IPOL
DIRECTORATE-GENERAL FOR INTERNAL POLICIES
EGOV
ECONOMIC GOVERNANCE SUPPORT UNIT
BRIEFING
Structural budget balances in EU Member States
Structural budget balances play an important role in the fiscal policy frameworks of the EU both as part of
the application of the Stability and Growth Pact (SGP) and in the implementation of the balanced budget rule
by the contracting parties of the intergovernmental Treaty on Stability, Coordination and Governance in the
EMU (“Fiscal Compact”). This document gives an overview of the concept and application of the structural
balance rule(s) in the EU. It will be regularly updated, in particular, the annex that shows progress made
(based on the latest Commission forecast) by Member States in reaching their structural budget commitments
under the SGP.
The objective and role of structural budget positions
The structural budget positions (see definition in Box 1) are core elements of the surveillance of the
budgetary policies of the Member States of the EU. Structural budget positions are used in:
 The medium term objectives (MTO) and related fiscal efforts (and assessments) under the
preventive arm of the SGP
 The fiscal effort recommendations and assessments under the Excessive Deficit Procedure (EDP)
 The balanced budget rule included in the so-called
“Fiscal Compact” (see Box 2).
Box 1: Structural budget balances
This document focuses on the role of the MTO, as it The structural budget balance is a nominal
represents the country-specific budgetary objective budget balance adjusted by the cyclical
defined in structural terms that each Member State component and net of one-off and
temporary measures. In line with the
should achieve according to EU law. In particular, these methodology used in the SGP, the cyclical
provisions (included in Regulation 1466/97 and the component of the budget is subtracted from
Code of Conduct on the implementation of the SGP) the actual budget balance. The cyclical
stipulate that each Member State must have a component is calculated as the product of the
output gap (difference between actual and
differentiated MTO for its budgetary position which potential GDP as percent of potential GDP)
shall fulfil the following criteria:
and a parameter reflecting the automatic
 ensure safety margin so that the nominal 3 % of reaction of the government balance to an
output gap change.
GDP deficit target would not be triggered in bad
This cyclically adjusted budget balance
economic times;
corresponds to a budget balance prevailing if
 ensure the sustainability of public finances (taking the economy was running at its full potential.
into account among other issues any increase in age As it is based on estimates of the potential
related expenditure), while allowing room for output, the structural balance is vulnerable to
budgetary manoeuvre, in particular for public uncertainty and revisions (see separate EGOV
note).
investment; it also means that it should be consistent
with the so-called debt reduction benchmark, if the debt ratio is higher than 60% of GDP.
 be close to balance or in surplus (Euro Area and ERM2 Member States must have a MTO that
corresponds to at least - 1% of potential GDP and signatories of the TSCG of a least -0,5 % of
potential GDP (see Box 2);
16 May 2017
Authors: J. Angerer, K. Hagelstam,
Contact: [email protected]
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The Commission provides in this respect regularly to the Member States so-called “minimum MTOs”
on the basis of the above criteria and the methodology detailed in Code of Conduct on the SGP
implementation (see also below section on the updates of MTOs).
By setting a budgetary target in structural terms (i.e. a
MTO) in the preventive arm of the SGP (and in the
balanced budget rule of the “Fiscal Compact”), the
objective is to ensure that the underlying fiscal
position of Member States is conducive to fiscal
sustainability, while allowing for the free operation
of the automatic stabilisers over the economic cycle
(see also Box 1).
Member States, which have not yet achieved their
MTO, should improve their structural balance by
0.5% of potential GDP per year as a benchmark
(more in ‘good times’ and less in ‘bad times’). The
Commission has specified in a Communication of
January 2015 entitled ‘Making the best use of
flexibility within the existing rules of the SGP’ that it
applies a matrix specifying the ‘good times’ and ‘bad
times’ and the corresponding appropriate fiscal
adjustments. In the event of a ‘significant deviation’
(= 0.5% of GDP in 1 year or cumulatively over 2
years) from the MTO or from its adjustment path, the
Commission can give an ‘early warning’ (or
ultimately sanctions, if so decided).
Box 2: The Fiscal Compact
The Treaty on Stability, Coordination and
Governance in the EMU (TSCG) includes a
requirement on the contracting parties to
enshrine a balanced budget rule (similarly to
the “Medium-term objective” in EU law)
with 0,5% GDP as the lowest limit of
structural deficit (if public debt is
significantly lower than 60% of GDP, this
lower limit is set at 1% of GDP) into national
law, preferably at constitutional level.
