##iculation of eu fiscal rules is the fiscal compact ( or treaty on stability, governance and co - ordination, tsgc ), which requires countries to ensure convergence with their respective mtos. it introduces a more explicit budget rule, whereby all states must strive for budgetary balance and achieve a structural deficit of no more than – 0. 5 % of gdp. 13 in addition, member states are henceforth required to reduce the excess of their debt over 60 % of gdp by an average of 1 / 20th per annum. importantly, the fiscal compact requires that both budget rules must be implemented in national law, preferably in the constitution, that compliance is monitored by independent institutions and that an automatic correction mechanism is put in place to correct divergences from these rules. it is interesting to note in passing that many of these developments in the fiscal sphere – the introduction of numerical objectives for deficits and debt, written down in law, and with some involvement of independent monitors – that limit governments ’ ability to run large deficits are similar to changes introduced to monetary policy frameworks in recent years. thus, by now it is common for the legal acts that govern central banks to indicate that price stability is the overriding objective for monetary policy and to define it in numerical terms. moreover, through the adoption of high levels of transparency, central banks have made it easier for outside observers to monitor their conduct of policy. 4. 2 regulations concerning the ecb the treaty on the functioning of the european union contains two articles intended to promote monetary stability. this is achieved by removing any risk of pressure from national governments to force central banks to finance fiscal imbalances. specifically, article 123 prohibits “ overdraft facilities or any other type of credit facility with the european central bank or with the central banks of the member states … in favour of … central governments, regional, local or other public authorities ” and “ the purchase directly from them by the this ceiling excludes one - off measures and cyclical effects. bis central bankers ’ speeches european central bank or national central banks of debt instruments. ” furthermore, article 124 prohibits any measure, not based on prudential considerations, that grants central governments, regional, local or other public authorities privileged access to financial institutions. however, these articles do not prohibit the ecb from operating in financial markets by buying or selling marketable instruments, including government debt. 14 that is of course natural. in pursuing their statutory objectives central banks operate in a range of financial markets, particularly

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