The preventive arm of the Stability & Growth Pact (SGP) includes flexibility measures to modulate Member States' fiscal adjustments with the economic cycle.
Regulation (EC) 1466/97 further provides that: “In the case of an unusual event outside the control of the Member State concerned which has a major impact on the financial position of the general government or in periods of severe economic downturn for the euro area or the Union as a whole, Member States may be allowed temporarily to depart from the adjustment path towards the medium-term budgetary objective referred to in the third subparagraph, provided that this does not endanger fiscal sustainability in the medium term.”
A temporary deviation from the adjustment path to the medium term objective (MTO) is linked to the following principles:
- the additional spending should be directly linked to the unusual event;
- he deviation is only allowed on a temporary basis;
- the deviation should only reflect the additional cost required to address the unusual event;
- the burden of proof is with the Member State, which must substantiate the request for a deviation with detailed information.
The clause is granted on the basis of individual case-by-case assessment. To date it has been granted to six Member States in light of refugee-related costs and to three Member States based upon security-related expenditures.
The national fiscal rules, set out in the Fiscal Responsibility Act 2012, also allows for a deviation from the adjustment path to the MTO provided it is "only as a result of exceptional circumstances" and "does not endanger fiscal sustainability in the medium-term".
Legislation to establish the Rainy Day Fund is being drafted with regard to the fiscal rules.
The fund will not be used to support ordinary expenditure. It is envisaged that drawdowns from the fund be linked to a force majeure event such as:
- A natural disaster
- Public emergency
- Other unforeseen one-off occurrences
Furthermore withdrawals from the fund will be subject to Dáil oversight.
In such unusual events a temporary increase in expenditure as a result of Rainy Day Fund drawdowns would be permissible under the fiscal rules.
