Proposal for a COUNCIL DIRECTIVE laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States
Date: 2017-12-06
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, budget deficit, budget policy, coordination of EMU policies, economic policy, euro area, medium-term forecast

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   EUROPEAN COMMISSION  Brussels, 6.12.2017 COM(2017) 824 final 2017/0335 (CNS)  Proposal for a COUNCIL DIRECTIVE laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States  
 
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal  

An  unprecedented  financial  and  economic  crisis  hit  the  economies  of  the  European  Union 
(EU)  a  decade  ago.  While  that  crisis  did  not  start  in  the  euro  area,  it  laid  bare  some  of  its 
institutional  weaknesses.  In  response,  the  EU  has  sought  to  strengthen  the  economic 
governance  arrangements  for  the  Union  and  the  euro  area,  particularly  by  means  of  the 
legislative  packages  known  as  the  ‘Six-pack’  (five  Regulations  and  a  Directive  adopted  in 
2011) and ‘Two-pack’ (two Regulations adopted in 2013). These packages  helped to ensure 
the  closer  supervision  of  national  budgets,  establish  sounder  fiscal  frameworks  and  pay 
greater attention to debt levels. 

However,  in  seeking  to  remedy  the  root  causes  of  the  crisis,  it  became  clear  that  the  rules-
based  fiscal  framework  at  EU  level  had  to  be  complemented  by  binding  provisions  at  the 
national  level  to  foster  sound  budgetary  policies  in  all  Member  States  and  act  as  a  lasting 
mechanism against the emergence of excessive deficits. 

In  that  context,  the  use  of  Union  law  to  underpin  such  national  rules  was  explored.  The 
Commission  was  at  the  time  strongly  in  favour  of  pursuing  further  economic  governance 
reforms  under  the  Community  method.1  However,  when  meeting  in  December  2011,  the 
European  Council  failed  to  agree  to  take  the  steps  under  consideration.  In  reaction,  the 
Member States that wanted to commit jointly to having such domestic rules went ahead on an 
intergovernmental  basis,  leading  to  the  conclusion  of  the  Treaty  on  Stability,  Coordination 
and Governance in the Economic and Monetary Union (TSCG) as a stepping stone towards 
incorporating its provisions as soon as possible into the Treaties. 

The TSCG was signed on 2 March 2012 by 25 Contracting Parties (all Member States except 
the  Czech  Republic  and  United  Kingdom2)  and  entered  into  force  on  1  January  2013.  The 
cornerstone  of  the  TSCG  is  its  Title  III,  which  sets  out  the  so-called  ‘Fiscal  Compact’.  Its 
main provision is the obligation for Contracting Parties to enshrine in binding and permanent 
national  provisions,  preferably  constitutional,  a  balanced-budget  rule  in  cyclically  adjusted 
terms.  The  rule  mirrors  the  requirement  that  is  at  the  centre  of  the  preventive  arm  of  the 
Stability  and  Growth  Pact  (SGP),  namely  the  medium-term  budgetary  objective.  22 
Contracting Parties are bound by the Fiscal Compact (all euro area Member States and, on a 
voluntary basis, Bulgaria, Denmark and Romania). Other parts of the TSCG aim to reinforce 
economic policy coordination and governance of the euro area.  

The  intergovernmental  approach  used  to  adopt  the  TSCG  was  always  understood  by  all 
stakeholders  as  a  way  to  take  necessary  steps  immediately  when,  at  the  height  of  the 
economic and financial crisis, progress was blocked within the European Council. Hence, the 
Contracting Parties agreed to seek integration of the core provisions of the TSCG into Union 
law at most within five years of the date of its entry into force, i.e. by 1 January 2018.  

This  political  agreement  is  enshrined  in  Article  16  TSCG,  according  to  which  "Within  five 
years, at most, of the date of entry into force of this Treaty, on the basis of an assessment of 
the experience with its implementation, the necessary steps shall be taken, in accordance with 
the Treaty on the European Union and the Treaty on the Functioning of the European Union, 

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Statement  by  President  Barroso  at  the  press  conference  following  the meeting  of  the  Heads  of  State  or 
Government of the euro area, 27 October 2011, SPEECH/11/713. 
Croatia was not a member of the European Union at the time of signature and has not signed up to the 
TSCG to date. 

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with  the  aim  of  incorporating  the  substance  of  this  Treaty  into  the  legal  framework  of  the 
European Union." 

The  Commission’s  May  2017  Reflection  Paper  on  the  Deepening  of  the  Economic  and 
Monetary Union3 recalled that agreement and referred to the possible integration of the Fiscal 
Compact into the EU legal framework during the period 2017-2019. Furthermore, in his 2017 
State  of  the  Union  address  and  the  accompanying  Letter  of  Intent,4  President  Jean-Claude 
Juncker proposed, among other things, the integration of the substance of the TSCG into EU 
law,  taking  into  account  the  appropriate  flexibility  built  into  the  SGP  and  identified  by  the 
Commission since January 2015.  

The  European  Parliament  has  also  repeatedly  asked  for  the  substance  of  the  TSCG  to  be 
brought  under  the  Treaties,5  arguing  that,  to  be  effectively  legitimate  and  democratic,  the 
governance  of  a  genuine  Economic  and  Monetary  Union  (EMU)  must  be  placed  within  the 
institutional framework of the Union.  

