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 Volume 1. Issue 2. July 2019 

ISSN 2603-5324 

http://faba.bg 

 

The Structure of Euro Plus Pact. Α Path for Measuring It's Adoption 

 

Marios Psychalis 

 

University of Peloponnese, Greece 

 

Info Articles 

________________ 
History Articles: 

Submited 12 March 2019 

Revised 30 April 2019 

Accepted 1 July 2019 

________________ 
Keywords: 

Euro Plus Pact, Reforms 

in EU, European 

integration 

Abstract
 

___________________________________________________________________ 

The Euro Plus Pact was established in March 2011 according to the Open Method of 

Coordination (OMC). More specifically, it was published as part of the 24-25 March 

Summit conclusions, while the European Council of 9/12/2011 proceeded to the 

specification of the program pillars for each country. Its main objective was to 

strengthen the coordination of the European competitiveness and convergence 

economic policies. The Euro Plus Pact is based on four key pillars of equal importance, 

which are specified in different indexes and means of achievement. The first strategic 

pillar is fostering competitiveness, the second one is fostering employment, the third one 

is contributing further to the sustainability of public finances and the fourth one is 

reinforcing financial stability. The scientific findings demonstrate that the EU has 

shown little interest in implementing the Euro Plus Pact, while the literature about it is 

relatively poor with the only references being in relation to the first strategic pillar, 

which is promoting competitiveness by reducing unit labor costs. Regarding this 

strategic pillar, the EU institutions have no oversight on its implementation. The 

present paper analyzes all the Euro Plus Pact strategic pillars, the indexes and the 

means of achievement related to each strategic pillar and proposes a comprehensive 

scoreboard for the assessment of each country’s response rate to the pact objectives. The 

scoreboard consists of more than 30 indexes that reflect the progress of each country in 

comparison to the Euro Plus Pact goals. The implementation of this scoreboard could 

be a useful tool for European policy-makers and decision-makers on economic 

governance issues both at national and EU level. 
 Address Correspondence:  

   Karaiskaki 70, Tripoli 221 00, Greece 
 

  



 

Marios Psychalis / Finance, Accounting and Business Analysis 1 (2) (2019) 

139 

INTRODUCTION 

 

Τhe Euro Plus Pact, as well as the are 

reforms that are aiming to assist in the 

stabilisation and convergence of the EU member 

states’ economies (Estella, 2018). Since 2010 the 

economic governance within the EU has 

changed radically, and a multitude of new rules 

and reforms have been instituted (De Grauwe, 

2018). The set of measures introduced by the Six 

Pack, Two Pact, Euro Plus Pact and the Fiscal 

Compact all introduce reforms in the preventive 

as well as the corrective aspect of the Stability 

and Growth Pact (SGP) (Commission, 2014). At 

the same time they introduce the 

macroeconomic instabilities process, the 

excessive macroeconomic instabilities process, 

the automatic fiscal stabiliser, debt-cutter, and 

the informal Euro Summit, while they increase 

significantly the role of the EU Commission 

(Becker, et al., 2016). All these reforms aim 

towards the coordination of the economic 

policies in order to avoid another potential 

economic crisis in the future (European 

Commission, 2011).  

According to the author, the Euro Plus 

Pact stands out from the rest of the reforms since 

it doesn’t introduce any regulation or directive, 

nor does it constitute a part of the reforms in any 

previous regulatory framework.  

The conclusions 11 and 12 of the Euro 

Summit 24/25 March 2011, that belong to the 

chapter titled “Providing a new quality of 

economic policy coordination: the Euro Plus 

Pact” state the following: “The Euro Plus Pact as 

agreed by the euro area Heads of State or government 

and joined by Bulgaria, Denmark, Latvia, Lithuania, 

Poland, Romania (see annex I) will further strengthen 

the economic pillar of EMU and achieve a new quality 

of economic policy coordination, with the objective of 

improving competitiveness and thereby leading to a 

higher degree of convergence reinforcing our social 

market economy. The Pact remains open for other 

Member States to join. The Pact will fully respect the 

integrity of the Single Market. The Member States 

that have signed up to the Pact are committed, on the 

basis of the indicators and principles it contains, to 

announce a set of concrete actions to be achieved 

within the next twelve months. A number of Member 

States have already announced first commitments. All 

participating Member States will present their 

commitments as soon as possible and in any event on 

time for their inclusion in their Stability or 

Convergence Programmes and National Reform 

Programmes to be submitted in April and for their 

assessment at the June European Council.” 

