Category Archives: Economic and monetary affairs: enlargement

Any country wishing to join the European Union must, among other things, transpose all of the Community’s economic and monetary rules into its domestic law. The euro is not introduced immediately upon accession: a Member State must first comply with certain economic requirements (“convergence criteria”).

Economic and monetary affairs: enlargement

Economic and monetary affairs: enlargement

Outline of the Community (European Union) legislation about Economic and monetary affairs: enlargement

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Economic and monetary affairs: enlargement

Economic and monetary affairs: enlargement

Any country wishing to join the European Union must, among other things, transpose all of the Community’s economic and monetary rules into its domestic law. The euro is not introduced immediately upon accession: a Member State must first comply with certain economic requirements (“convergence criteria”).

IMPACT OF ENLARGEMENT ON THE EURO ZONE

  • Enlargement of the euro area after 1 May 2004
  • Enlargement of the euro area: adjustment of voting arrangements in the Governing Council of the ECB

ECONOMIC IMPACT OF ENLARGEMENT

  • Enlargement, two years after – an economic success

ENLARGEMENT

Ongoing enlargement

  • Croatia – Economic and monetary affairs
  • Turkey – Economic and Monetary Policy
  • The former Yugoslav Republic of Macedonia – Economic and monetary affairs
  • Iceland – Economic and Monetary Policy

Enlargement of January 2007

  • Bulgaria
  • Romania

Enlargement of May 2004

  • Cyprus
  • Estonia
  • Hungary
  • Latvia
  • Lithuania
  • Malta
  • Poland
  • The Czech Republic
  • Slovakia
  • Slovenia

Turkey – Economic and Monetary Policy

Turkey – Economic and Monetary Policy

Outline of the Community (European Union) legislation about Turkey – Economic and Monetary Policy

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Economic and monetary affairs: enlargement

Turkey – Economic and Monetary Policy

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2011) 666 final – SEC(2011) 1201 – Not published in the Official Journal].

Summary

The 2011 Report notes a robust economic recovery in Turkey. The market economy is functioning and is able to cope with competitive pressure. However, the Report regrets to report a rise in trade account deficits, and external imbalances. Some structural reform needs to be implemented.

EUROPEAN UNION ACQUIS – (according to the Commission’s words)

EU legislation on economic and monetary policy contains specific rules requiring the independence of central banks in Member States, prohibiting direct financing of the public sector by the Central Bank and prohibiting privileged access of the public sector to financial institutions. Upon accession, new Member States will be expected to coordinate their economic policies and will be subject to the provisions of the Stability and Growth Pact on budget monitoring matters. These States are also committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro. Until their adoption of the euro, they will participate in Economic and Monetary Union as a Member State with derogation and will treat their exchange rates as a matter of common concern.

EVALUATION (according to the Commission’s words)

The economy of Turkey is currently experiencing a robust economic recovery. Public finances are improving and confidence in a lasting transformation of the country’s economic prospects and stability is increasing. Nevertheless, the rapid expansion of economic activity, driven by strong domestic demand, has led to significant and rising external imbalances that pose a threat to macroeconomic stability.

As regards the economic criteria, Turkey is a functioning market economy. It should be able to cope with competitive pressure and market forces within the Union in the medium term, provided that it accelerates the implementation of its comprehensive structural reform programme.

The economy expanded rapidly in 2010 and in the first half of 2011. Along with the high GDP growth, strong employment growth allowed for a decrease in unemployment. As a result of primarily higher cyclical revenues and a lower interest burden, the consolidation of public finances remained on track. The financial sector has shown considerable strength thanks to earlier reforms while the legal system continues to function relatively well. Moreover, the new law on State aid monitoring and the operation of the regulatory authority may increase transparency and lead to a reduction of State aid. The free interplay of market forces has been confirmed. Privatisation has accelerated. The EU remains Turkey’s most important trade partner and investor.

However, trade and current account deficits have been rising and external imbalances are now significant. Monetary policy has been only mildly successful in curbing credit growth, which along with high commodity prices, continues to feed Turkey’s growing current account deficit. More support from the fiscal side, and some specific and targeted micro-prudential measures are being elaborated, including by the banking regulator, in order to help engineering a soft landing of the economy and ease the burden placed on monetary policy. Turkey’s price and cost export competitiveness has slightly worsened. Inflation has started to rise, in large part due to pressures stemming from energy and food inputs, buoyant economic activity and hikes in administrative prices. A more resolute implementation of structural reforms is awaited. Measures to increase fiscal transparency and better anchor fiscal policy were modest, while they could help Turkey to gain credibility in the markets. Market exit remains difficult and bankruptcy proceedings are still relatively cumbersome.

Turkey has made some progress on economic and monetary policy. The Central Bank adopted a new policy mix to ensure financial stability, reducing policy rates while increasing reserve requirements for the banking sector. Turkey’s alignment with the acquis on economic and monetary policy is not complete, particularly as regards the full independence of the Central Bank and the prohibition of privileged access of the public sector to financial institutions. The overall level of preparedness is advanced.

