Growth Pact. The idea is to spread the required fiscal effort evenly over time, thus equally taking into account current and future generations. Hence, by construction, the S2 indicator takes into account all additional expenditure arising from an ageing population, which is precisely given by total age-related expenditure as calculated by the AWG. At 8.1% of GDP, Luxembourg has the highest value of the S2 indicator among all EU Member States. In fact, Luxembourg is the only country exceeding the high-risk threshold of 6% of GDP, thus having a long term S2 risk profile evaluated as high. The medium-term budgetary objective The Stability and Growth Pact, adopted in June 1997, is a set of rules designed to ensure that EU Member States pursue sound public finances and coordinate their fiscal policies. It comprises a preventive arm that consists in the surveillance of the budgetary planning, and a corrective arm that aims to correct problematic budget deficits and excessive public debt burdens. The medium-term budgetary objective is a budgetary target in the context of the preventive arm fixed by each Member State for a period of three years based on a reference value calculated by the European Commission, which serves as a lower bound. It takes into account the need to achieve sustainable debt levels while leaving room for manoeuvre and a safety margin against breaching the EU fiscal rules. Technically, the medium-term budgetary objective represents a target level for the structural primary balance of a Member State as a share of GDP. It must fulfil the following requirements: – allow Member States experiencing an economic downturn to move away from a balanced budget, while remaining below the deficit threshold of 3% of GDP defined in the corrective arm of the Stability and Growth Pact; – allow Member States to progress towards long-term sustainability of public finances, while leaving some budgetary margin for public investments; – correspond at least to a value of -0.5% of GDP or, for countries with both a low current debt-to-GDP ratio and low long-term sustainability risks, -1% of GDP. Each of these conditions yields a specific theoretical value for the structural primary balance meeting the respective requirement. Clearly, the maximum of these three thresholds is then the most demanding and hence chosen by the Commission as reference value.
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