Category Archives: Institutional and economic framework of the euro

So far, 17 of the 27 Member States of the European Union have introduced the single currency. The European Central Bank and the national central banks together form the Eurosystem which aims to maintain price stability within the euro zone and protect the euro’s purchasing power. Member States wishing to introduce the euro must meet certain economic criteria (“convergence criteria”). The United Kingdom and Denmark have negotiated opt-out clauses and do not participate in the single currency.

Towards adoption of the euro in 2008: Cyprus and Malta

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Towards adoption of the euro in 2008: Cyprus and Malta

Outline of the Community (European Union) legislation about Towards adoption of the euro in 2008: Cyprus and Malta

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

Economic and monetary affairs > Institutional and economic framework of the euro

Towards adoption of the euro in 2008: Cyprus and Malta

Acts

Report from the Commission of 16 May 2007: Convergence Report 2007 on Cyprus, prepared in accordance with Article 122(2) of the Treaty at the request of Cyprus [COM(2007) 255 final – not published in the Official Journal].

Report from the Commission of 16 May 2007: Convergence Report 2007 on Malta, prepared in accordance with Article 122(2) of the Treaty at the request of Malta [COM(2007) 258 final – not published in the Official Journal].

Summary

The European Commission concludes in these convergence reports, prepared at the request of Cyprus (13 February 2007) and Malta (27 February 2007), that the two Member States fulfil the “convergence criteria” for being able to introduce the euro as from 1 January 2008. It therefore proposes to the Council of the European Union that a decision be adopted accordingly.

Determining the state of convergence: the Treaty provisions

The convergence criteria are listed in Article 121(1) of the Treaty establishing the European Community (EC Treaty). They are set out in more detail in the protocol on the convergence criteria. The criteria relate to:

price stability: a sustainable degree of price stability and an average rate of inflation, observed over a period of one year before the examination, that does not exceed by more than 1.5 % that of the three best-performing Member States in terms of price stability;
government budgetary position: absence of excessive deficit (reference value: 3 % of GDP) and public debt in line with the reference value of 60 % of GDP;
exchange rate stability: the national currencies have for two years kept within the fluctuation margins provided for by the exchange-rate mechanism of the European Monetary System (EMS II) without experiencing severe tension and without devaluation against any other Member State’s currency;
long-term interest rates: a long-term interest rate that does not exceed by more than 2 % that of the three best-performing Member States in terms of price stability.

In addition, national legislation, including the statutes of the national central banks, must be compatible with the requirements of the EC Treaty and the Statute of the European System of Central Banks (ESCB ).

Applying the convergence criteria to Cyprus and Malta

The reference value for inflation (price stability) was fixed at 3 % in March 2007, with Finland, Poland and Sweden the three Member States posting the best results.

Cyprus. Cyprus’ 12-month average inflation rate has been below the reference value since August 2005. In March 2007, the average rate was 2.0 % – well below the 3 % reference value. In addition, according to the Commission’s spring 2007 forecast, the 12-month average inflation rate in Cyprus will fall to 1.3 % in December 2007, against a reference value of 2.8 %. Government debt followed an upward trend between 2000 and 2004 but has been on a declining path since 2005. It decreased to 65.3 % of GDP in 2006, and according to the Commission services’ Spring 2007 Forecast, will continue to decline in 2007, reaching some 61.5 % of GDP. Cyprus thus satisfies the price stability criterion.

Malta. The 12-month average inflation rate has been around or below the reference value since July 2005, apart from the period between May and October 2006. In March 2007, the average rate was 2.2 % – well below the reference value of 3 %. The Commission forecasts that average inflation in Malta will fall to 1.4 % in December 2007. Malta thus satisfies the price stability criterion.

To be able to introduce the euro, a country has to have a budgetary position without an excessive deficit.

Cyprus. At the time this report was written, Cyprus was no longer the subject of a Council decision on the existence of an excessive deficit. Its deficit peaked at 6.3 % of GDP in 2003, but since then it has shrunk considerably and stabilised at 1.5 % of GDP. Forecasts for 2007 are for it to remain steady at 1.4 % of GDP. Cyprus therefore satisfies the criterion on the government budgetary position.