Essentially, they describe exactly the Pact, while 

the Pact itself is attached to the ANNEX I of the 

conclusions. 

The pact was established in order to 

increase the coordination of the economic arm 

of the Economic and Monetary Union (EMU) 

and boost the competitiveness of the member 

states’ economies (European Commission - 

EPSC, 2015). The goal of the EMU is to reach a 

higher degree of economic convergence between 

the member states’ economies (Gabrisch & 

Staehr, 2014). Despite the fact though that these 

policies fall under the surveillance of the 

national governments instead of the Union, the 

policies that received the main focus during the 

period of economic adjustment are the ones that 

are not part of the strict core of the EMU 

policies, such as labour laws and pension 

reforms (Barnard, 2012). 

The problem then is that there is a lack of 

an evaluation control for the implementation of 

the goals and rules that are dictated by the Pact. 

At the same time, if we examine the literature 

and the reports of the European regulatory 

bodies, it turns out that the Pact does not 

comprise a part of the continuous evaluation of 

the European Institutions neither is there a 

mention of its implementation.  

With this paper, we attempt to create a 

scoreboard with which we can measure the 

response to the Euro Plus Pact with quantifiable 

and objective indexes. This paper has scientific 

value as there been no attempt so far to evaluate 

the response of the states to the goals of the Pact, 

while it comprises a tool to policy making and 

setting of goals. The added value of this paper is 

the addition of indexes that measure the goals of 

the Pact but are not captured within the Pact 

itself.  

 



 

Marios Psychalis / Finance, Accounting and Business Analysis 1 (2) (2019) 

140 

First Key Pillar: Fostering Competitiveness 

The first key pillar of the Pact is related to 

the improvement of competitiveness within the 

EU (Collignon & Esposito, 2013). With regards 

to this first goal, there is a great deal of emphasis 

given to the value of the index of unit labour 

cost (ULC)1,  which must be evaluated in total, 

but it can also be done on a per sector basis2 

(Mertsina & Jänes, 2012). This specific goal can 

be achieved by re-examining the method of 

determining the wage and the negotiation 

process, by taking care that the wage agreements 

in the public sector support the efforts 

undertaken in the private sector (taking also into 

account the psychological effect that the wages 

in the public sector have), the opening of 

sheltered sectors, specific efforts to improve 

education systems and promote R&D, 

innovation and infrastructure, as well as 

measures for improving the business 

environment. 

The basic indexes with which we can 

evaluate the improvement of competitiveness 

according to the Euro Plus Pact is firstly the unit 

labour cost but also the wage cost index.  

Of course, an additional but very 

important index is the Ballance of Payments 

(BoP) (OECD, 2011a) and (Comunale & Hessel, 

2014). The continuous deficits in BoP, in 

conjunction with the deficits in the monetary 

result of the government lead to a loss of 

competitiveness (Decramer, et al., 2014).  

An additional index is the yearly 

assessment that the World Bank performs, as 

well as the Global Competitiveness Report that 

is published yearly by the World Economic 

                                                             

1 Big and continuous increases in ULC can lead to 
loss of competitiveness (Ark & Monnikhof, 2000), 
(Ark, Stuivenwold, & Ypma, Unit labour costs, 
2005).  
2 The competitiveness of a product can be 
categorized in price competitiveness and 
structural competitiveness (non price 
competitiveness). According to general consensus, 
there is more emphasis given to structural 
competitiveness nowadays rather than the price 
competitiveness, at least with regards to 
developed economies.  

Forum. The report titled “Doing Business 

Annual Report” scores the data in the following 

table. 

World Bank Criteria 

Time required to start a business 

Dealing with construction permits 

Getting electricity 

Registering Property 

Getting Credit 

Protecting Minority Investors 

Paying taxes 

Enforcing Contracts 

Trading Across Borders 

Resolving Insolvency 

 

An additional index for measuring 

competitiveness is the Business Confidence 

Index (BCI), which according to OECD 

“provides information on future developments and be 

used to monitor output growth and to anticipate 

turning points in economic activity”.  