The Fiscal Compact was adopted as a stop-gap solution at a time of deep crisis, but its basic 
tenet  remains  entirely  valid  –  it  is  in  the  interest  of  the  EU  and  the  euro  area  to  foster 
responsible policies avoiding excessive deficits. The present proposal is part of a broader and 
ambitious  set  of  initiatives  to  reform  the  EMU  put  forward  by  the  Commission  on 
6 December  2017.  Recognising  the  particular  relevance  for  the  completion  of  EMU,  the 
proposal  responds  to  the  will  expressed  by  the  TSCG  Contracting  Parties,  the  calls  of  the 
European  Parliament  for  integration  into  the  Union  framework  and  the  call  for  unity, 
efficiency and democratic accountability made by President Juncker in his State of the Union 
address in September 2017. 

The  proposed  Directive  strengthens  fiscal  responsibility  and  the  medium-term  budgetary 
orientation in the Member States and so aims to achieve, along with the existing provisions of 
the  SGP,  the  underlying  objective  of  the  Fiscal  Compact,  namely,  convergence  to  prudent 
levels  of  public  debt.  Indeed,  the  high  levels  of  public  debt  still  observable  today  will  take 
time to be absorbed. Further progress therefore remains imperative, in both the short and long 
term. 

Progress  toward  prudent  debt  levels  requires  annual  budgetary  decisions  to  follow  a  steady 
orientation  towards  achieving  and  maintaining  the  medium-term  budgetary  objective.  The 
budgetary path needs to be spelled out in terms of policies under the control of governments 
and  taking  into  account  economic  conditions.  However,  frequent  recalibrations  of  the  path 
undermine the credibility and effectiveness of any strategy for debt  reduction.  Partly due to 
the  exceptional  economic  circumstances  prevailing  when  the  Fiscal  Compact  entered  into 
force,  such  a  steady  medium-term  orientation  of  budgetary  policies  has  not  yet  fully 
materialised.  As  economic  conditions  are  normalising,  the  time  has  come  to  operationalise 
and reinforce it so that all Member States effectively converge to the agreed objectives.  

As  also  advocated  in  the  EMU  Reflection  Paper,  the  EMU  and  its  completion  must  remain 
open to all Member States. What is conceived for the euro area should also be conceived for – 
and with – those Member States that are expected to join the euro in the foreseeable future. 
This  is  key  for  a  well-functioning  single  currency.  Accordingly,  the  proposed  Directive 

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COM(2017) 291, 31 May 2017.  
President  Jean-Claude  Juncker’s  State  of  the  Union  Address  2017,  SPEECH/17/3165,  13  September 
2017. 
European  Parliament's  resolution  of  12  December  2013  on  constitutional  problems  of  a  multitier 
governance in the European Union (P7_TA(2013)0598) and resolution of 24 June 2015 on the review of 
the economic governance framework: stocktaking and challenges (P8_TA(2015)0238). 

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should apply to both the Member States whose currency is the euro and other Member States 
wishing to participate. 

Article 3 (which forms part of the Fiscal Compact) is by far the most substantive provision of 
the TSCG from an EMU perspective as it aims to respond to the need to maintain sound and 
sustainable public finances and to prevent government deficit and debt becoming excessive. 
Under Article 3(1), Contracting Parties commit to have their budgetary position in balance or 
in  surplus,  with  a  lower  limit  for  the  structural  deficit  of  0.5%  of  GDP,  which  can  become 
1.0% of GDP for Member States with a debt level significantly below 60% of GDP and with 
low risks for the long-term sustainability of public finances. That balanced-budget rule must 
be  equipped  with  a  correction  mechanism  automatically  triggered  in  case  of  significant 
deviation. Article 3(2) obliges Contracting Parties to internalise those rules into their domestic 
legal order. Other provisions of the TSCG have either been already integrated into EU law (in 
particular via the ‘Two-pack’, for the euro area), or would require changes to the Treaties, or 
do not lend themselves to incorporation for various reasons (e.g. some replicate existing EU 
law).  Consequently,  the  ‘substance’  proposed  for  incorporation  into  the  Union  legal 
framework is concentrated in Article 3 TSCG. 

The  rationale  for  bringing  that  'substance'  of  the  TSCG  into  the  body  of  the  EU  fiscal 
framework is manifold. It would simplify the legal framework and ensure more effective and 
systematic  monitoring  of  implementation  and  enforcement  of  fiscal  rules  at  both  EU  and 
national  level  as  part  of  the  overall  EU  economic  governance  framework,  compared  to  the 
current  intergovernmental  set-up.  It  diminishes  the  possible  risks  of  duplications  and 
conflicting actions inherent in the co-existence of intergovernmental arrangements alongside 
the  mechanisms  foreseen  by  Union  law.  A  consolidated  framework  governed  by  EU  law 
would also facilitate a consistent and coordinated evolution of the EU and national fiscal rules 
within the wider process of deepening the EMU. Above all, as argued in the Five Presidents’ 
Report  on  Completing  Europe’s  Economic  and  Monetary  Union,6  the  integration  into  the 
Union legal framework of all inter-governmental instruments created during the crisis would 
bring greater democratic accountability and legitimacy across the Union.  

The  proposed  Directive  builds  on  the  observation  that  there  cannot  be  an  effective 
enforcement of the EU fiscal framework if only a top-down approach is taken. The particular 
decentralised  nature  of  fiscal  policy-making  in  the  EU  and  the  general  need  for  national 
ownership  of  fiscal  rules  make  it  essential  that  the  objectives  of  the  EMU  budgetary 
coordination  framework  are  also  reflected  in  the  fiscal  frameworks  of  the  Member  States. 
While Council Directive (EU) No 2011/857 already set minimum characteristics for national 
fiscal  frameworks,  in  the  TSCG  Contracting  Parties  strengthened  the  basis  for  responsible 
fiscal  policies  amongst  them  by  setting  out  the  obligation  to  enshrine  a  balanced-budget 
requirement  through  “[national]  provisions  of  binding  force  and  permanent  character, 
preferably  constitutional,  or  otherwise  guaranteed  to  be  fully  respected  and  adhered  to 
throughout the national budgetary processes”. 

