Convergence criteria

Convergence criteria

Convergence criteria (also known as the Maastricht criteria) are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union (EMU) and adopt the euro. The four main criteria are based on Article 121(1) of the European Community Treaty. Those member countries who are to adopt the euro need to meet certain criteria.

Criteria

1. Inflation rate: No more than 1.5 percentage points higher than the three lowest inflation member states of the EU.

2. Government finance:

:Annual government deficit: :The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year. If not, it is at least required to reach a level close to 3%. Only exceptional and temporary excesses would be granted for exceptional cases.

:Government debt: :The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. Even if the target cannot be achieved due to the specific conditions, the ratio must have sufficiently diminished and must be approaching the reference value at a satisfactory pace.

3. Exchange rate: Applicant countries should have joined the exchange-rate mechanism (ERM II) under the European Monetary System (EMS) for 2 consecutive years and should not have devaluated its currency during the period.

4. Long-term interest rates: The nominal long-term interest rate must not be more than two percentage points higher than in the three lowest inflation member states.

The purpose of setting the criteria is to maintain the price stability within the Eurozone even with the inclusion of new member states.

Fulfilment of criteria

1 Current EU member states that have not yet adopted the Euro, candidates and official potential candidates.
² No more than 1.5% higher than the 3 best-performing EU member states.
³ No more than 2% higher than the 3 best-performing EU member states.
4 Formal obligation for Euro adoption in the country EU Treaty of Accession or the Framework for membership negotiations.
5 Values from May 2007 report [http://www.ecb.int/pub/pdf/conrep/cr200705en.pdf] . To be updated each year.
6 Negative deficit value means surplus.
7 Inflation reference value of the March 2006 report was 2.6%, thus the non-entrance of Lithuania to the Eurozone on 1.1.2007 despite that it covers the criteria currently.
8The Czech Republic worked with an official target date of 2010 until 2006, when both the central bank and the government officially dropped this target rate as unachievable. Some vague discussions about 2015 currently in progress, though no official target date is currently set.
9United Kingdom participated in the ERM-I from October 1990 to September 1992.
10Kosovo and Montenegro use the euro as their currency, but they are "de jure" not part of the Eurozone and aren't allowed mint any coins or print any notes. Kosovo and Montenegro don't have any national currency, so it is currently uncertain what a Kosovan and Montenegrin ERM II membership would mean.

References

See also

* Euro adoption by the new members states
* Economy of the European Union#Economies of member states
* Stability and Growth Pact

External links

*http://europa.eu/scadplus/leg/en/lvb/l25014.htm
*http://www.statistics.gov.uk/CCI/nugget.asp?ID=277


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