Malta. At the time this report was written, Malta was the subject of a decision on the existence of an excessive deficit [Council Decision 2005/186/EC of 5 July 2004 – Official Journal L 62 of 9.3.2005]. From a peak of about 10 % of GDP in 2003, the budget deficit fell considerably to 2.6 % of GDP in 2006. According to Commission forecasts, it will represent 2.1 % of GDP in 2007. The Commission believes that the excessive deficit has been corrected in a credible way below the 3 % threshold and that the debt ratio (66.5 % of GDP in 2006) is coming down towards the reference value of 60 % of GDP (65.9 % of GDP forecast for 2007). As a result, it recommends that the Council repeal the decision on the existence of an excessive deficit in Malta. The Council halted the excessive deficit procedure against Malta at its meeting of 5 June 2007 [PDF ].

As regards the criterion on exchange rate stability, Member States have to have participated in the European exchange rate mechanism (ERM II) for at least two years without experiencing severe tension.

Cyprus. The Cyprus pound has participated in the European exchange rate mechanism (ERM II) since 2 May 2005. Over these two years, it has always been in the upper part of the fluctuation margin, close to the central rate, and has not seen significant fluctuations.

Malta. The Maltese lira has been part of the European exchange rate mechanism (ERM II) since 2 May 2005. Over these two years, it has been stable against the central rate and has not experienced severe tension.

In March 2007, the reference value for the long-term interest rate was fixed at 6.4 %.

Cyprus. The average long-term interest rate was 4.2 % over the year ending in March 2007. Average long-term interest rates have been below the reference value since November 2005. Cyprus satisfies the convergence criterion on long-term interest rates.

Malta. The average long-term interest rate was 4.3 % over the year ending in March 2007. Average long-term interest rates have been below the reference value since accession to the European Union in May 2004. Malta satisfies the convergence criterion on long-term interest rates.

In addition, national legislation in Cyprus and Malta, particularly as regards the national central banks, is compatible with the requirements of the EC Treaty and the ESCB statutes.

“Thumbs up” for the introduction of the euro in Cyprus and Malta

In the light of its evaluation of the country’s compliance with the convergence criteria, the Commission gives its “thumbs-up” to the introduction of the euro in Cyprus. The same applies to Malta, subject to the Council following the Commission’s recommendation to end the excessive deficit procedure. The Council did so at its meeting of 5 June 2007. [Council Decision of 5 June 2007 abrogating Decision 2005/186/EC on the existence of an excessive deficit in Malta – OJ L 176 of 6.7.2007].

Background

The report on Cyprus looks only at the areas in which the Government of the Republic of Cyprus exercises effective control, as defined in Protocol No 10, annexed to the 2003 Act of Accession.

2007 Annual Statement on the Euro Area

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2007 Annual Statement on the Euro Area

Outline of the Community (European Union) legislation about 2007 Annual Statement on the Euro Area

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Economic and monetary affairs > Institutional and economic framework of the euro

2007 Annual Statement on the Euro Area

Document or Iniciative

Summary

In this Communication, the European Commission presents its views on how euro-area countries can face up to their shared responsibilities and challenges. The document, which is accompanied by the annual report on the euro area [PDF], is designed to inform the debate on the euro-area’s economic performance and the functioning of Economic and Monetary Union (EMU).

A tangible symbol of European construction: the euro

Economic integration is central to the success of the European construction, as the Heads of State and Government reaffirmed on the 50th anniversary of the Treaty of Rome in 2007, in the Berlin declaration: “The common market and the euro make us strong”. The single currency is indeed a tangible symbol of the European construction. Spurred on by the successful introduction of the euro in Slovenia on 1 January 2007, other Member States are stepping up their preparations to enter the euro area once they meet the convergence criteria. On 16 May 2007 the Commission confirmed that Cyprus and Malta meet the criteria and can therefore introduce the euro on 1 January 2008, subject to the Council of Ministers adopting a decision to that effect.

The European Council stresses the need for prudent fiscal policies

As part of the Lisbon Strategy, the 2007 Spring European Council adopted a number of specific recommendations for the euro area, emphasising the need for prudent fiscal policies and improvements in the quality of public finances and calling for greater adaptability in the markets for goods and services. The Heads of State and Government are also calling for better alignment of wage and productivity developments and an accelerated pace of financial-market integration.

