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
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
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
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
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
EMU: Economic and Monetary
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
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
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
SGP: Stability and Growth
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