In the same vein, the present proposal lays down an obligation for Member States to have in 
place  a  framework  of  binding  and  permanent  numerical  fiscal  rules  which,  while  being 
consistent with the fiscal rules laid down in the Union framework, can embody specificities 
relevant to the Member State concerned. That framework should strengthen their responsible 
conduct of fiscal policy and promote compliance with the budgetary obligations deriving from 

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Completing  Europe's  Economic  and  Monetary  Union,  Report  by  Jean-Claude  Juncker,  in  close 
cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz, 22 June 2015. 
Council  Directive  2011/85/EU  of  8  November  2011  on  requirements  for  budgetary  frameworks  of  the 
Member  States  (OJ  L  306,  23.11.2011,  p.  41).  Council  Directive  (EU)  No  2011/85  is  part  of  the  'Six-
pack'. 

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the Treaty on the Functioning of the European Union (TFEU). It should ensure convergence 
of public debt to prudent levels (namely, the reference value set out in Protocol No 12 on the 
excessive deficit procedure annexed to the Treaties), in particular by means of  an anchoring 
medium-term  objective  in  terms  of  structural  balance  that  is  binding  on  national  budgetary 
authorities in their annual decisions. That objective-based approach reflects a shared goal, to 
ensure  the  sustainability  of  public  finances,  common  to  national  budgetary  rules  and 
mechanisms and to the EU fiscal framework. The medium-term orientation seeks to provide a 
stronger  basis  for  sound  budgetary  policies  since  most  fiscal  measures  have  budgetary 
implications  that  go  well  beyond  the  annual  budgetary  cycle.  In  the  same  vein,  the 
implementation of major structural reforms with a verifiable positive impact on the long-term 
sustainability  of  public  finances  should  be  properly  factored  into  the  medium-term  fiscal 
perspective. 

If there is to be medium-term anchoring for budgeting purposes, fiscal planning must include 
a  medium-term  path  for  expenditure  net  of  discretionary  revenue  measures  and  consistent 
with  the  medium-term  objective  or  the  adjustment  path  towards  it.  To  ensure  an  enhanced 
sense  of  national  ownership  of  fiscal  policy  and  reflect  Member  States’  sovereign 
specificities, that path should be set for the whole term of the legislature as established by the 
domestic constitutional legal order, as soon as a new government takes office. Crucially, that 
path should be respected by the annual budgets throughout the period that it covers. 

Effective means to correct non-compliance are needed for the credibility of the medium-term 
objective  and  of  the  associated  operational  target.  While  it  is  the  case  that  exceptional 
circumstances  may  lead  to  a  temporary  deviation  from  the  medium-term  objective  or  the 
adjustment  path  towards  it,  significant  observed  deviations  must  be  corrected  through  the 
automatic activation of a pre-defined correction mechanism, in particular by compensating for 
deviations from the medium-term expenditure path.  

Long-term sound budgetary policies are jeopardised by the deficit bias and more generally the 
pro-cyclical  policy  stance  which  can  be  observed  across  Member  States.  Fiscal  rules  and 
independent  fiscal  institutions  have  emerged  as  complementary  devices  to  address  those 
challenges.  Evidence  shows  that  fiscal  rules  equipped  with  independent  monitoring 
arrangements  are  associated  with  increased  transparency,  better  fiscal  outcomes  and  lower 
sovereign  debt  financing  costs.  For  that  reason,  the  proposed  Directive  foresees  involving 
independent  fiscal  institutions  in  monitoring  compliance  with  the  framework  of  numerical 
fiscal rules, including by assessing the adequacy of the medium-term budgetary orientation, as 
well  as  in  monitoring  how  the  correction  mechanism  is  activated  and  applied.  When  they 
detect significant deviations from the medium-term objective or the adjustment path towards 
it,  the  independent  fiscal  institutions  should  call  upon  the  national  budgetary  authorities  to 
activate swiftly the correction mechanism and should assess the planned corrective measures 
and their implementation. Public assessments prepared by the independent fiscal institutions 
in  the  performance  of  their  tasks,  accompanied  by  a  duty  for  the  budgetary  authorities  of 
Member  States  to  'comply-or-justify'  in  relation  to  the  recommendations  of  the  independent 
fiscal  institutions,  would  boost  the  reputational  costs  of  non-compliance  and  therefore 
increase the credibility and enforceability of the medium-term orientation. Since the adoption 
of ‘Six-pack’, ‘Two-pack’ and the TSCG8 have already led to establishing independent fiscal 
institutions  in  almost  all  Member  States,  the  proposed  Directive  is  unlikely  to  require  new 

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The TSCG invited the Commission to report on the measures adopted by the Contracting Parties bound 
by  the  Fiscal  Compact  to  report  on  the  measures  adopted  by  each  of  them  in  relation  to  Article  3(2) 
TSCG;  to  that  effect,  the  Commission  adopted  on  22  February  2017  a  Communication  and  a  report 
assessing the compliance of the relevant national measures (C(2017) 1201 final). It provides details on the 
independent fiscal institutions in the TSCG Contracting Parties. 

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structures  although  amendments  to  the  current  remits  of  existing  independent  fiscal 
institutions coupled with improved access to information and some reinforcement of resources 
may be warranted. 

Detailed  provisions  in  the  proposed  Directive  set  out  specific  aspects  of  the  correction 
mechanism and the necessary features related to the set-up of independent fiscal institutions 
and their specific tasks stemming from this proposal. Those elements incorporate key features 
of the Common principles on national fiscal correction mechanisms,9 which were used by the 
Member States in their adoption of measures in compliance with Article 3(2) of the TSCG. 

