TREATY ON STABILITY, COORDINATION AND GOVERNANCE

IN THE ECONOMIC AND MONETARY UNION BETWEEN

THE KINGDOM OF BELGIUM, THE REPUBLIC OF BULGARIA,

THE KINGDOM OF DENMARK, THE FEDERAL REPUBLIC OF GERMANY,

THE REPUBLIC OF ESTONIA, IRELAND, THE HELLENIC REPUBLIC,

THE KINGDOM OF SPAIN, THE FRENCH REPUBLIC,

THE ITALIAN REPUBLIC, THE REPUBLIC OF CYPRUS, THE REPUBLIC OF LATVIA,

THE REPUBLIC OF LITHUANIA, THE GRAND DUCHY OF LUXEMBOURG, HUNGARY,

MALTA, THE KINGDOM OF THE NETHERLANDS, THE REPUBLIC OF AUSTRIA,

THE REPUBLIC OF POLAND, THE PORTUGUESE REPUBLIC, ROMANIA,

THE REPUBLIC OF SLOVENIA, THE SLOVAK REPUBLIC,

THE REPUBLIC OF FINLAND AND THE KINGDOM OF SWEDEN

THE KINGDOM OF BELGIUM, THE REPUBLIC OF BULGARIA, THE KINGDOM OF

DENMARK, THE FEDERAL REPUBLIC OF GERMANY, THE REPUBLIC OF ESTONIA,

IRELAND, THE HELLENIC REPUBLIC, THE KINGDOM OF SPAIN, THE FRENCH

REPUBLIC, THE ITALIAN REPUBLIC, THE REPUBLIC OF CYPRUS, THE REPUBLIC OF

LATVIA, THE REPUBLIC OF LITHUANIA, THE GRAND DUCHY OF LUXEMBOURG,

HUNGARY, MALTA, THE KINGDOM OF THE NETHERLANDS, THE REPUBLIC OF

AUSTRIA, THE REPUBLIC OF POLAND, THE PORTUGUESE REPUBLIC, ROMANIA, THE REPUBLIC OF SLOVENIA, THE SLOVAK REPUBLIC, THE REPUBLIC OF FINLAND AND

THE KINGDOM OF SWEDEN,

hereinafter referred to as "the Contracting Parties";

CONSCIOUS of their obligation, as Member States of the European Union, to regard their

economic policies as a matter of common concern;

DESIRING to promote conditions for stronger economic growth in the European Union and, to that

end, to develop ever-closer coordination of economic policies within the euro area;

BEARING IN MIND that the need for governments to maintain sound and sustainable public

finances and to prevent a general government deficit becoming excessive is of essential importance

to safeguard the stability of the euro area as a whole, and accordingly, requires the introduction of

specific rules, including a "balanced budget rule" and an automatic mechanism to take

corrective action;

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CONSCIOUS of the need to ensure that their general government deficit does not exceed 3 % of

their gross domestic product at market prices and that their general government debt does not

exceed, or is sufficiently declining towards, 60 % of their gross domestic product at market prices;

RECALLING that the Contracting Parties, as Member States of the European Union, are to refrain

from any measure which could jeopardise the attainment of the Union's objectives in the framework

of the economic union, particularly the practice of accumulating debt outside the general

government accounts;

BEARING IN MIND that the Heads of State or Government of the euro area Member States agreed

on 9 December 2011 on a reinforced architecture for economic and monetary union, building upon

the Treaties on which the European Union is founded and facilitating the implementation of

measures taken on the basis of Articles 121, 126 and 136 of the Treaty on the Functioning of the

European Union;

BEARING IN MIND that the objective of the Heads of State or Government of the euro area

Member States and of other Member States of the European Union is to incorporate the provisions

of this Treaty as soon as possible into the Treaties on which the European Union is founded;

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WELCOMING the legislative proposals made by the European Commission for the euro area,

within the framework of the Treaties on which the European Union is founded,

on 23 November 2011, on the strengthening of economic and budgetary surveillance of

Member States experiencing or threatened with serious difficulties with respect to their financial

stability, and on common provisions for monitoring and assessing draft budgetary plans and

ensuring the correction of excessive deficit of the Member States, and TAKING NOTE of the

