Stability And Growth Pact - SGP

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DEFINITION

An agreement between the 16 countries that form the European Union (EU) and use the euro as currency. The SGP, enacted in 1997, was created to establish rules to ensure that all involved countries help maintain the value of the euro by enforcing fiscal responsibility. Specifically, each country must maintain an annual budget deficit that is no greater than 3% of GDP, and each must have a national debt that is lower than 60% of GDP.

INVESTOPEDIA EXPLAINS

The SGP was established in the hopes of unifying the eurozone's financial policies to enable a strong euro. The European Commission is charged with enforcing the SGP and has been criticized for being too lenient by not imposing penalties on countries that have not operated within the rules. The goal of the SGP is for the eurozone members to reach what is called "economic and monetary union" (EMU) with low inflation, low interest rates, and controlled debt and spending.


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