The proposed Directive does not affect the commitments made in Article 7 of the TSCG by 
those of the Contracting Parties whose currency is the euro to coordinate their views prior to 
the voting within the Council on proposals and recommendations made by the Commission in 
the context of the excessive deficit procedure. Equally, it preserves the practice under Article 
13 of the TSCG of discussions in the framework of inter-parliamentary meetings held by the 
European  Parliament  and  the  national  Parliaments  of  the  Contracting  Parties.  Such 
discussions  contribute  to  enhancing  democratic  accountability  in  the  context  of  the  Union's 
economic governance. 

 

Consistency with existing policy provisions in the EU 

The  key  instrument  for  fiscal  policy  co-ordination  and  surveillance  in  the  EU  and  the  euro 
area is the SGP, which implements the Treaty provisions on budgetary discipline. The Fiscal 
Compact  corresponds  in  many  aspects  to  the  preventive  arm  of  the  SGP.  Indeed,  the 
balanced-budget  rule  in  structural  terms  mirrors  to  a  very  large  extent  the  medium-term 
budgetary objective established under Article 2a of Council Regulation (EC) No 1466/97 of 7 
July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance 
and coordination of economic policies.10 

The  proposed  Directive  puts  forward  a  framework  of  numerical  fiscal  rules  and 
accompanying  specifications  which  is  not  only  compatible  with  the  SGP  but  is  specifically 
meant  to  complement  it.  That  framework  must  effectively  promote  compliance  with  the 
Member State's obligations deriving from the TFEU in the area of budgetary policy, meaning, 
among others, that the medium-term objective envisaged to play within the national budgetary 
processes  the  role  of an  anchor for ensuring  sustainable debt  levels must  be consistent with 
the medium-term budgetary objective laid down under Article 2a of Council Regulation (EC) 
No 1466/97. To take into account the appropriate flexibility that is built into the rules of the 
SGP  and  in  line  with  its  procedural  requirements,  the  proposal  includes  specific  provisions 
allowing account to be taken of the implementation by Member States of structural reforms 
that have a positive impact on the long-term sustainability of public finances.  

2. 

RESULTS OF CONSULTATIONS WITH INTERESTED PARTIES  

Article 16 of the TSCG and its supporting recital express the firm, unambiguous will  of the 
Contracting  Parties  to  incorporate  as  soon  as  possible  the  substance  of  that  Treaty  into  the 
Union legal framework.  

The  Commission  has  followed  up  on  that  commitment  of  the  25  Member  States  who  are 
Contracting  Parties  by  putting  forward  this  proposal.  The  Commission  first  announced  its 

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See  also  Communication  from  the  Commission:  Common  principles  on  national  fiscal  correction 
mechanisms (COM(2012) 342 final).  
Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary 
positions and the surveillance and coordination of economic policies (OJ L 209, 2.8.1997, p. 1). 

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intention to take the initiative and act upon that commitment in the Reflection Paper on the 
Deepening  of  the  Economic  and  Monetary  Union,  which  recalled  the  agreement  among  the 
Contracting Parties to integrate the substance of the TSCG into Union law. In his 2017 State 
of the Union address and the accompanying Letter of Intent, President Juncker announced a 
proposal on incorporation as part of the 6 December 2017 package on EMU deepening. 

The proposed Directive builds on the Commission’s in-depth knowledge of the architecture of 
the Fiscal Compact (including in particular its interactions with the Union fiscal framework) 
and of how it has been enshrined by the Member States concerned into their domestic legal 
orders. With a view to preparing its February 2017 report assessing the compliance of national 
provisions adopted by the Contracting Parties bound by the Fiscal Compact, the Commission 
engaged in extensive consultations with those Member States. Those bilateral exchanges gave 
the  Commission  a  thorough  and  accurate  understanding  of  how  the  legislative  and 
institutional arrangements put in place by them give effect to the rules enshrined in Article 3 
of the TSCG.  

Discussions  held  among  the  Member  States  in  the  ECOFIN  Council  and  its  preparatory 
committees in relation to the Fiscal Compact, notably on assessing the compliance of national 
transposing provisions, also included the issue of incorporating the Fiscal Compact in Union 
law and recalled the need to take steps in that direction by 1 January 2018.      

3. 

 

LEGAL ELEMENTS OF THE PROPOSAL 

Legal basis 

The  legal  basis  for  the  proposed  Directive  is  the  second  subparagraph  of  Article  126(14) 
TFEU. Strengthening fiscal responsibility and the medium-term budgetary orientation in the 
Member  States  aims  to  complement  and  reinforce  the  available  policy  framework  to  avoid 
excessive deficits as established under Article 126 TFEU. While the proposed Directive does 
not alter the substantive and procedural rules set out in the SGP, it increases the effectiveness 
of those provisions. The proposal applies to all euro area Member States and includes ‘opt-in’ 
provisions for non-euro area Member States. 

 

Subsidiarity and proportionality 

The  proposal  is  in  conformity  with  the  subsidiarity  and  proportionality  principles  set  out  in 
Article 5 of the Treaty on the European Union. Its objective cannot be sufficiently achieved 
by the Member States and can be better achieved at Union level. The proposed Directive does 
not go beyond what is necessary in order to achieve that objective. 

