The seventeen EU members that use the Euro as their currency agree to keep the amount they spend and borrow under control in order to help create stable conditions for the new currency. This agreement is called the Stability and Growth Pact (SGP). However, several eurozone members have not kept to the rules, so the SGP was reformed in 2005 to allow countries more flexibility. Given the uneven performance of the new currency, the failure of the original SGP has been widely criticised.

The Maastricht Treaty (1992) set rules for all countries to reach in order to achieve Economic and Monetary Union (EMU): low inflation, low interest rates and controlled public debt and spending. The SGP, agreed in 1997, said that the same rules should apply once the Euro was launched. All EU members had to take part, but some, like Britain, who had decided not to use the Euro were not bound by the penalties. Once the Euro was launched, many countries had difficulty meeting the SGP rules. In 2003, the largest economies in the eurozone, France and Germany, broke the rules. However, because these countries promised to reach the SGP targets as soon as possible, the Commission did not take strong action against them. This made the SGP look weak and the Council of the European Union decided to suspend it. In March 2005, the Council agreed a reformed SGP with much more flexible rules. Even these were challenged in August 2007, when the French President, Nicholas Sarkozy, looked to revitalise the French economy outside the framework of the SGP.

In 2008, there was concern that a number of member states would break the SGP rules as a result of the global economic crisis. For example, the Commission warned that average public debt in the eurozone could reach 84% of GDP by 2010 (18% more than in 2007 and far above SGP's 60% limit). The Commission was particularly worried about levels of public debt in Ireland, Spain and France. But Greece's spiralling public debt presented the biggest concern as it began to affect the stability of the Euro, leading to speculation that the Eurozone could not survive the crisis.Some Euro members called for the EU to intervene and give money to support Greece's economy in order to avoid any risk to the Euro. At a summit in February 2010, EU leaders promised that the Euro was not in danger and instructed Greece to cut its public spending and raise taxes to repay its debt.However, despite tough austerity measures, it quickly became apparent that Greece would need stronger financial backing from the EU. On 2 May 2010, eurozone states and the IMF agreed to a 'Stabilisation Mechanism' - a fund that low interest loans could be drawn from. The eurozone countries provided €80 billion, with a further €30 billion coming from the IMF. In a move to restore confidence in the Euro, the fund was made available to all Eurozone members. Greece withdrew the first loan on 18 May 2010.

In late 2010, Ireland was suffering similar financial problems, and the eurozone countries agreed to a €11.7 billion bailout from the EFSF. May 2011 saw Portugal also receive a bailout of ?78 billion. Greece's second loan was requested in June 2011. The Lisbon Treaty was amended so that the EFSF will be replaced by a permanent stability mechanism in 2013.

The original SGP said that all countries in the Eurozone should aim to keep their annual budget deficit below 3% of GDP, and keep total public debt below 60% of GDP. If a country broke the rules, it had to take measures to reduce its deficit. If it broke the rules in three consecutive years, the Commission could impose a fine of up to 0.5% of GDP. In March 2005, the European Council agreed a reform to the SGP. On the surface this maintained the key rules on deficits and debt, but the small print contained a list of exceptions for types of spending that would not be counted as part of the debt. This included spending on education, research, defence, aid and 'the unification of Europe'. However, the reforms have been criticised and during the global financial crash of 2008 and the ensuing recession, there were calls for the EU to do more to penalise states with excessive deficits.

• In 2006, Germany's public debt was 66.8% of GDP and Greece's was over 100%. In 2010, Germany's public debt is predicted to be 78%; Greece's is forecast to be 120%.
• " In 2010, France's public debt reached 80.3% of the country's GDP (its highest ever level).

For

• The SGP shows that the eurozone countries are committed to the Euro.
• Many economists argue that the exemptions in the reformed pact make it more flexible and allow for the deficit limit to be broken to create economic growth.
• The SGP discourages governments from destabilising the Eurozone by borrowing money to win elections and instead encourage them to think about long-term stability.

Against

• Even if the old SGP was too rigid, the new version has so many exemptions that it is in fact difficult to breach its regulations.
• By failing to impose penalties on Germany and France, the Commission has shown that there are no effective rules on budget deficits or public debt in the Eurozone.
• Because countries have to meet the targets every year, the new rules do not take account of the flexibility governments sometimes need to balance their budgets across the economic cycle.
• The rules should allow for a deficit of capital spending as long as a country's current account is balanced.

'I know very well that the stability and growth pact is stupid. The pact is imperfect. We need a more intelligent tool and more flexibility.' - Romano Prodi, EU Commission President, 1999-2004

'[The SGP] is a political totem, a symbol that euro-using countries will not cheat each other.' - The Economist, 24 October 2002