European Commission's intention to present further legislative proposals for the euro area

concerning, in particular, ex ante reporting of debt issuance plans, economic partnership

programmes detailing structural reforms for Member States under an excessive deficit procedure as

well as the coordination of major economic policy reform plans of Member States;

EXPRESSING their readiness to support proposals which the European Commission might present

to further strengthen the Stability and Growth Pact by introducing, for Member States whose

currency is the euro, a new range for medium-term objectives in line with the limits established in

this Treaty;

TAKING NOTE that, when reviewing and monitoring the budgetary commitments under this

Treaty, the European Commission will act within the framework of its powers, as provided by the Treaty on the Functioning of the European Union, in particular Articles 121, 126 and 136 thereof;

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NOTING in particular that, in respect of the application of the "balanced budget rule" set out in

Article 3 of this Treaty, that monitoring will be carried out through the setting up, for each

Contracting Party, of country-specific medium-term objectives and of calendars of convergence,

as appropriate;

NOTING that the medium-term objectives should be updated regularly on the basis of a commonly

agreed method, the main parameters of which are also to be reviewed regularly, reflecting

appropriately the risks of explicit and implicit liabilities for public finance, as embodied in the aims

of the Stability and Growth Pact;

NOTING that sufficient progress towards the medium-term objectives should be evaluated on the

basis of an overall assessment with the structural balance as a reference, including an analysis of

expenditure net of discretionary revenue measures, in line with the provisions specified under European Union law, in particular Council Regulation (EC) No 1466/97 of 7 July 1997 on the

strengthening of the surveillance of budgetary positions and the surveillance and coordination of

economic policies, as amended by Regulation (EU) No 1175/2011 of the European Parliament and

of the Council of 16 November 2011 ("the revised Stability and Growth Pact");

NOTING that the correction mechanism to be introduced by the Contracting Parties should aim at

correcting deviations from the medium-term objective or the adjustment path, including their

cumulated impact on government debt dynamics;

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NOTING that compliance with the Contracting Parties' obligation to transpose the "balanced budget

rule" into their national legal systems, through binding, permanent and preferably constitutional provisions, should be subject to the jurisdiction of the Court of Justice of the European Union, in

accordance with Article 273 of the Treaty on the Functioning of the European Union;

RECALLING that Article 260 of the Treaty on the Functioning of the European Union empowers

the Court of Justice of the European Union to impose a lump sum or penalty payment on a

Member State of the European Union which has failed to comply with one of its judgments and

RECALLING that the European Commission has established criteria for determining the lump sum

or penalty payment to be imposed in the framework of that Article;

RECALLING the need to facilitate the adoption of measures under the excessive deficit procedure

of the European Union in respect of Member States whose currency is the euro and whose planned or actual ratio of general government deficit to gross domestic product exceeds 3 %, whilst strongly

reinforcing the objective of that procedure, namely to encourage and, if necessary, compel a

Member State to reduce a deficit which might be identified;

RECALLING the obligation for those Contracting Parties whose general government debt exceeds

the 60 % reference value to reduce it at an average rate of one twentieth per year as a benchmark;

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BEARING IN MIND the need to respect, in the implementation of this Treaty, the specific role of

the social partners, as it is recognised in the laws or national systems of each of the

Contracting Parties;

STRESSING that no provision of this Treaty is to be interpreted as altering in any way the

economic policy conditions under which financial assistance has been granted to a Contracting

Party in a stabilisation programme involving the European Union, its Member States or the

International Monetary Fund;

NOTING that the proper functioning of the economic and monetary union requires the Contracting

Parties to work jointly towards an economic policy where, whilst building upon the mechanisms of economic policy coordination, as defined in the Treaties on which the European Union is founded,

they take the necessary actions and measures in all the areas which are essential to the proper

functioning of the euro area;