Related Acts

Commission Report [COM(2010) 660 final – SEC(2010) 1327 – Not published in the Official Journal].
The 2010 Report presented the economic and monetary strategies adopted by the country following the international financial crisis. The authorities have also been very active in improving their economic relations at international level and cooperation with neighbouring States. However, progress was still required in aligning Turkish legislation with the acquis, particularly in the financial institutions sector.

Commission Report [COM(2009) 533 final – SEC(2009) 1334 – Not published in the Official Journal].

Commission Report [COM(2008) 674 final – SEC(2008) 2699 – Not published in the Official Journal].

The November 2008 Report highlighted the continuing problems. The Central Bank was still not totally independent and monetary financing of the public sector and privileged access of public authorities to financial markets were maintained. However, measures taken to coordinate and reform economic and monetary policy have enabled the country to progress towards a more stable macroeconomic framework.

Commission Report [COM(2007) 663 final – SEC(2007) 1436 – Not published in the Official Journal].
The November 2007 Report found that progress had been made as regards economic and monetary policy. However, certain steps had still not been taken, in particular provisions for the independence of the Central Bank. The European Commission also noted that economic policy formulation remained fragmented and often insufficiently coordinated. In general, preparations in the field of economic and monetary affairs were at an advanced stage.

Commission Report [COM(2006) 649 final – SEC(2006) 1390 – Not published in the Official Journal].
The November 2006 Report found that Turkey had made little progress as regards monetary policy but rather more in terms of economic policy. Legislation to prevent monetary financing of the public sector and to prohibit privileged access of public authorities to financial institutions was not in line with the acquis. The absence of economic impact assessments and efficient coordination and cooperation reduced the effectiveness of economic policy.

Commission Report [COM(2005) 561 final – SEC(2005) 1426 – Not published in the Official Journal].
The November 2005 Report noted some progress in the field of economic policy. Alignment on the acquis in the monetary policy field remained limited. However, the capacity to implement an effective economic and monetary policy was still held back by the lack of an effective system for coordinating formulation, cooperation and implementation.

Commission Report [COM(2004) 656 final – SEC(2004) 1201 – Not published in the Official Journal].
Its October 2004 Report found that Turkey had made no progress in adopting the EMU acquis, covering direct public-sector financing by the Central Bank, prohibition of privileged access by the public sector to financial institutions, and the independence of the Central Bank.

Commission Report [COM(2003) 676 final – SEC(2003) 1212 – Not published in the Official Journal].

In its November 2003 Report the Commission noted that no progress had been made in this field.

Commission Report [COM(2002) 700 final – SEC(2002) 1412 final – Not published in the Official Journal].
Its October 2002 Report found that no further progress had been made as regards direct public-sector financing by the Central Bank. The same was true of the prohibition on privileged access by the public sector to financial institutions and the independence of the Central Bank.

Commission Report [COM(2001) 700 final – SEC(2001) 1756 final – Not published in the Official Journal].
In its November 2001 Report the Commission found that Turkey had made progress in the adoption of the economic and monetary union (EMU) acquis.

Commission Report [COM(2000) 713 final – Not published in the Official Journal].
The Commission’s November 2000 Report found that little progress had been made in the area of economic and monetary policy.

Commission Report [COM(1999) 513 final – Not published in the Official Journal].

Commission Report [COM(1998) 711 final – Not published in the Official Journal].

Iceland – Economic and Monetary Policy

Iceland – Economic and Monetary Policy

Outline of the Community (European Union) legislation about Iceland – Economic and Monetary Policy

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Economic and monetary affairs: enlargement

Iceland – Economic and Monetary Policy

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2011) 666 final – SEC(2011) 1202 final – Not published in the Official Journal].

Summary

The 2011 Report highlights that the country’s level of alignment with the European Union (EU) acquis remains incomplete on economic and monetary policy.

EUROPEAN UNION ACQUIS – (according to the Commission’s words)

EU legislation on economic and monetary policy contains specific rules requiring the independence of central banks in Member States, prohibiting direct financing of the public sector by the Central Bank and prohibiting privileged access of the public sector to financial institutions. Upon accession, new Member States will be expected to coordinate their economic policies and will be subject to the provisions of the Stability and Growth Pact on budget monitoring matters. These States are also committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro. Until their adoption of the euro, they will participate in Economic and Monetary Union as a Member State with derogation and will treat their exchange rates as a matter of common concern.

EVALUATION (according to the Commission’s words)

Some progress has been achieved by Iceland in the field of economic policy; however additional effort is required to improve its coordination with the EU’s policies. No new development has been noted in the field of monetary policy, the field in which alignment must be completed, particularly concerning the independence of the Central Bank and the prohibition of monetary financing of the public sector.

The country achieved a good level of alignment concerning the financial and budgetary rules. The country continued to identify the fields which still need to be aligned. Preparations connected with administrative capacity and for setting up the own resources system must be completed. A coordination structure needs to be formally established.