Besides the indexes previously mentioned, 

two additional indexes that can measure 

competitiveness of a country’s economy is R&D 

expenditures expressed as GDP percentage, as 

well as the economic growth measured as GDP 

percentage, but also the R&D expenditures in 

billions of dollars per year (Matsumura, 

Matsushima, & Cato, 2013).  

Some additional indexes are the size of 

the Public Investment Program (OECD, 2014), 

but also the size of Foreign Direct Investments 

in a country (Gugler & Brunner, 2007) and 

(Anastassopoulos, 2007).   

Finally, the International Investment 

Rank could be a criterion for measuring the 

competitiveness of each country. 

The following table presents a synopsis of 

the ten indexes with which the response of a 

country’s economy can be measured with 

regards to the First Pillar of the Pact. 

 

Indexes with regards to competitiveness 

Unitary Labor Cost 

Wage Cost Index 

Ballance of Payments 

World Bank Report (Doing business annual 



 

Marios Psychalis / Finance, Accounting and Business Analysis 1 (2) (2019) 

141 

report) 

BCI Index 

R&D Expenditure as % GDP 

R&D Expenditure in billions USD $ 

Pubic Investment Program  

Foreign Direct Investments 

International Investment Rank 

 

Second Pillar: Fostering Employment 

With regards to the Second Pillar, which 

is the promotion of employment, there are three 

indexes determined. These are: long term 

unemployment, youth unemployment and labor 

force participation rate. These indexes can be 

improved by the promotion of flexicurity in 

employment relations (Wilthagen & Tros, 2004), 

the promotion of lifelong learning (Green, 2002) 

as well as reforms in the tax policies of  labor, 

such as the reduction of tax rates so that work 

can become more attractive (European 

Commission, 2018) (OECD, 2011b). 

The first three indexes with which we can 

measure the employment improvement have 

been mentioned previously. Besides these, there 

are some additional indexes with which we can 

measure the response in this pillar. 

Three additional indexes are the labor 

taxation (Kalyva, et al., 2018) the index of youth 

unemployment (Mroz & Savage, 2006), and the 

total number of hours worked. For example, it’s 

very different to create 3 new part time job 

positions (3 positions X 4 hours = 12 total 

hours) with the creation of 2 full time job 

positions (2 positions X 8 hours = 16 total 

hours).  

Indexes with regards to employment 

Unemployment Rate 

Long Term Unemployment 

Labor Force Participation Rate 

Labor Taxation 

Youth Unemployment 

Hours worked 

 

Third Pillar: Enhance the sustainability of 

public finances 

The third pillar, the contributions to 

enhancing the sustainability of public finances 

can be monitored through indexes that examine 

the course of the sustainability of pension funds 

(Barrell, et al., 2009), the healthcare and social 

benefits (Merola & Sutherland, 2013) but also 

with the institution of fiscal rules such as the 

“debt cutter” (Darvas, et al., 2018). 

Essentially the indexes in this pillar can be 

split in three groups. The first group relates to 

indexes that evaluate the course of pension 

programs’ sustainability. In this group we can 

include five indexes. The first one is the pension 

replacement rate, the second one is the net pension 

fund wealth, the third one is the ratio of workers 

to pensioners, the fourth one is the transfers of 

the general government to the social security 

funds and the fifth one is the public expenditure 

on pensions as a GPD percentage.  

The second group of indexes is concerned 

with the sustainability and the rationalization of 

expenditures with regards to healthcare and 

social services (Lora & Olivera, 2007). In this 

group belong the public expenditure for 

healthcare, parametrical public expenditure 

measured in USD, and the public social 

spending.  

Finally, in the third group of indexes that 

are related to the establishment of national fiscal 

regulations we can make use of eight indexes in 

order to evaluate the named adjustment (Shah, 

2017), (Sávai & Kiss, 2018). The first one is the 

gross financing needs (GFN) (Alcidi & Gros, 

2018a) and (Aldici & Gross, 2018b), the second 

one is the public debt as GDP percentage (IMF, 

2015), the third one is the fiscal result of the 

general government (Koehler & König , 2014), 

the fourth one is the public debt expressed in 

absolute numbers, such as e.g. billion USD, the 

fifth one is the interest rate of the 10-year bond 

(De Grauwe & Ji, 2012), the sixth one is the net 

current debt present value, the seventh one is the 

weighted average interest rate of public debt and 

the final one is the weighted-average maturity of 

public debt (Andritzky, et al., 2019).  