Creating a solid base for economic recovery

The euro area grew by 2.7 % in 2006, its fastest growth rate since 2000. Employment growth was around 1.5 % in 2006, meaning that close to two million new jobs were created. In December 2006 the unemployment rate was 7.5 %, its lowest level in 15 years. Inflation was around 2 % last year, but it came down towards the end of the year as energy prices eased. The European Commission sees the prospects for economic growth in the euro area as being more favourable in 2007 than they have been for many years.

Although there are signs of greater resilience to global disturbances, the Commission points out that unforeseen events on the geo-political stage or exchange-rate tensions are among the factors which could lead to lower-than-expected growth.

If the euro area’s economic recovery is to continue, macroeconomic policy must be given a sound footing. In this context the Commission calls on the Member States to take advantage of the economic upswing to complete the consolidation of their budgetary situation by the end of the decade. Such fiscal consolidation would also enhance the overall macroeconomic policy mix, and securing sound public finances would help the euro-area members to address the economic implications of their ageing populations.

The Commission recognises that euro-area members have made an effort to correct their excessive budget deficits. In January 2007 the Council closed the excessive-deficit procedure against France, and on 16 May 2007 it recommended to the Council that the current excessive-deficit procedures against Germany and Greece should be terminated. The same applies to Malta, which is seeking to introduce the euro on 1 January 2008. However, the Commission points out that the Member States, especially those in the process of correcting their excessive deficits, must press ahead with budgetary consolidation to meet their medium-term budgetary objectives.

The euro-area countries must sow the seeds of further structural reform, stresses the Commission. The Lisbon economic reform agenda is critical for boosting growth and jobs in the 27 Member States but has an added dimension for the euro area. Economic reforms will reduce inflationary bottlenecks in the euro area and help to sustain economic recovery. In addition, well-functioning product, labour and capital markets are essential for dealing with economic shocks. However, the slow adjustment of some euro-area members to country-specific shocks shows that the economic reforms need to go further.

Adapting the single market to the 21st century and delivering greater benefits for citizens

All the Member States must ensure that the internal market is equipped to meet the opportunities and challenges of the 21st century. A dynamic internal market could encourage a closer alignment of national economic cycles and speed up the adjustment of prices and wages to economic shocks. When the Single European Act entered into force 20 years ago, a fairly homogenous European economy was strongly reliant on the mass manufacture of standardised products. In today’s world of globalisation, new technologies and EU enlargement, the economy has a greater degree of product differentiation and is more and more reliant on the knowledge-based and service sectors.

In its Communication “A single market for citizens” [COM(2007) 60 final], the Commission recommends that the single market should be adapted to new realities. It stresses the need to deliver even more tangible benefits for European citizens, entrepreneurs, workers and consumers. To achieve this, the single market must do more than take measures to overcome cross-border legal obstacles for businesses. The Commission will present a complete assessment of the single market with concrete proposals for action towards the end of 2007.

A more prominent role on the international stage in today’s globalised world

The euro area is part of an increasingly interdependent global economy. Over the year, the euro appreciated by around 11 % against the US dollar and around 12.5 % against the Japanese yen. However, in real terms the euro appreciated by much less (+3.5 %). The trends observed in 2006 continued in the early months of 2007.

The existence of global imbalances is a matter of concern for the world’s economy. The International Monetary Fund (IMF) organised multilateral consultations on global imbalances in which the euro area played an active role along with the other major economic powers. The participants agreed on the following action:

increased national saving in the USA with measures to reduce the budget deficit and promote private saving;
further structural reforms in Japan, in particular the consolidation of public finances;
greater exchange-rate flexibility in a number of emerging economies in Asia with surpluses (in particular China);
efficient absorption of higher oil revenues in oil-exporting countries;
implementing structural reforms to improve growth and boost domestic demand in the euro area.

Related Acts

In its 2006 annual statement, the Commission lists the main challenges facing the euro area, as follows:

budgetary consolidation;
structural reforms to increase productivity and promote growth and employment;
deepening the internal market to reap all the benefits of the single currency and respond rapidly to economic change.

In the external domain, the growing importance of the euro as a global currency and the challenges facing the world economy call for a more prominent role for the euro area on international economic and financial issues.