NOTING, in particular, the wish of the Contracting Parties to make a more active use of enhanced

cooperation, as provided for in Article 20 of the Treaty on European Union and Articles 326 to 334 of the Treaty on the Functioning of the European Union, without undermining the internal market,

and their wish to have full recourse to measures specific to the Member States whose currency is the euro pursuant to Article 136 of the Treaty on the Functioning of the European Union, and to a

procedure for the ex ante discussion and coordination among the Contracting Parties whose currency is the euro of all major economic policy reforms planned by them, with a view to

benchmarking best practices;

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RECALLING the agreement of the Heads of State or Government of the euro area Member States,

of 26 October 2011, to improve the governance of the euro area, including the holding of at least

two Euro Summit meetings per year, to be convened, unless justified by exceptional circumstances,

immediately after meetings of the European Council or meetings with the participation of all

Contracting Parties having ratified this Treaty;

RECALLING also the endorsement by the Heads of State or Government of the euro area Member

States and of other Member States of the European Union, on 25 March 2011, of the Euro Plus Pact, which identifies the issues that are essential to fostering competitiveness in the euro area;

STRESSING the importance of the Treaty establishing the European Stability Mechanism as an

element of the global strategy to strengthen the economic and monetary union and POINTING OUT

that the granting of financial assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned and, as soon as the transposition period referred to in Article 3(2)

of this Treaty has expired, on compliance with the requirements of that Article;

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NOTING that the Kingdom of Belgium, the Federal Republic of Germany, the Republic of Estonia,

Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, the Grand Duchy of Luxembourg, Malta, the Kingdom of the Netherlands, the

Republic of Austria, the Portuguese Republic, the Republic of Slovenia, the Slovak Republic and the Republic of Finland are Contracting Parties whose currency is the euro and that, as such, they

will be bound by this Treaty from the first day of the month following the deposit of their

instrument of ratification if the Treaty is in force at that date;

NOTING ALSO that the Republic of Bulgaria, the Kingdom of Denmark, the Republic of Latvia,

the Republic of Lithuania, Hungary, the Republic of Poland, Romania and the Kingdom of Sweden

are Contracting Parties which, as Member States of the European Union, have, at the date of

signature of this Treaty, a derogation or an exemption from participation in the single currency and may be bound, as long as such derogation or exemption is not abrogated, only by those provisions

of Titles III and IV of this Treaty by which they declare, on depositing their instrument of

ratification or at a later date, that they intend to be bound;

HAVE AGREED UPON THE FOLLOWING PROVISIONS:

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TITLE I

PURPOSE AND SCOPE

ARTICLE 1

1. By this Treaty, the Contracting Parties agree, as Member States of the European Union, to

strengthen the economic pillar of the economic and monetary union by adopting a set of rules

intended to foster budgetary discipline through a fiscal compact, to strengthen the coordination of

their economic policies and to improve the governance of the euro area, thereby supporting the

achievement of the European Union's objectives for sustainable growth, employment, competitiveness and social cohesion.

2. This Treaty shall apply in full to the Contracting Parties whose currency is the euro. It shall

also apply to the other Contracting Parties to the extent and under the conditions set out in Article 14.

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TITLE II

CONSISTENCY AND RELATIONSHIP WITH

THE LAW OF THE UNION

ARTICLE 2

1. This Treaty shall be applied and interpreted by the Contracting Parties in conformity with the

Treaties on which the European Union is founded, in particular Article 4(3) of the Treaty on

European Union, and with European Union law, including procedural law whenever the adoption of secondary legislation is required.

2. This Treaty shall apply insofar as it is compatible with the Treaties on which the

European Union is founded and with European Union law. It shall not encroach upon the competence of the Union to act in the area of the economic union.