The following table represents the 16 

indexes of the third pillar of the Pact.  

Indexes related to sustainability of public 

finances 

Percentage of pension recovery 

Net Pension Fund Wealth 



 

Marios Psychalis / Finance, Accounting and Business Analysis 1 (2) (2019) 

142 

Tatio of workers to pensioners 

Transfers of the general government to the social 

security providers 

Public expenditure on pensions as a GPD 

percentage 

Public expenditure for healthcare 

Drug related public expenditure 

Public social spending 

Gross Financing Needs (GFN) 

Public debt as GDP % 

Fiscal result of the general government 

Public Debt in billions USD 

Interest rate of 10-year bond 

Debt Net Present Value 

Weighted Average Interest Rate of Public Debt 

Weighted Average maturity of Public Debt 

 

Fourth Pillar: Financial stability 

Finally, with regards to the fourth pillar, 

despite the fact that there are no evaluation 

indexes mentioned, there are policies proposed: 

the adoption of banking sector resolution laws, 

performance of regular stress tests and the 

monitoring of the evolution of the private debt of 

banks, households and business outside the 

financial sector. The author, in the context of 

quantifying the evaluation, chose 8 indexes with 

which the response in the current pillar can be 

measured. The first one is the number of yearly 

stress tests performed, the second one is the 

percentage of Non-Performance Loans (NPL) in 

relation to total borrowing (ECB, 2017), the 

third one is the dependence of banks on the 

Emergency Liquidity Assistance (ELA) 

mechanism of the ECB, the fourth one is the rate 

of bank deposits, the fifth one is the rate of 

change of funding, the sixth one is the net 

volume of savings, the seventh one is the course 

of the bank stocks, which can be extracted from 

the stock market index of the sector and the last 

one is the volume of NPL in billion dollars.  

Indexes with regards to financial stability 

Number of yearly stress tests performed 

NPL % of total borrowing 

Dependence on ELA 

Bank deposits in billions USD 

Rate of change of funding (issuing of new loans) 

Net savings 

Bank stocks 

NPL in billion dollars 

Total assets of Banks 

 

Assessment 

The assessment of the response to the Pact 

will be carried out with the following 

methodology. The response in each pillar is 

examined independently, this means that for 

every pillar there is a specific rating, and in the 

end all these ratings are added together, and a 

final result is then extracted. More specifically, if 

an index has an improvement over the last year 

then one unit is added, and conversely if a 

specific index has decreased over the last year a 

unit is subtracted. Even more specifically, if the 

increase is within 0 – 3 % exactly 1 unit is 

added, if the increase if from 3 – 5% 1.2 units are 

added, and if the increase is more than 5% then 

1.5 units are added. In the decrease the same 

number of units are subtracted respectively. 

Then, since each pillar has a different number of 

indexes, the total sum of each pillar is divided by 

the number of indexes that evaluate the response 

in each pillar. Finally, the four individual results 

are added together and comprise the final result. 

The limit values of the index can be from - 6 till 

+ 6.  

 

CONCLUSION 

 

In conclusion, we can say that the Euro 

Plus Pact does not focus in one economic aspect, 

but includes all of the economic activities, that is 

the public macroeconomic figures, the financial 

sector, the employment, but also the 

competitiveness of a country. So, the evaluation 

of the implementation of the Pact’s goals, can 

comprise a complete index for the course of a 

state’s economy.  The 40 indexes that are 

selected show a concrete image of the course of 

a state’s economy, while the comparative 

evaluation between each state can show the 

degree of convergence and economic integration 

of the EU. Monitoring this indicator could help 

avoiding new budgetary or financial 

macroeconomic imbalances, while also 

highlighting progress in the competitiveness of 



 

Marios Psychalis / Finance, Accounting and Business Analysis 1 (2) (2019) 

143 

EU countries. It is therefore necessary for the 

EU to create an annual report on compliance 

with the objectives of the Euro Plus Pact, with 

accountable results.  

 

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