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2017/0335 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

laying down provisions for strengthening fiscal responsibility and the medium-term 
budgetary orientation in the Member States 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, and in particular the 
second subparagraph of Article 126(14) thereof, 

Having regard to the proposal from the European Commission, 

Having regard to the opinion of the European Parliament,  

Having regard to the opinion of the European Central Bank, 

Acting in accordance with a special legislative procedure, 

Whereas: 

(1)  The  Treaty  on  the  Functioning  of  the  European  Union  (TFEU)  requires  that  Member 
States  regard  their  economic  policies  as  a  matter  of  common  concern,  that  their 
budgetary  policies  are  guided  by  the  need  for  sound  public  finances  and  that  their 
economic  policies  do  not  risk  jeopardising  the  proper  functioning  of  economic  and 
monetary union. 

 (2)  The Stability and Growth Pact (SGP) includes the multilateral surveillance system and 
the surveillance and coordination of economic policies laid down in Council Regulation 
(EC) No 1466/9711 and the procedure for the avoidance of excessive government deficit 
laid  down  in  Article  126  TFEU  and  further  specified  in  Council  Regulation  (EC)  No 
1467/97.12 The SGP has been further strengthened by Regulation (EU) No 1175/2011 of 
the  European  Parliament  and  of  the  Council13  and  Council  Regulation  (EU)  No 
1177/2011.14  Regulation  (EU)  No  1173/2011  of  the  European  Parliament  and  of  the 
Council15 added a system of effective, preventive and gradual enforcement mechanisms 
in the form of the imposition of sanctions on Member States whose currency is the euro.  

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Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary 
positions and the surveillance and coordination of economic policies (OJ L 209, 2.8.1997, p. 1). 
Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of 
the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6). 
Regulation  (EU)  No  1175/2011  of  the  European  Parliament  and  of  the  Council  of  16  November  2011 
amending  Council  Regulation  (EC)  No  1466/97  on  the  strengthening  of  the  surveillance  of  budgetary 
positions and the surveillance and coordination of economic policies  (OJ L 306, 23.11.2011, p. 12).  
Council Regulation (EU) No 1177/2011 of 8 November 2011 amending Regulation (EC) No 1467/97 on 
speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 306, 23.11.2011, 
p. 33).  
Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on 
the effective enforcement of budgetary surveillance in the euro area (OJ L 306, 23.11.2011, p. 1). 

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(3) 

In order to encourage Member States' compliance with obligations under the TFEU in 
the  area  of  budgetary  policy,  detailed  rules  concerning  the  characteristics  of  the 
budgetary  frameworks  of  the  Member  States  were  laid  down  in  the  Council  Directive 
2011/85/EU.16  

(4)  Since there is greater interdependence among the Member States whose currency is the 
euro and hence susceptibility to spill-over effects from each other’s budgetary policies, 
in order to further enhance economic integration, convergence and coordination among 
them,  a  number  of  improvements  to  budgetary  coordination  and  surveillance  were 
introduced  through  Regulation  (EU)  No  472/2013  of  the  European  Parliament  and  of 
the Council17 and Regulation (EU) No 473/2013 of the European Parliament and of the 
Council.18 

(5)  With  the  aim  of  strengthening  the  foundations  which  ensure  budgetary  discipline 
throughout the economic cycle, on 2 March 2012 25 Member States signed and ratified 
the inter-governmental Treaty on Stability, Coordination and Governance (TSCG) in the 
Economic and Monetary Union. Title III of the TSCG, the "Fiscal Compact", is binding 
on the Member States whose currency is the euro and, on a voluntary basis, on Bulgaria, 
Denmark and Romania (hereinafter the 'Contracting Parties'), and sets an obligation to 
enshrine in the national legal order of those Contracting Parties a balanced-budget rule 
in  structural  terms  equipped  with  a  correction  mechanism  automatically  triggered  in 
case of significant deviation and monitored by independent institutions. The Contracting 
Parties  expressed  their  will  to  use  that  inter-governmental  instrument  as  a  temporary 
device. That will is reflected in Article 16 of the TSCG which stipulates that, within five 
years at most following its entry into force, the necessary steps are to be taken with the 
aim  of  incorporating  its  substance  into  the  Union  legal  framework.  Therefore, 
provisions that allow the substance of the TSCG to take effect should be introduced in 
the Union's legal framework 

(6) 

In  order  to  maintain  sound  and  sustainable  public  finances  and  to  avoid  excessive 
government  deficits  as  required  by  the  TFEU,  while  at  the  same  time  improving  the 
resilience of the euro area as a whole, there should be specific provisions in the national 
law  of  the  Member  States  whose  currency  is  the  euro  to  strengthen  their  fiscal 
responsibility  and  their  medium-term  budgetary  orientation  beyond  the  provisions  of 
Directive 2011/85/EU. 

(7)  Since  the  economic  and  financial  crisis  has  left  a  number  of  Member  States  with  a 
legacy  of  high  public  debt,  a  framework  of  numerical  fiscal  rules  specific  to  each 
Member  State  and  which  aim  at  strengthening  its  responsible  conduct  of  fiscal  policy 
while  effectively  promoting  compliance  with  the  budgetary  obligations  deriving  from 
the TFEU is instrumental in ensuring convergence of public debt to prudent levels. Such 
a framework should operate in particular by setting a medium-term objective in terms of 
structural balance that is binding on the national budgetary authorities and their annual 
decisions. Medium-term objectives for the budgetary position allow the different public-
debt-to-GDP ratios and sustainability risks of Member States to be taken into account, 

16 

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Council  Directive  2011/85/EU  of  8  November  2011  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L 306, 23.11.2011, p. 41). 
Regulation  (EU)  No  472/2013  of  the  European  Parliament  and  of  the  Council  of  21  May  2013  on  the 
strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or 
threatened with serious difficulties with respect to their financial stability (OJ L 140, 27.5.2013, p. 1). 
Regulation  (EU)  No  473/2013  of  the  European  Parliament  and  of  the  Council  of  21  May  2013  on 
common  provisions  for  monitoring  and  assessing  draft  budgetary  plans  and  ensuring  the  correction  of 
excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11). 