Accession of Cyprus and Malta to euro area

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Accession of Cyprus and Malta to euro area

Outline of the Community (European Union) legislation about Accession of Cyprus and Malta to euro area

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

Economic and monetary affairs > Institutional and economic framework of the euro

Accession of Cyprus and Malta to euro area (2008)

Acts

Council Decision 2007/503/EC of 10 July 2007 in accordance with Article 122(2) of the Treaty on the adoption by Cyprus of the single currency on 1 January 2008.

Council Decision 2007/504/EC of 10 July 2007 in accordance with Article 122(2) of the Treaty on the adoption by Malta of the single currency on 1 January 2008.

Summary

In these two Decisions, the Council states that Cyprus and Malta satisfy all the conditions required to adopt the euro:

Cyprus and Malta satisfy the requirements established by the convergence criteria: price stability, the government budgetary position, participation in the exchange mechanism of the European monetary system, the existence of a satisfactory long-term interest rate;
Cyprus and Malta have national legislation which is compatible with the introduction of the euro.

Consequently, the Council chose the date of 1 January 2008 for these two Member States to adopt the euro.

Procedure

During its meeting of 10 July 2007, the Economic and Monetary Affairs Council gave the go-ahead for the introduction of the euro in Cyprus and Malta. Prior to that, the European Commission had established in the convergence reports that both States fulfilled the membership criteria for the Economic and Monetary Union.

These Decisions are addressed to the Member States. They stipulate that Cyprus and Malta fulfil the necessary conditions for the adoption of the single currency. They repeal the derogations in favour of the two countries referred to in Article 4 of the 2003 Act of Accession.

The Council decides which Member States fulfil the necessary conditions for the adoption of the euro, i.e. compatibility of their national legislation with the Community acquis and the convergence criteria set out in Article 140 of the Treaty on the Functioning of the EU (formerly Article 121 of the EC Treaty). The two proposals presented by the Commission on 16 May 2007 (Cyprus: CNS/2007/0090 and Malta: CNS/2007/0092) resulted in the present Decisions.

REFERENCES

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
Decision 2007/503/EC	Date of notification	–	OJ L 186 of 18.7.2007
Decision 2007/504/EC	Date of notification	–	OJ L 186 of 18.7.2007

RELATED ACTS

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank of 18 April 2008 on the introduction of the euro in Cyprus and Malta [COM(2008) 204 final – Not published in the Official Journal].

The Commission presents the results of the introduction of the single currency in Cyprus and Malta. It draws lessons from these for future changeovers to the euro (link to new summary EC000) in European Union Member States.

Greece's membership in the single currency

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Greece’s membership in the single currency

Outline of the Community (European Union) legislation about Greece’s membership in the single currency

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

Economic and monetary affairs > Institutional and economic framework of the euro

Greece’s membership in the single currency

Document or Iniciative

Council Decision of 19 June 2000 in accordance with Article 122(2) of the Treaty on the adoption by Greece of the single currency on 1 January 2001 [Official Journal L 167 of 7 July 2000].

Summary

At the time of the transition to the third stage of economic and monetary union (EMU), Greece did not fulfil the convergence criteria (Decision No 98/317/EC) and was covered by a derogation laid down in Article 122 of the Treaty. Every two years, or at the request of the Member State concerned, a report by the Commission and the European Central Bank (ECB) examined whether the convergence criteria were met. Greece requested that the derogation be repealed on 9 March 2000.

In its decision, the Council took the view in the light of the Commission and ECB report that:

Greece fulfilled the criterion relating to the average rate of inflation; during the previous year, the inflation rate reached 2 %, which was lower than the reference value (2.4 %);
Greece was not the subject of a decision on the existence of an excessively high government deficit (Decision 2000/33/EC), as the annual government deficit did not exceed the reference value (3 % of GDP) and the government debt ratio was approaching the reference value (60 % of GDP) at a satisfactory rate;
Greece had been a member of the exchange-rate mechanism of the European Monetary System (EMS) and subsequently of ERM II for two years without devaluing its currency’s central rate;
Greece met the criterion of the long-term interest rate; over the previous year, the interest rate reached 6.4 %, which was lower than the reference value (7.2 %);
Greek domestic legislation, including the statute of the national central bank, was compatible with the Treaty and the Statute of the European System of Central Banks (ESCB).

