In autumn last year. Germany tabled proposals for a "Stability Pact" between member states participating in European Monetary Union. The proposals were aimed at ensuring that strict budgetary discipline is maintained after the formation of European Monetary Union. The rationale behind the key proposals was that in favourable economic periods, member states should aim for budget deficits considerably lower than the 3 per cent of GDP reference value in the Treaty on European Union, in order to ensure that deficits do not exceed 3 per cent even in unfavourable economic circumstances. The Stability Pact, as proposed, by Germany, included proposals for financial penalties to be applied to a member state which breached the 3 per cent figure in the planning or implementation of its budget.
The German proposals for the most part give substance to existing general provisions in the Treaty aimed at ensuring fiscal discipline and close co-ordination of economic policies by member states. Work is ongoing to determine the extent to which the substance of the German proposals can be accommodated within the Treaty. Article 104c of the Treaty provides for an annual examination of each member state to see if it meets the deficit rules laid down in the Treaty and for penalties where a member state in breach of them persists in failing to take corrective measures. These penalties include inviting the European Investment Bank to consider its lending policy to the member state concerned, requiring the member state to make a non-interest-bearing deposit with the Community until the excessive deficit situation is remedied and imposing fines of an appropriate size. Article 103 requires member states to pursue economic policies as a matter of common concern, requires the Council to set out broad economic guidelines for the economic policies of the member states and the Community, and provides for multilateral surveillance by the Council of economic developments in member states in order to ensure sustained convergence of economic performances.
The Madrid European Council in December examined the Stability Pact proposals and noted the European Commission's intention to present, in 1996, its conclusions on ways to secure budgetary discipline and co-ordination in European Monetary Union in accordance with the procedures and principles of the Treaty.