Member States may bring proceedings
against other Member States before the
Court of Justice of the European Union in
case non-transposition. The Contracting
Parties shall ensure rapid convergence
towards their respective MTO. Article 3 of
the TSCG also stipulates that “progress
towards, and respect of, the medium-term
objective shall be evaluated on the basis of
an overall assessment with the structural
balance as a reference, including an analysis
of expenditure net of discretionary revenue
measures, in line with the revised SGP”.
Temporary deviations from or the adjustment path towards the MTO may be allowed in cases of
(1) major structural reforms (e.g. pension reforms), including certain public investments (see above
mentioned Communication on the flexibility in the SGP);
(2) an unusual event outside the control of the Member State concerned which has a major impact on
the financial position of the government: and/or
(3) in periods of severe economic downturn for the euro area or the Union as a whole.
The current SGP rules also include an expenditure benchmark, notably in the preventive arm,
according to which growth of public expenditure (net of discretionary revenue measures and other
factors) has to be lower than medium-term potential GDP growth for countries that have not reached
their MTO. It serves as a second indicator to measure the fiscal effort taken by the Member States in
respect of their obligations under the SGP. Today, the assessment (in judging progress towards or
remaining at the MTO) by the Commission is based on both the structural balance and the expenditure
benchmark (see ECOFIN conclusions below). The table in the annex of this document focuses only
on the projected efforts taken in structural terms by the Member States vis-à-vis their latest Council
recommendations under the SGP.
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In December 2016, the ECOFIN Council endorsed an agreement aimed at improving the predictability
and transparency of the SGP by increasing the use of the expenditure benchmark: “The agreement, on
how to simplify the assessment of compliance with the pact's rules, covers both in the preventive and
corrective arms of the pact. No change to legislation underlying the pact is envisaged. Stronger focus on
an expenditure-based indicator is envisaged for setting and assessing fiscal policies, reducing
complexity in the fiscal surveillance framework. The indicator involves setting an upper limit for the
growth rate of government expenditure. It is considered an operational and easy-to-measure target that
can guide member states in the preparation and monitoring of their budgets. The structural balance
indicator will remain an essential part of the fiscal surveillance framework.”
For further information, see Vade Mecum on the SGP (2017 Edition).
Updates and progress on the MTOs
The preventive arm of the SGP stipulates that Member States shall update every three years their
MTOs. For this purpose, the Commission submits to Member States so-called ”minimum MTOs”
based on the criteria included in the regulation governing the preventive arm (see p. 1 of this briefing).
The Member States provide their updated MTOs in their forthcoming Stability and Convergence
Programmes based on these lower bounds as proposed by the Commission or a more ambitious target
if, in their view, circumstances are deemed to warrant it. Countries undertaking structural reforms
with a major impact on the sustainability of the public finances may revise their MTOs on a case-bycase basis, in agreement with the Commission. In particular, the introduction of major pension
reforms having an impact on long-term fiscal sustainability could result in a revision of the MTOs.
In 2016, twenty Member States maintained their MTOs at their previous level. While three Member
States (BU, IE, LU) decided to revise their MTOs downwards and two Member States (HU and PT)
adjusted their MTOs upwards. One Member State (SI) kept its MTO unchanged although it fell short
of the updated “minimum MTO” calculated by the Commission, since it does, according to the
Commission, neither adequately take into account the need to bring debt below the Treaty reference
value nor the implicit liabilities related to ageing. Another Member State (HR) defined its MTO for
the first time, given its relatively recent accession to the EU. However, the value chosen is not
sufficient to ensure compliance with the debt rule in the medium term (see the Commission
Institutional paper 034, September 2016, p. 12).
The Country Specific Recommendations (CSRs) adopted annually by the Council include in most
cases budgetary recommendations (‘fiscal effort in structural terms’) for the Member States under the
preventive arm of the SGP in order for them to make progress towards or remain at their MTO. The
overleaf annex presents the current recommendations and the estimated and projected progress on
structural budget positions for 2016 and 2017 under the SGP on the basis of the spring 2017 forecast
by the Commission. It will be regularly updated, in particular once new decisions/recommendations
under the SGP have been adopted by the Council. It can be noted that the target date of the MTOs are
not consistently and transparently mentioned in the CSRs and/or Stability and Convergence
programmes (SCPs): see separate EGOV note for an attempt to identify them by screening the CSRs
and SCPs over the past years.