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(8) 

anchoring  debt  developments  towards  the  reference  value  set  out  in  Article  1  of 
Protocol No 12 on the excessive deficit procedure annexed to the Treaty on European 
Union and to the TFEU. 

In  order  to  achieve  and  maintain  the  medium-term  objective  in  structural  terms,  it  is 
necessary for Member States to set out a consistent adjustment path, based on variables 
under the control of the budgetary authorities. National fiscal planning underpinned by a 
government expenditure path adjusted for the impact of discretionary revenue measures 
favours  effectiveness, 
transparency  and  accountability  when  monitoring  fiscal 
developments. In order to tightly connect plans with the overall fiscal outcomes in the 
medium-term and to ensure an enhanced sense of national ownership of fiscal policy, a 
medium-term  growth  path  of  government  expenditure  net  of  discretionary  revenue 
measures  should  be  set  for  the  whole  term  of  the  legislature  as  established  by  the 
constitutional  legal  order  of  each  Member  State.  That  path  should  be  set  as  soon  as  a 
new government takes office and annual budgets should adhere to it so as to bring about 
resolute convergence towards the medium-term objective.   

(9)  Due  to  their  future  positive  effects,  the  implementation  of  major  structural  reforms 
fostering  long-run  sustainability  could  justify  changes  in  the  adjustment  path  towards 
the  medium-term  objective,  provided  that  they  have  a  verifiable  positive  budgetary 
impact  which  is  confirmed  by  the  assessment  conducted  according  to  the  procedural 
requirements  of  the  SGP.  In  order  to  facilitate  economic  stabilisation,  exceptional 
circumstances  –  in  the  form  of  severe  economic  downturns  for  the  euro  area  or  the 
Union as a whole or unusual events outside the control of the Member State concerned 
which have a major budgetary impact – should allow for a temporary deviation from the 
medium-term objective or the adjustment path towards it, where such a deviation does 
not endanger fiscal sustainability in the medium-term. 

(10)  If  they  are  not  adequately  addressed,  significant  deviations  from  the  medium-term 
objective or the adjustment path towards it hamper the credibility of the budgetary plans 
and  risk  derailing  government  debt  developments.  To  enhance  the  credibility  of  the 
Member  States'  commitment  to  the  medium-term  objective,  a  correction  mechanism 
should  be  automatically  activated  in  the  event  of  a  significant  observed  deviation.  A 
credible  correction  mechanism  should  set  out  the  measures  which  need  to  be 
implemented  to  correct  the  deviation  over  a  defined  period  of  time,  taking  account  of 
the  nature  and  size  of  the  deviation.  In  particular,  the  correction  mechanism  should 
compensate  for  deviations  from  the  medium-term  growth  path  of  government 
expenditure net of discretionary revenue measures. 

(11)  Independent bodies charged with monitoring public finances in the Member States are 
an  essential  building  block  of  effective  fiscal  frameworks.  In  order  to  foster  fiscal 
discipline  and  strengthen  the  credibility  of  fiscal  policy,  such  bodies  should  carry  out 
independent assessments of the framework of numerical fiscal rules, including notably 
the  medium-term  budgetary  orientation,  and  should  monitor  compliance  with  that 
framework and the activation and operation of the associated correction mechanisms.  

(12)  Strengthened  national  fiscal  responsibility  and  a  binding  multi-annual  orientation  of 
fiscal policy requires fiscal institutions to be independent and have their own resources 
for actively monitoring fiscal developments and providing recommendations throughout 
the medium-term bugdetary cycle, including in particular where a significant deviation 
from the medium-term objective or the adjustment path towards is observed. In order to 
boost  the  credibility  and  enforceability  of  the  medium-term  objective,  its  underlying 
government  expenditure  path  and  the  related  correction  mechanism  in  case  of 

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significant  deviations,  the  budgetary  authorities  of  the  Member  States  should  comply 
with the recommendations put forward in the assessments of the independent bodies or 
publicly  justify  the  decision  not  to  comply  with  them.  Anchoring  that  principle  in  the 
national legal order can play a crucial role in that respect.   

(13)  For greater efficacy of the shared goal of the national budgetary rules and mechanisms 
and  the  Union's  fiscal  framework,  namely  the  convergence  of  public  debt  to  prudent 
levels,  Member  States  should  give  effect  to  the  rules  provided  for  in  this  Directive 
through provisions of binding force and permanent character, of constitutional nature or 
otherwise  guaranteed  to  be  fully  respected  and  adhered  to  throughout  the  national 
budgetary processes.   

(14)  The European Council on 19 October 2012 concluded that the process towards deeper 
economic  and  monetary  union  should  build  on  the  Union  institutional  and  legal 
framework and be characterised by openness and transparency towards Member States 
whose currency is not the euro. National measures to strengthen fiscal responsibility in 
those  Member  States  would  facilitate  their  adoption  of  the  euro  and  therefore  the 
mechanisms established by this Directive should be open to all Member States wishing 
to participate. Therefore, provision should be made for this Directive to be applicable to 
Member States whose currency is not the euro where those Member States so decide.  

 (15)  It  should  be  noted  that  Article  7  of  the  TSCG  lays  down  that  the  Contracting  Parties 
whose  currency  is  the  euro  have  committed  to  supporting  the  proposals  or 
recommendations submitted by the Commission where it considers that a Member State 
whose currency is the euro is in breach of the deficit criterion in the framework of an 
excessive  deficit  procedure unless a qualified majority  of  them, calculated by analogy 
with  the  relevant  provisions  of  the  Treaties  on  which  the  Union  is  founded,  without 
taking  into account  the position  of  the  Contracting  Party  concerned,  is opposed  to  the 
decision proposed or recommended.  