The Council therefore considered that Greece had achieved a high level of sustainable convergence and that it fulfilled the necessary conditions for the adoption of the single currency. The derogation relating to Greece was repealed on 1 January 2001.

References

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
Council Decision 2000/427/EC	01.01.2001	–	OJ L 167 of 07.07.2000

Related Acts

Council Regulation (EC) No 1478/2000 of 19 June 2000 amending Council Regulation (EC) No 2866/98 on the conversion rates between the euro and the currencies of the Member States adopting the euro.

By this Regulation, the Council set the conversion rate between the Greek drachma and the euro at 340.750 drachmas per euro, as of 1 January 2001.

United Kingdom: EMU opt-out clause

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United Kingdom: EMU opt-out clause

Outline of the Community (European Union) legislation about United Kingdom: EMU opt-out clause

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

Economic and monetary affairs > Institutional and economic framework of the euro

United Kingdom: EMU opt-out clause

Document or Iniciative

Protocol (No 25) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland (1992), annexed to the Treaty establishing the European Community.

Summary

This Protocol specifies the provisions of the United Kingdom’s opt-out from moving to the third stage of economic and monetary union (EMU), meaning that it has not introduced the euro for the time being. The United Kingdom is still in the second stage of EMU. The opt-out clause was a condition for the United Kingdom to approve the Treaty as a whole.

PROVISIONS OF THE OPT-OUT CLAUSE

The Protocol states that certain articles of the Treaty do not apply to the United Kingdom:

its powers in the field of monetary policy are not affected by the Treaty (the United Kingdom retains its powers in the field of monetary policy under national law);
it is not subject to the provisions of the Treaty relating to excessive deficits;
it is not concerned by the provisions of the Treaty relating to the European System of Central Banks (ESCB), the European Central Bank (ECB) or the regulations and decisions adopted by those institutions.

The United Kingdom’s voting rights are suspended for the acts of the Council concerning:

the decision on the irrevocable fixing of the exchange rates between the currencies of the Member States that move to the third stage and adopt the euro;
the appointment of the President, the Vice-President and the other four members of the Executive Board of the ECB.

For this purpose, the weighted votes of the United Kingdom are excluded from any calculation of a qualified majority.

NOTIFICATION OF THE UK GOVERNMENT

On 30 October 1997, the UK Government notified the Council that it was not intending to adopt the single currency on 1 January 1999. The United Kingdom may change its notification at any moment and introduce the single currency provided that it satisfies the following conditions:

the UK Government and Parliament take a decision in this respect (with or without a referendum, depending on national law);
the United Kingdom meets the convergence criteria laid down in the Treaty establishing the European Community.

Acting at the request of the United Kingdom, the Council, after examining a report from the Commission and the ECB, after consulting the European Parliament and after discussion in the Council, meeting in the composition of the Heads of State or Government, will decide whether the conditions are met and will act by qualified majority.

THE FIVE ECONOMIC TESTS

The UK Government has announced that any move to the third stage of EMU will depend on five economic tests being met:

Convergence of business cycles: Business cycles in the euro zone and the United Kingdom must be compatible. The assessment will focus on economic indicators such as inflation, interest rates, the output gap and the real effective exchange rate with a view to long-term convergence.
Flexibility: The UK economy must be flexible enough to ensure that any asymmetrical shocks can be absorbed by, for example, labour-market flexibility and mobility and by fiscal policy.
Investment: UK participation in the single currency must promote investment (foreign or domestic) in the long term.
Financial services: EMU must improve the competitive position of the UK’s financial services industry, particularly in London.
Growth, stability and jobs: EMU must have positive effects on employment and growth, measured by the impact on UK foreign trade, price differentials and macroeconomic stability.

According to the UK Government, these tests must be met before the United Kingdom applies to participate in the third stage of EMU. They are in addition to the formal criteria laid down in the Treaty. The assessment of the tests by the UK Treasury carried out in June 2003 (EN) was as follows: since 1997, the United Kingdom has made real progress towards meeting the criteria of the five tests. However, although the possible benefits (increases in investment, financial services, economic growth and job creation) seem clear, the Chancellor of the Exchequer cannot definitively conclude that convergence will be sustainable and that flexibility is sufficient to cope with any difficulties with the euro zone. A decision to adopt the single currency is therefore not currently in the UK national interest, according to reports from the Treasury.