DISCLAIMER: This document is drafted by the Economic Governance Support Unit (EGOV) of the European Parliament based on publicly available
information and is provided for information purposes only. The opinions expressed in this document are the sole responsibility of the authors and do
not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorised,
rovided the source is acknowledged and the publisher is given prior notice and sent a copy. © European Union, 2017
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Annex: Structural budgetary efforts for 2016 and 2017 as requested by the Council and
projected by the Commission in its spring 2017 forecast
Annual structural effort or position recommended by the Council:
Member
State
SGP arm
- To adjust towards or remain at the MTO for Member States
under the preventive arm, or
- To correct an excessive deficit for Member States under EDP
BE
preventive
DE
preventive
EE
preventive
2016
2017
0.6 pp
0.6 pp
Estimated/projected
structural budget
position (sbp)
or
estimated/projected
annual change (pp) in
the structural budget
position4
2016
2017
0.1 pp
0.6 pp
Remain at MTO set at -0.5 sbp
0.8 sbp
0.6 sbp
Remain at MTO set at 0.0 sbp
0.2 sbp
-0.3 sbp
IE
preventive
EL
corrective
0.6 pp
ES
corrective
-0.4 pp
FR
corrective
IT
preventive
CY
preventive
LV
0.6 pp
0.3 pp
0.6 pp
2.1 pp
-3.0 pp
0.5 pp
-1.0 pp
0.1 pp
0.8 pp
0.9 pp
0.2 pp
0.2 pp
-0.25 pp
0.6 pp
-0.7 pp
-0.3 pp
Respect the MTO set at 0.0 sbp
0.9 sbp
-0.2 sbp
preventive
Ensure limited deviation from MTO set at -1.0 sbp
-0.8 sbp
-1.4 sbp
LT
preventive
Ensure limited deviation from MTO set at -1.0 sbp
-0.2 sbp
-0.9 sbp
LU
preventive
Remain at MTO set at 0.5 sbp
Remain at MTO set at -0.5 sbp
2.0 sbp
0.4 sbp
MT
preventive
0.6 pp
0.6 pp
3.0 pp
0.0 pp
At least 10.0 pp cumulative in 2009-14
NL
preventive
Limit deviation from MTO set at -0.5 sbp
0.6 pp
0.7 sbp
-0.5 pp
AT1
preventive Limit deviation from MTO set at -0.45 sbp
0.3 pp
-1.0 sbp
-0.1 pp
PT
corrective
0.0 pp
-
0.3 pp
-0.2 pp
2
preventive
0.6 pp
0.6 pp
0.3 pp
-0.1 pp
SK
preventive
0.25 pp
0.5 pp
0.8 pp
0.1 pp
FI
preventive
at least 0.5 pp
0.6 pp
0.2 pp
-0.4 pp
BG
preventive
0.5 pp
0.5 pp
1.5 pp
-0.5 pp
CZ
preventive
0.5 sbp
0.0 sbp
DK
preventive
Remain/attain MTO set at -0.5 sbp
0.25 pp
0.0 sbp
-0.4 pp
HR
corrective
0.7 pp
0.6 pp
1.7 pp
-1.4 pp
HU
preventive
0.3 pp
0.6 pp
-0.3 pp
-1.5 pp
PL
preventive
0.5 pp
0.5 pp
0.2 pp
-1.0 pp
RO
preventive
Limit deviation from MTO set at -1.0 sbp
0.5 pp
-2.6 sbp
-1.3 pp
SE
preventive
0.8 sbp
0.4 sbp
1.3 pp
-0.2 pp
SI
UK
3
corrective
Remain at MTO set at -1.0 sbp
Remain at MTO set at -1.0 sbp
0.5 pp (2015/16)
1.1 pp (2016/17)
Sources: COM Spring 2017 forecast for the estimated and projected structural budget balances; Council recommendations under the SGP (see
EGOV documents "Country Specific Recommendations (CSRs) for 2015 and 2016). Notes: 1 The MTO for AT has been adjusted (a structural
deficit of 0.45 % GDP until 2016, and 0.5% of GDP as from 2017). 2 For SI the table shows the minimum MTO as calculated by the COM,
since SI nominated a MTO in its 2016 Stability Programme, which does comply with the agreed common methodology (COM Report on
Public Finances 2016, p. 18). 3 UK: The Table shows the minimum MTO as calculated by the COM, as the UK has not nominated its MTO
(COM Report on Public Finances 2016, p. 18). 4 This table does not prejudge the assessment of “effective action” by the COM, which follows
a EU methodology that takes into account more aspects than the change in the structural balance and covers the whole period of the Council
decision to correct the excessive deficit and not only individual years. The Council agreed in October 2016 on two methodological steps relating
to the estimation of potential output and output gabs. Based on the so-called “plausibility tool”, six euro area countries (AT, FI, IT, LU, LV
and SI) may have significantly more negative output gaps than estimated by the common methodology (see Box 1 in COM(2016) 730 final).
Abbreviations: sbp indicates annual budget position in structural terms: pp indicates annual percentage point change in the sbp; n.a. indicates
that an explicit structural target for a given year is not available in the relevant Council recommendation.
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