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TITLE III

FISCAL COMPACT

ARTICLE 3

1. The Contracting Parties shall apply the rules set out in this paragraph in addition and without

prejudice to their obligations under European Union law:

(a)

(b)

the budgetary position of the general government of a Contracting Party shall be balanced or

in surplus;

the rule under point (a) shall be deemed to be respected if the annual structural balance of

the general government is at its country-specific medium-term objective, as defined in the revised Stability and Growth Pact, with a lower limit of a structural deficit of 0,5 % of the

gross domestic product at market prices. The Contracting Parties shall ensure rapid

convergence towards their respective medium-term objective. The time-frame for such convergence will be proposed by the European Commission taking into consideration

country-specific sustainability risks. Progress towards, and respect of, the medium-term

objective shall be evaluated on the basis of an overall assessment with the structural balance as a reference, including an analysis of expenditure net of discretionary revenue measures, in

line with the revised Stability and Growth Pact;

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(c)

(d)

(e)

2.

the Contracting Parties may temporarily deviate from their respective medium-term

objective or the adjustment path towards it only in exceptional circumstances, as defined in

point (b) of paragraph 3;

where the ratio of the general government debt to gross domestic product at market prices is

significantly below 60 % and where risks in terms of long-term sustainability of public

finances are low, the lower limit of the medium-term objective specified under point (b) can

reach a structural deficit of at most 1,0 % of the gross domestic product at market prices;

in the event of significant observed deviations from the medium-term objective or the

adjustment path towards it, a correction mechanism shall be triggered automatically. The mechanism shall include the obligation of the Contracting Party concerned to implement measures to correct the deviations over a defined period of time.

The rules set out in paragraph 1 shall take effect in the national law of the Contracting Parties

at the latest one year after the entry into force of this Treaty through provisions of binding force and

permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and

adhered to throughout the national budgetary processes. The Contracting Parties shall put in place at

national level the correction mechanism referred to in paragraph 1(e) on the basis of common

principles to be proposed by the European Commission, concerning in particular the nature, size

and time-frame of the corrective action to be undertaken, also in the case of exceptional

circumstances, and the role and independence of the institutions responsible at national level for

monitoring compliance with the rules set out in paragraph 1. Such correction mechanism shall fully respect the prerogatives of national Parliaments.

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3. For the purposes of this Article, the definitions set out in Article 2 of the Protocol (No 12) on

the excessive deficit procedure, annexed to the European Union Treaties, shall apply.

The following definitions shall also apply for the purposes of this Article:

(a)

(b)

"annual structural balance of the general government" refers to the annual

cyclically-adjusted balance net of one-off and temporary measures;

"exceptional circumstances" refers to the case of an unusual event outside the control of the

Contracting Party concerned which has a major impact on the financial position of the

general government or to periods of severe economic downturn as set out in the revised

Stability and Growth Pact, provided that the temporary deviation of the Contracting Party concerned does not endanger fiscal sustainability in the medium-term.

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ARTICLE 4

When the ratio of a Contracting Party's general government debt to gross domestic product exceeds

the 60 % reference value referred to in Article 1 of the Protocol (No 12) on the excessive deficit procedure, annexed to the European Union Treaties, that Contracting Party shall reduce it at an

average rate of one twentieth per year as a benchmark, as provided for in Article 2 of

Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the

implementation of the excessive deficit procedure, as amended by Council Regulation (EU)

No 1177/2011 of 8 November 2011. The existence of an excessive deficit due to the breach of the debt criterion will be decided in accordance with the procedure set out in Article 126 of the Treaty on the Functioning of the European Union.

ARTICLE 5

1. A Contracting Party that is subject to an excessive deficit procedure under the Treaties on

which the European Union is founded shall put in place a budgetary and economic partnership

programme including a detailed description of the structural reforms which must be put in place and

implemented to ensure an effective and durable correction of its excessive deficit. The content and

format of such programmes shall be defined in European Union law. Their submission to the Council of the European Union and to the European Commission for endorsement and their

monitoring will take place within the context of the existing surveillance procedures under the Stability and Growth Pact.

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2. The implementation of the budgetary and economic partnership programme, and the yearly

budgetary plans consistent with it, will be monitored by the Council of the European Union and by the European Commission .

ARTICLE 6

With a view to better coordinating the planning of their national debt issuance, the Contracting

Parties shall report ex-ante on their public debt issuance plans to the Council of the European Union and to the European Commission .