(16)  While the incorporation of the substance of the TSCG into the Union legal order as it 
currently  stands  does  not  extend  to  the  alteration  of  arrangements  laid  down  by  the 
provisions of the TFEU for decision-making, this Directive should leave unaffected the 
commitments  established  between  the  Contracting  Parties  pursuant  to  Article  7  of  the 
TSCG.  

(17)  Article 13 of the TSCG lays down that budgetary policies and other issues covered by 
that Treaty will be discussed in the framework of inter-parliamentary meetings held by 
the European Parliament and the national Parliaments of the Contracting Parties under 
Title  II  of  Protocol  No  1  on  the  role  of  national  Parliaments  in  the  European  Union 
attached to the Treaties. This Directive should apply without prejudice to that practice, 
since such dialogue contributes to enhancing democratic accountability in the context of 
the Union's economic governance.  

(18)  This Directive should strengthen the effectiveness of the SGP by increasing the extent 
to which it is embedded in the legal orders of the Member States while at the same time 
diminishing the possible risks of duplications and conflicting actions inherent in the co-
existence  of  intergovernmental  arrangements  alongside  the  mechanisms  foreseen  by 
Union  law.  The  substantive  and  procedural  rules  set  out  in  the  SGP  should  not  be 
affected by this Directive.  

(19)  In  accordance  with  the  Joint  Political  Declaration  of  28  September  2011  of  Member 
States  and  the  Commission  on  explanatory  documents,19  Member  States  have 

19 

OJ C 369, 17.12.2011, p. 14. 

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undertaken  to  accompany,  in  justified  cases,  the  notification  of  their  transposition 
measures  with  one  or  more  documents  explaining  the  relationship  between  the 
components  of  a  directive  and  the  corresponding  parts  of  national  transposition 
instruments.  With  regard  to  this  Directive,  the  legislator  considers  the  transmission  of 
such documents to be justified.  

 (20)  Since the objective of the action to be taken, namely to strengthen fiscal responsibility 
by adopting a more binding medium-term budgetary orientation at national level, cannot 
be  sufficiently  achieved  by  the  Member  States  and  can  be  better  achieved  at  Union 
level, the Union may adopt measures, in accordance with the principle of subsidiarity as 
set out in Article 5 of the Treaty on European Union. In accordance with the principle of 
proportionality,  as  set  out  in  that  Article,  this  Directive  does  not  go  beyond  what  is 
necessary in order to achieve that objective, 

HAS ADOPTED THIS DIRECTIVE: 

Article 1 
Subject matter and scope 

1. 

2. 

This  Directive  lays  down  provisions  for  strengthening  fiscal  responsibility  and  the 
medium-term  budgetary  orientation  in  the  Member  States  to  ensure  compliance  with 
obligations relating to the avoidance of excessive government deficits. 

This  Directive  applies  to  the  Member  States  whose  currency  is  the  euro  and  other 
Member States in accordance with Article 4.   

Article 2 
Definitions 

For the purposes of this Directive, the definitions of 'government', 'deficit' and 'debt' set out in 
Article 2 of Protocol No 12 on the excessive deficit procedure annexed to the TEU and to the 
TFEU shall apply. 

In addition, the following definitions shall also apply:  

a) 

b) 

'exceptional circumstances' means an unusual event outside the control of the Member 
State concerned and which has a major impact on the financial position of the general 
government, or a severe economic downturn for the euro area or the Union as a whole; 

'independent bodies' means bodies that are structurally independent or bodies endowed 
with functional autonomy vis-à-vis the budgetary authorities of the Member State, and 
which are underpinned by national legal provisions ensuring a high degree of functional 
autonomy and accountability. 

(c) 

'structural balance' means the cyclically-adjusted balance of the general government, net 
of one-off and temporary measures. 

Article 3 
Fiscal responsibility and medium-term budgetary orientation 

1. 

Each Member State shall set up a framework of binding and permanent numerical fiscal 
rules  which  are  specific  to  it,  strengthen  its  responsible  conduct  of  fiscal  policy  and 
effectively promote compliance with its obligations deriving from the TFEU in the area 

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of budgetary policy over a multiannual horizon for the general government as a whole. 
That framework shall include in particular the following rules: 

(a) 

(b) 

a medium-term objective in terms of structural balance shall be set in order to 
ensure  that  the  ratio  of  government  debt  to  gross  domestic  product  at  market 
prices does not exceed the reference value set out in Article 1 of Protocol No 
12 on the excessive deficit procedure or approaches it at a satisfactory pace.  

fiscal  planning  shall  include  a  medium-term  growth  path  of  government 
expenditure  net  of  discretionary  revenue  measures  and  consistent  with  the 
medium-term objective or the time-frame for convergence towards it. That path 
shall be set as soon as a new government takes office in the Member State, for 
the term of the legislature as established by the constitutional legal order of that 
Member  State,  and  shall  be  respected  by  the  annual  budgets  throughout  that 
period. 

2. 

