The Treaty on Stability, Coordination and Governance

The Treaty on Stability, Coordination and Governance (TSCG) signed by 25 EU Member States (all except for the Czech Republic and the United Kingdom) on 2 March 2012 is another EU initiative to ensure stable public finances. This intergovernmental agreement entered into force on the 1 January 2013following ratification by twelve euro-area Member States. The TSCG is only binding for all euro-area Member States, while non-euro zone Member States are allowed to choose when and to what extent they will join the Treaty. The provisions of the Treaty require the Member States to ensure the application of the following rules:

• The budgetary position of the general government of a Member State shall be balanced or in surplus;
• A rapid convergence towards their respective medium-term objective with a lower limit of a structural deficit of 0.5 % of GDP;
• Temporary deviations from their respective medium-term objective or the adjustment path towards it may occur only in exceptional circumstances;
• Where the ratio of the general government debt to GDP is significantly below 60%, the lower limit of the structural deficit can reach at most 1.0 % of GDP;
• In the event of significant deviations from the medium-term objective or the adjustment path towards it, a correction mechanism shall be triggered automatically. The mechanism shall include the obligation of the country concerned to implement measures to correct the deviations over a defined period of time.

These budget rules must be implemented in national law through constitutional legal acts, and in case a country does not properly implement them, the European Court of Justice may impose financial sanction of 0.1% of GDP. The TSCG was ratified by the Parliament of the Republic of Lithuania in June 2012.