In order to ensure the sustainable convergence required for the achievement of economic and monetary union (EMU), the Treaty sets four convergence criteria which must be met by each Member State before it can take part in the third stage of EMU and hence before it can adopt the euro. Compliance is checked on the basis of reports produced by the Commission and the European Central Bank (ECB). The criteria are:
- the ratio of government deficit to gross domestic product must not exceed 3% and the ratio of government debt to gross domestic product must not exceed 60%;
- there must be a sustainable degree of price stability and an average inflation rate, observed over a period of one year before the examination, which does not exceed by more than one and a half percentage points that of the three best performing Member States in terms of price stability;
- there must be a long-term nominal interest rate which does not exceed by more than two percentage points that of the three best performing Member States in terms of price stability;
- the normal fluctuation margins provided for by the exchange-rate mechanism must be respected without severe tensions for at least the last two years before the examination.
The convergence criteria are meant to ensure that economic development within EMU is balanced and does not give rise to any tensions between the Member States. The criteria relating to government deficit and government debt must continue to be met after the start of the third stage of EMU (1 January 1999). To this end, a stability pact was adopted at the Amsterdam European Council in June 1997 and enables the members of the Euro-zone to coordinate national government budget policies and avoid excessive government budget deficits.