The framework referred to in paragraph 1 shall include the following specifications: 

(a) 

(b) 

annual  budgets  shall  ensure  compliance  with  the  medium-term  objective 
referred to  in point (a) of paragraph 1 or  convergence towards it, specifically 
by ensuring adherence to the government expenditure path referred to in point 
(b) of that paragraph. When defining the adjustment path towards the medium-
term objective and acting in line with the procedural requirements of the Union 
framework, Member States may take into account the implementation of major 
structural  reforms  which  have  direct  long-term  positive  budgetary  effects, 
including by increasing potential sustainable growth, and therefore a verifiable 
impact on the long-term sustainability of public finances.  

a  correction  mechanism  shall  be  automatically  activated  in  the  event  of  a 
significant  observed  deviation  from  the  medium-term  objective  or  the 
adjustment  path  towards  it.  That  mechanism  shall  include  the  obligation  to 
implement measures to correct the deviation over a defined period of time and 
taking  account  of  the  nature  and  size  of  the  deviation,  in  particular  by 
compensating for deviations from the government expenditure path referred to 
in point (b) of paragraph 1.  

3.  Member States shall ensure that a temporary deviation from the medium-term objective 
or the adjustment path towards it, with the corresponding adjustment of the government 
expenditure  path  referred  to  in  point  (b)  of  paragraph  1,  is  allowed  only  in  case  of 
exceptional  circumstances  and  provided  that  any  such  deviation  does  not  endanger 
fiscal  sustainability  in  the  medium-term.  A  temporary  deviation  resulting  from 
exceptional circumstances shall not be deemed significant for the purposes of point (b) 
of  paragraph  2  and  shall  not  have  the  effect  of  activating  the  correction  mechanism 
referred to in point (b) of that paragraph. 

4.  Member States shall designate independent bodies for monitoring compliance with the 
provisions  in  paragraphs  1  and  2.  The  independent  bodies  shall  provide  public 
assessments to ascertain:  

(a) 

adequacy of the medium-term objective under point (a) of paragraph 1 and of 
the government expenditure path referred to in point (b) of paragraph 1. That 
assessment  shall  take  into  account  in  particular  the  plausibility  of  the 
underlying macroeconomic forecast, the degree of specification of the planned 
government  expenditure  and  revenue  and  the  potential  direct  long-term 
positive budgetary effects of major structural reforms; 

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(b) 

compliance  with  the  medium-term  objective  and  the  government  expenditure 
path,  including  the  existence  of  a  serious  risk  of  occurrence  of  a  significant 
deviation from the medium-term objective or the adjustment path towards it; 

(c)  occurrence or cessation of any exceptional circumstances as referred to under 

paragraph 3. 

5.  Member  States  shall  ensure  that,  in  the  event  of  a  significant  observed  deviation  as 
referred  to  in  point  (b)  of  paragraph  2,  the  independent  bodies  shall  call  upon  the 
budgetary  authorities  to  activate  the  correction  mechanism.  After  the  correction 
mechanism  is  activated,  the  independent  bodies  shall  provide  public  assessments  to 
ascertain: 

(a) 

(b) 

(c) 

the  planned  measures  with 

 consistency  of 
the  established  correction 
mechanism,  having  regard  in  particular  to  whether  deviations  from  the 
government  expenditure  path  set  in  accordance  with  point  (b)  of  paragraph  1 
are adequately compensated for; 

 the progress of the correction over the defined time-frame; 

 occurrence or  cessation  of  any  exceptional  circumstances which  may  allow  a 
temporary deviation from the correction path.   

6.  Member  States  shall  ensure  that  the  budgetary  authorities  of  the  Member  State 
concerned  comply  with  the  recommendations  of  the  independent  bodies  made  in  the 
assessments  required  under  paragraphs  4  and  5  or  publicly  justify  the  decision  not  to 
comply with those recommendations. 

7.  Member States shall ensure that the independent bodies referred to in paragraph 4: 

(a) 

are established by a statutory regime grounded in national laws, regulations or 
binding administrative provisions; 

(b)  do  not  take  instructions  from  the  budgetary  authorities  of  the  Member  State 

concerned or from any other public or private body; 

(c)  have the capacity to communicate publicly in a timely manner; 

(d) 

are made up of members who are nominated and appointed on the basis of their 
experience and competence in public finances, macroeconomics and budgetary 
management, and by means of transparent procedures;  

(e)  have  adequate  and  stable  own  resources  to  carry  out  their  mandate  in  an 

effective manner;  

(f) 

have extensive and timely access to information to fulfil their given tasks. 

Article 4 
Participation by Member States whose currency is not the euro 

1.  Any  Member  State  whose  currency  is  not  the  euro  shall  be  bound  by  this  Directive 
provided that it notifies the Commission of its decision to that effect. That notification 
shall include the date as of which the Member State concerned requests to be bound by 
this Directive.  

2. 

The notification referred to in paragraph 1 shall be published by the Commission in the 
Official  Journal  of  the  European  Union.  It  shall  take  effect  as  from  the  date  notified 

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thereof  by  the  Member  State  concerned  or  the  date  of  adopting  the  euro  as  the  single 
currency of that Member State, whichever is the earlier. 

Article 5 
Reports 

By 30 June 2024, and every five years thereafter, the Commission shall present a report to the 
European Parliament and to the Council on the implementation of this Directive, which shall 
be prepared on the basis of relevant information from the Member States. 

Article 6 
Final provisions 

1.  Member States shall bring into force the laws, regulations and administrative provisions 
necessary  to  comply  with  this  Directive  by  30  June  2019.  They  shall  immediately 
inform the Commission thereof. 

2.  When  Member  States  adopt  those  measures,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  reference  on  the  occasion  of  their  official 
publication.  The  methods  of  making  such  reference  shall  be  laid  down  by  Member 
States. 

3.  Member States shall communicate to the Commission the text of the main measures of 

national law which they adopt in the field covered by this Directive. 

Article 7 
Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

This Directive is addressed to the Member States in accordance with the Treaties. 

Article 8 
Addressees 

Done at Brussels, 

For the Council 
The President 

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