Brussels, 5 December 2006
Regular two-yearly Convergence Report shows uneven progress towards the enlargement of the euro area
The 2006 Convergence Report shows uneven progress towards the adoption of the euro in the new Member States. While Slovenia was found to meet all the criteria in June, the other countries ‘with a derogation’ (the Czech Republic, Estonia, Cyprus, Latvia, Hungary, Malta, Poland, Slovakia and Sweden) have advanced at different paces. Lithuania is not included in the report, its convergence process having been assessed earlier this year. “Although the road to the euro is proving more difficult than some may have thought originally, the reward is well worth the effort. First, because the policies required are desirable irrespective of the euro; second, because adoption of the euro consolidates the macroeconomic stability that is necessary for growth and jobs; and third, because a well-prepared country is more likely to flourish in a monetary union, as the experience of the current euro area members demonstrates,” said Economic and Monetary Affairs Commissioner Joaquín Almunia.
At least once every two years, or at the request of a Member State, the European Commission and the European Central Bank (ECB) are required to report to the Council of Ministers on the progress made by EU countries ‘with a derogation’ in fulfilling the economic and legal conditions laid out in the EU Treaty for the adoption of the euro.
Today’s Convergence Report is the second "regular" report since the enlargement of the EU to 10 new Member States in May 2004. The first was adopted in October 2004, when none of the 10, nor Sweden, the other EU country ‘with a derogation’, met all the conditions, also known as the ‘Maastricht criteria’. The ECB has also published its own report today.
A specific convergence report, drawn up by the Commission in response to a request by Slovenia on 2 March 2006 and another by Lithuania shortly afterwards, concluded that Slovenia met all the conditions and could adopt the euro on 1 January 2007, while Lithuania retained its present status. The Council endorsed the Commission’s assessments in July 2006.
The 2006 Convergence Report shows that the nine countries assessed (the Czech Republic, Estonia, Cyprus, Latvia, Hungary, Malta, Poland, Slovakia and Sweden) are making progress towards convergence, though at different paces. To be able to adopt the euro, a country must achieve a high degree of sustainable convergence regarding price stability, the budgetary position, exchange-rate stability and long-term interest rates, as well as ensuring that national legislation is compatible with the rules of the Treaty and the Statutes of the European System of Central Banks (ESCB) and the ECB.
The 2006 Convergence Report shows the following results:
Four countries had 12-month average inflation rates below the reference value, which stood at 2.8 percent in October 2006. The four countries that fulfil the price stability criterion are: the Czech Republic, Cyprus, Poland and Sweden.
Government budgetary position
The criterion on the government budgetary position is met when a country is not the subject of a Council decision on the existence of an excessive deficit under Article 104(6) of the Treaty. At present, four of the nine Member States examined, namely Estonia, Cyprus, Latvia and Sweden, fulfil the criterion.
Exchange rate stability
The exchange rate criterion is defined in the Treaty as the observance of the normal fluctuation margins of the exchange rate mechanism (ERM) of the European Monetary System, for at least two years without severe tensions and in particular without devaluing against the euro. Of the nine countries examined, Estonia is the one that has been longest in the ERM II and the only one that fulfils the exchange rate criterion. The other countries in the ERM II are Cyprus, Malta and Latvia, which have been participating since 2 May 2005, and Slovakia, since 28 November 2005.
Long-term interest rates
Of the nine countries assessed, only Hungary does not meet the interest rate criterion, which requires average long-term interest rates to be no more than 2 percentage points above that of the, at most, three best performers in terms of price stability in the year before the examination. The Czech Republic, Estonia, Cyprus, Latvia, Malta, Poland, Slovakia and Sweden had one-year average long-term interest rates below the reference value (which was 6.2 percent in October 2006). For Estonia, no benchmark long-term government bond or comparable security is available to assess the durability of its convergence as reflected in long-term interest rates; however, there are no reasons to conclude that it would not fulfil the long-term interest rate criterion.
This covers the examination of the compatibility of a Member State’s
legislation, including the statutes of its national central bank, with Articles
108 and 109 of the Treaty and the Statute of the ESCB. At the time of the
drafting of the report, the legal compatibility requirements were met only by
Estonia, though Cyprus and Malta had, in October and November 2006 respectively,
submitted to their national parliaments draft laws removing all remaining