Select Committee on European Union Thirteenth Report


Appendix 3 Glossary

Note: Terms defined elsewhere in the Glossary are shown in italics.

Automatic stabilisers: Various features of the tax and spending regime which react automatically to the economic cycle and reduce its fluctuations. For example, a downturn in government revenue and an increase in government expenditure automatically arise in a recession, thus cushioning the reduction in aggregate demand. As a result, the budget balance tends to improve in years of high growth and to deteriorate during economic slowdowns.

Bail out: See 'no-bail out' clause.

Broad economic policy guidelines (BEPGs): Annual guidelines for the economic and budgetary policies of the Member States. Established under Article 99(2) of the EC Treaty, in the context of which Member States are required to conduct their economic policies. Since 1993, they have been adopted by Ecofin on the basis of a Commission recommendation.

Budget balance: The balance between total public expenditure and revenue in a specific year. A positive balance would indicate a surplus; a negative balance would indicate a deficit. In a balanced budget, a government's revenue is equal to its spending, so it has no need to borrow or lend. See also cyclically-adjusted budget balance.

Close-to-balance rule: A rule contained in the Stability and Growth Pact, according to which Member States should, over the medium term, achieve an overall budget balance that is close to balance or in surplus.

Convergence programmes: National medium-term budgetary and monetary strategies submitted annually by each of those Member States outside the Eurozone (i.e., those countries that have not yet adopted the euro). They must conform to the provisions of the Stability and Growth Pact and show the Member States' progress towards achieving sustained convergence. See also stability programmes. In contrast to stability programmes, the convergence programmes also deal with monetary policy.

Cyclical component of budget balance: That part of the change in the budget balance that follows automatically from the cyclical conditions of the economy, due to the reaction of public revenue and expenditure to changes in the output gap. See automatic stabilisers, and cyclically-adjusted budget budget balance.

Cyclically-adjusted budget balance: A government's actual budget balance adjusted for its cyclical component. The structural balance gives a measure of the underlying trend in the budget balance, when taking into account the automatic effect on the budget of the economic cycle. It is intended to give a better forecast of the future path of the deficit. It is also referred to as the structural budget balance.

ECB: European Central Bank

Ecofin: The Council of Ministers of the European Union responsible for Economic and Financial Affairs; it is made up of the economics and finance ministers of the Member States.

Economic Cycle: the period of time between the point where the output gap is zero and when the output gap returns to zero.

EFC: Economic and Financial Committee. In accordance with Article 114(2) of the EC Treaty, an Economic and Financial Committee was set up at the start of the Stage Three of EMU. For further information on the EFC, see the Council Decision of 21 December 1998 on the detailed provisions concerning the composition of the Economic and Financial Committee (98/743/EC), together with the Council Decision of 31 December 1998 adopting the Statutes of the Economic and Financial Committee (1999/8/EC).

EMU: Economic and Monetary Union

Eurogroup: The group of government finance ministers of the twelve Member States in the eurozone; they meet every time there is a meeting of Ecofin.

European Council: the European Council consists of the heads of state or government of the European Union.

Eurozone: Term used to refer collectively to those Member States which are participating in Stage Three of EMU, that is, who have adopted the euro.

Excessive deficit procedure (EDP): A procedure according to which the Commission and the Council (in line with Article 104 of the EC Treaty) monitor the development of national budget balances and public debt in order to assess the risk of an excessive deficit in each Member State. Its application was clarified in the Stability and Growth Pact (see Council Regulation (EC) No 1467/97). See also stability programmes.

GDP: Gross Domestic Product

Medium-term target: An alternative name for the close-to-balance rule.

'No-bail out' clause: Agreement (expressed in Article 103 of the EC Treaty) precluding collective liability for debt incurred by individual Member States.

Pact: Stability and Growth Pact.

Pro-cyclical fiscal policy: A fiscal stance which amplifies the economic cycle by increasing the government deficit during an economic upturn, or by decreasing it in a downturn. It can be contrasted with (discretionary) counter-cyclical policy which has the opposite effects. A neutral fiscal policy keeps the cyclically-adjusted budget balance unchanged over the economic cycle but lets the automatic stabilisers work.

SGP: Stability and Growth Pact

Stability programmes: National medium-term budgetary strategies submitted annually by Member States that have already adopted the euro (i.e., who are part of the eur zone). They must conform to the provisions of the Stability and Growth Pact, and set out plans for bringing the cyclically-adjusted budget balance towards the medium-term target of budget positions that are 'close to balance or in surplus'. As well as this adjustment path towards meeting the medium-term target of the SGP, Member States also submit the expected path of the general government debt ratio. Council Regulation (EC) No 1466/97 defines the contents of these programmes and sets out rules for their submission, examination and monitoring. The Member States submit their programmes to the Commission at the end of each calendar year. The Commission then assesses them, and, on the basis of the Commission's recommendation, the Council delivers an opinion. See also convergence programmes.

Structural budget balance: See cyclically-adjusted budget balance.

TUC: Trades Union Congress.

UNICE: Union of Industrial and Employers' Confederation of Europe


 
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