A key feature of the fiscal framework in Economic and Monetary Union (EMU) is that fiscal policies have remained decentralised, but are subject to rules and co-ordination. This commits member countries to fiscal discipline while allowing them to respond, within certain bounds, flexibly and effectively to the cycle. The Treaty is the backbone of this set-up. Its provisions are detailed in the Stability and Growth Pact (SGP) which is predicated on the basis that governments achieve and maintain budgetary positions close to balance or in surplus over the medium term. The observance of this rule allows the automatic stabilisers to play freely while respecting the 3 per cent of gross domestic product (GDP) deficit ceiling stipulated in the Treaty. The annual updates of the stability programmes submitted by the governments to the European Commission take stock as to how far ...