Croatia – Economic and monetary affairs

Croatia – Economic and monetary affairs

Outline of the Community (European Union) legislation about Croatia – Economic and monetary affairs

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Economic and monetary affairs: enlargement

Croatia – Economic and monetary affairs

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2010) 660 final – SEC(2010) 1326 – Not published in the Official Journal].

Summary

The 2010 Report presents the reforms that have advanced the general level of alignment with the acquis, despite the international financial and economic crisis. However, alignment is not complete and the policy of economic and monetary coordination should be improved.

EUROPEAN UNION ACQUIS (according to the Commission’s words)

EU legislation on Economic and Monetary Union (EMU) contains specific rules requiring the independence of central banks in Member States, prohibiting direct financing of the public sector by the central banks and privileged access of the public sector to financial institutions. Moreover, all Member States are bound to lay down specific measures necessary for the protection of the euro against counterfeiting. These rules must have been implemented by the date of accession. Upon accession, new Member States will be expected to coordinate their economic policies and will be subject to the provisions of the Stability and Growth Pact and the Statute of the European System of Central Banks. They are also committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro. Until they adopt the euro, they will participate in Economic and Monetary Union as a Member State with a derogation and will treat the exchange rate of their currency as a matter of common concern.

EVALUATION (according to the Commission’s words)

There has been further progress in the area of economic and monetary policy where, overall, alignment with the acquis is effectively complete.

The economy of Croatia has been severely affected by the global economic and financial crisis. The country fell into recession in the first quarter of 2009 and there were no clear signs of a recovery by mid-2010. Unemployment, public deficit and debt have increased significantly. External indebtedness rose further and remains a key vulnerability of the economy. Monetary stability was preserved by the policies of the central bank and the financial sector weathered the crisis relatively well.

Broad political consensus on the fundamentals of a market economy was maintained. The Economic Recovery Programme has given economic policy a medium-term orientation. The programme’s benefit for growth and international competitiveness depends on its effective implementation. Given the existing constraints, macroeconomic policy has, by and large, been appropriate to address the consequences of the global economic and financial crisis. Monetary policy succeeded to preserve exchange rate and financial stability while alleviating liquidity pressures. The current account deficit narrowed as a consequence of the recession and inflationary pressures subsided further. The banking sector remained resilient to shocks.

However, structural reforms generally advanced at a very slow pace, not least with respect to privatisation and the restructuring of loss-making enterprises. The labour market remained highly rigid, with low employment and participation rates which declined further during the recession.

In the fiscal area, the authorities made limited efforts to contain the rising deficit and to increase the efficiency of public spending. Social transfer payments remained high and not well-targeted and a large number of state-owned enterprises continued to receive State support through direct and indirect subsidies and guarantees. For achieving medium-term fiscal sustainability, it remains a key challenge to improve the budgetary process and discipline and to enhance the efficiency of public spending. The investment climate continued to suffer from a heavy regulatory burden and numerous para-fiscal taxes.

Related Acts

Commission Report [COM(2009) 533 final – SEC(2009) 1333 final – Not published in the Official Journal].

Commission Report [COM(2008) 674 final – SEC(2008) 2694 final – Not published in the Official Journal].

The 2008 Report noted significant progress and that alignment with the acquis had reached a satisfactory level in the areas of budget and finance. New regulations and procedures were necessary to increase the efficiency of public expenditure and administrative capacity.

Commission Report [COM(2007) 663 final – SEC(2007) 1431 – Not published in the Official Journal].
The 2007 Report recorded major progress in alignment with the acquis in the area of “economic and monetary affairs”. However, the Commission observed that Croatia had not yet completed the necessary alignment.

Commission Report [COM(2006) 649 final – Not published in the Official Journal].
The 2006 Report did not observe any progress in the area of monetary policy. Croatia should continue to make headway with introducing indispensable changes to its institutional and legal system, especially as regards the total independence of its Central Bank. However, in the area of economic policy, the country had made some progress in its alignment with the acquis.

Commission Report [COM(2005) 561 final – SEC(2005) 1424 – Not published in the Official Journal].
The 2005 Report observed that the country should be capable of coping with competition and market forces within the Union. Inflation was kept relatively low, the exchange rate seemed to have stabilised; the substantial deficits which existed in the public accounts and current transactions had been reduced. However, Croatia needed to take steps to consolidate public finances, notably through structural measures in the area of subsidies and transfer payments. The privatisation process speeded up in 2005. On the other hand, little progress had been made with the reorganisation of the major public companies, especially those in the energy sector. Telecoms deregulation, on the other hand, was proving a great success.

Commission Opinion [COM(2004) 257 final – Not published in the Official Journal].
In its Opinion of 20 April 2004, the Commission concluded that Croatia was a stable democracy with a functioning market economy and that it must be able to meet the demands stemming from the Community acquis in the field of economic and monetary union (EMU). The same was true of provisions on monetary financing, privileged access by public authorities to financial institutions and the protection of the euro. As regards Croatia’s participation in the third stage of EMU, the Commission took the view that it had enough time to prepare for participation as a Member State subject to a derogation.