Stability and Growth Pact
Was signed in 1997 to reaffirm the criteria for maintaining similar economic policies (convergence criteria) within the countries which have joined the single currency that was introduced by the Treaty of Maastricht.
The legal basis at the time was considered too vague and the term "excessive budget deficits" has been defined by a regulation and a special protocol. The original protocol is complemented by the Stability and Growth Pact consisting of two Council Regulations and solemn political commitments.
The Stability Pact was decided after a resolution of the 1997 Amsterdam European Council. The Pact established a requirement for member states to achieve and maintain budgetary positions of ‘close to balance or in surplus’.
The pact requires member states to keep their budget deficits below three percent of their GDP. The Pact has been followed up by a new ceiling for public deficits which in normal times may not exceed 0.5% of GDP. The new ceiling is called the “structural deficit".
The pact was called “stupid” by the Commission President Romano Prodi because it makes it difficult to increase public spending when the economies of the Eurozone countries are in recession.
The Pact has been followed by the Europact and certain treaty revisions, see Economic and Monetary Union.