.
The traditional fiscal reference values associated with the SGP are:
The annual government budget deficit should not exceed 3% of GDP.
Government debt should not exceed 60% of GDP, or it should decline sufficiently towards that level when it is higher.
If a member country’s deficit exceeds the prescribed limit, an Excessive Deficit Procedure—EDP may be initiated. The country may then be required to undertake corrective measures to reduce its deficit and public debt.
The SGP has traditionally operated through two principal mechanisms:
Preventive arm: To prevent member countries from reaching unsustainable deficit and debt levels.
Corrective arm: To secure corrective action when excessive deficits or debts arise.
Statement 2 is incorrect. The SGP does not require EU countries to share roads, railways, ports or other infrastructure facilities. Its subject is fiscal discipline, not the joint use of infrastructure.
Statement 3 is also incorrect. The Pact does not establish a mechanism for sharing technologies among EU countries. Research, innovation and technology cooperation are governed by other EU programmes and institutional arrangements.
Current status (2026)
The European Union’s revised economic-governance framework entered into force on 30 April 2024. The revised framework gives greater importance to country-specific medium-term fiscal-structural plans and net-expenditure paths.
However, the reference values of a 3% budget deficit and 60% public debt relative to GDP remain in place. Thus, the central purpose of the SGP in 2026 continues to be fiscal sustainability and budgetary discipline among EU members.