Treaty on Stability, Coordination and Governance

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) (47 KB PDF), sometimes referred to as the fiscal compact, was signed on 2 March 2012 by 25 EU Member States. The UK and the Czech Republic did not sign the treaty.

The TSCG aims to safeguard the stability of the euro area by requiring Member States’ national budgets to be in balance or in surplus. Countries will meet this goal if their annual structural government deficit does not exceed 0.5% of nominal GDP. If the deficit does exceed this figure, a correction mechanism will be triggered automatically. Any deficit must also be in line with the country-specific minimum benchmark figure for long-term sustainability. Progress on this will be assessed each year as part of the European Semester process.

The treaty also provides for economic policy coordination and convergence. This obliges Member States to report on their public debt issuance plans and to make sure that major economic policy reforms are discussed beforehand and, where appropriate, coordinated among themselves.

The TSCG came into force on 1 January 2013 following ratification by 12 euro area Member States. It will now be incorporated into existing EU treaties, a process that is expected to be completed within the next five years.

It is difficult to predict the impact of the treaty on industrial relations, but it would seem likely that budget cuts in Member States will continue as national governments try to ensure that they comply with the provisions of the TSCG. This is likely to lead to further cost-cutting measures, particularly in the public sector, which will affect employment levels, investment in training and welfare provision.

Pay freezes, pay pauses, and reform of wage indexation measures are also likely to continue, particularly in countries such as Greece, Spain, Ireland and Portugal which have experienced the most significant economic shocks in recent years. There may also be further decentralisation of collective bargaining as businesses seek more flexibility at company level. For an overview of the impact of austerity measures on industrial relations in the EU, see the 2013 Eurofound study Impact of the crisis on industrial relations.

See also: Annual Growth Survey; Alert Mechanism Report; Broad Economic Policy Guidelines; Country-Specific Recommendations; European Economic Governance; Euro Plus Pact; Economic And Monetary Union; European Employment Strategy; Integrated guidelines; Lisbon Strategy; Macroeconomic Imbalance Procedure; National Action Plans; National Reform Programmes.