ARTICLE 7

While fully respecting the procedural requirements of the Treaties on which the European Union is

founded, the Contracting Parties whose currency is the euro commit to supporting the proposals or recommendations submitted by the European Commission where it considers that a Member State

of the European Union whose currency is the euro is in breach of the deficit criterion in the

framework of an excessive deficit procedure. This obligation shall not apply where it is established

among the Contracting Parties whose currency is the euro that a qualified majority of them,

calculated by analogy with the relevant provisions of the Treaties on which the European Union is founded, without taking into account the position of the Contracting Party concerned, is opposed to the decision proposed or recommended.

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ARTICLE 8

1. The European Commission is invited to present in due time to the Contracting Parties a report

on the provisions adopted by each of them in compliance with Article 3(2). If the

European Commission, after having given the Contracting Party concerned the opportunity to

submit its observations, concludes in its report that such Contracting Party has failed to comply

with Article 3(2), the matter will be brought to the Court of Justice of the European Union by one or more Contracting Parties. Where a Contracting Party considers, independently of the Commission's

report, that another Contracting Party has failed to comply with Article 3(2), it may also bring the

matter to the Court of Justice. In both cases, the judgment of the Court of Justice shall be binding on the parties to the proceedings, which shall take the necessary measures to comply with the judgment within a period to be decided by the Court of Justice.

2. Where, on the basis of its own assessment or that of the European Commission, a Contracting

Party considers that another Contracting Party has not taken the necessary measures to comply with

the judgment of the Court of Justice referred to in paragraph 1, it may bring the case before the

Court of Justice and request the imposition of financial sanctions following criteria established by the European Commission in the framework of Article 260 of the Treaty on the Functioning of the

European Union. If the Court of Justice finds that the Contracting Party concerned has not complied

with its judgment, it may impose on it a lump sum or a penalty payment appropriate in the

circumstances and that shall not exceed 0,1 % of its gross domestic product. The amounts imposed

on a Contracting Party whose currency is the euro shall be payable to the European Stability

Mechanism. In other cases, payments shall be made to the general budget of the European Union.

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3. This Article constitutes a special agreement between the Contracting Parties within the

meaning of Article 273 of the Treaty on the Functioning of the European Union.

TITLE IV

ECONOMIC POLICY COORDINATION AND CONVERGENCE

ARTICLE 9

Building upon economic policy coordination, as defined in the Treaty on the Functioning of the

European Union, the Contracting Parties undertake to work jointly towards an economic policy that

fosters the proper functioning of the economic and monetary union and economic growth through

enhanced convergence and competitiveness. To that end, the Contracting Parties shall take the

necessary actions and measures in all the areas which are essential to the proper functioning of the

euro area in pursuit of the objectives of fostering competitiveness, promoting employment,

contributing further to the sustainability of public finances and reinforcing financial stability.

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ARTICLE 10

In accordance with the requirements of the Treaties on which the European Union is founded, the

Contracting Parties stand ready to make active use, whenever appropriate and necessary, of

measures specific to those Member States whose currency is the euro, as provided for in Article 136

of the Treaty on the Functioning of the European Union, and of enhanced cooperation, as provided

for in Article 20 of the Treaty on European Union and in Articles 326 to 334 of the Treaty on the Functioning of the European Union on matters that are essential for the proper functioning of the euro area, without undermining the internal market.

ARTICLE 11

With a view to benchmarking best practices and working towards a more closely coordinated

economic policy, the Contracting Parties ensure that all major economic policy reforms that they

plan to undertake will be discussed ex-ante and, where appropriate, coordinated among themselves.

Such coordination shall involve the institutions of the European Union as required by European Union law.

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TITLE V

GOVERNANCE OF THE EURO AREA

ARTICLE 12

1. The Heads of State or Government of the Contracting Parties whose currency is the euro shall

meet informally in Euro Summit meetings, together with the President of the

European Commission. The President of the European Central Bank shall be invited to take part in such meetings.

The President of the Euro Summit shall be appointed by the Heads of State or Government of the

Contracting Parties whose currency is the euro by simple majority at the same time as the European Council elects its President and for the same term of office.

2. Euro Summit meetings shall take place when necessary, and at least twice a year, to discuss

questions relating to the specific responsibilities which the Contracting Parties whose currency is

the euro share with regard to the single currency, other issues concerning the governance of the euro

area and the rules that apply to it, and strategic orientations for the conduct of economic policies to increase convergence in the euro area.

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3. The Heads of State or Government of the Contracting Parties other than those whose currency

is the euro, which have ratified this Treaty, shall participate in discussions of Euro Summit

meetings concerning competitiveness for the Contracting Parties, the modification of the global

architecture of the euro area and the fundamental rules that will apply to it in the future, as well as,

when appropriate and at least once a year, in discussions on specific issues of implementation of this Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.

4. The President of the Euro Summit shall ensure the preparation and continuity of Euro Summit

meetings, in close cooperation with the President of the European Commission. The body charged with the preparation of and follow up to the Euro Summit meetings shall be the Euro Group and its President may be invited to attend such meetings for that purpose.

5. The President of the European Parliament may be invited to be heard. The President of the

Euro Summit shall present a report to the European Parliament after each Euro Summit meeting.

6. The President of the Euro Summit shall keep the Contracting Parties other than those whose

currency is the euro and the other Member States of the European Union closely informed of the preparation and outcome of the Euro Summit meetings.

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ARTICLE 13

As provided for in Title II of Protocol (No 1) on the role of national Parliaments in the European

Union annexed to the European Union Treaties, the European Parliament and the national

Parliaments of the Contracting Parties will together determine the organisation and promotion of a

conference of representatives of the relevant committees of the European Parliament and

representatives of the relevant committees of national Parliaments in order to discuss budgetary policies and other issues covered by this Treaty.

TITLE VI

GENERAL AND FINAL PROVISIONS

ARTICLE 14

1. This Treaty shall be ratified by the Contracting Parties in accordance with their respective

constitutional requirements. The instruments of ratification shall be deposited with the General Secretariat of the Council of the European Union ("the Depositary").

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2. This Treaty shall enter into force on 1 January 2013, provided that twelve Contracting Parties

whose currency is the euro have deposited their instrument of ratification, or on the first day of the month following the deposit of the twelfth instrument of ratification by a Contracting Party whose currency is the euro, whichever is the earlier.

3. This Treaty shall apply as from the date of entry into force amongst the Contracting Parties

whose currency is the euro which have ratified it. It shall apply to the other Contracting Parties

whose currency is the euro as from the first day of the month following the deposit of their respective instrument of ratification.

4. By derogation from paragraphs 3 and 5, Title V shall apply to all Contracting Parties

concerned as from the date of entry into force of this Treaty.

5. This Treaty shall apply to the Contracting Parties with a derogation, as defined in

Article 139(1) of the Treaty on the Functioning of the European Union, or with an exemption, as

referred to in Protocol (No 16) on certain provisions related to Denmark annexed to the

European Union Treaties, which have ratified this Treaty, as from the date when the decision abrogating that derogation or exemption takes effect, unless the Contracting Party concerned declares its intention to be bound at an earlier date by all or part of the provisions in Titles III and IV of this Treaty.

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ARTICLE 15

This Treaty shall be open to accession by Member States of the European Union other than the

Contracting Parties. Accession shall be effective upon depositing the instrument of accession with

the Depositary, which shall notify the other Contracting Parties thereof. Following authentication by the Contracting Parties, the text of this Treaty in the official language of the acceding Member State

that is also an official language and a working language of the institutions of the Union, shall be deposited in the archives of the Depositary as an authentic text of this Treaty.

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ARTICLE 16

Within five years, at most, of the date of entry into force of this Treaty, on the basis of an

assessment of the experience with its implementation, the necessary steps shall be taken, in accordance with the Treaty on the European Union and the Treaty on the Functioning of the

European Union, with the aim of incorporating the substance of this Treaty into the legal framework of the European Union.

Done at Brussels this second day of March in the year two thousand and twelve.

This Treaty, drawn up in a single original in the Bulgarian, Danish, Dutch, English, Estonian,

Finnish, French, German, Greek, Hungarian, Irish, Italian, Latvian, Lithuanian, Maltese, Polish,

Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each text being equally authentic, shall be deposited in the archives of the Depositary, which shall transmit a certified copy to each of the Contracting Parties.

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