Denmark : EMU opt-out clause

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Denmark : EMU opt-out clause

Outline of the Community (European Union) legislation about Denmark : EMU opt-out clause

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Economic and monetary affairs > Institutional and economic framework of the euro

Denmark : EMU opt-out clause

Document or Iniciative

Protocol on certain provisions relating to Denmark, annexed to the Treaty establishing the European Community (1992).

Summary

The Protocol on certain provisions relating to Denmark, annexed to the Treaty establishing the European Community, provides Denmark with the guarantee that it will not automatically proceed to the third stage of EMU even if the criteria are fulfilled. The Danish Constitution requires a referendum to be held on this issue.

Provisions of the Protocol

The Protocol stipulates that:

the Danish Government will notify the Council of its position concerning participation in the third stage before the Council makes its assessment of the convergence criteria;
in the event of a notification that Denmark will not participate in the third stage, Denmark will be granted an exemption the effect of which will be that all provisions of the Treaty and the Statute of the European System of Central Banks (ESCB) referring to a derogation will be applicable;
the procedure for abrogating the exemption will only be initiated at the request of Denmark.

In the event that the exemption is abrogated, the provisions of the Protocol cease to apply.

Referendum on the Maastricht Treaty (1992)

The Danish Parliament adopted the Maastricht Treaty in May 1992, with 125 votes for and 25 votes against. The Danish Constitution requires a referendum to be held on any draft legislation authorising a transfer of powers to supranational authorities.

The Maastricht Treaty was presented to the Danish people in a referendum on 2 June 1992. The Treaty was rejected with 50.7 % of the votes.

Responding to Denmark’s concerns: the Edinburgh declaration

Since the Treaty had to be ratified by all Member States before it could enter into force, the Edinburgh European Council in December 1992 found a solution in the form of the Decision of the Heads of State and Government, meeting within the European Council, concerning certain problems raised by Denmark on the Treaty on European Union. This declaration refers to the document “Denmark in Europe” which was presented by the Danish Government and set out the main problems identified:

the defence policy dimension;
the third stage of EMU;
citizenship of the Union;
cooperation in the fields of justice and home affairs;
the principle of subsidiarity .

The European Council laid down provisions designed to meet the Danish concerns which would apply exclusively to Denmark and to no other Member States, neither at the present time nor in the future. As regards entry to the third stage of EMU, the declaration lays down the following decision:

In accordance with the Protocol on certain provisions relating to Denmark, Denmark has given notification that it will not participate in the third stage of EMU. Accordingly, Denmark will not participate in the single currency.
Denmark will not be bound by the rules concerning economic policy which apply to Member States participating in EMU.
Denmark will retain its existing powers in the field of monetary policy according to its national laws and regulations.
Denmark will participate fully in the second stage of EMU and will continue to participate in exchange-rate cooperation within the European Monetary System (EMS).
Denmark retains the capacity to pursue its own policies with regard to distribution of income and social welfare.

A second referendum

On this basis, a second referendum was held on 18 May 1993. The Treaty was accepted with 56.8% of the votes.

Denmark’s situation today

The Danish krone has remained within the EMS and has been part of the new exchange-rate mechanism (ERM II) since the introduction of the euro. It may fluctuate within a 2.25% band on either side of the euro.

Referendum on stage three (2000)

After the adoption of the single currency by eleven Member States on 1 January 1999, the Danish Government decided to organise a referendum on Denmark’s entry to the third stage of EMU and thus to abrogate the opt-out. The referendum was held on 28 September 2000. There was a turnout of 86% and 53.1 % of the voters were against the adoption of the euro.

Sweden: Convergence reports

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Sweden: Convergence reports

Outline of the Community (European Union) legislation about Sweden: Convergence reports

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 > Institutional and economic framework of the euro

Sweden: Convergence reports (2002 – 2004 – 2006)

Document or Iniciative

Report from the Commission of 22 May 2002: Convergence report 2002 Sweden [COM(2002) 243 final – Not published in the Official Journal].

Summary

This convergence report from 2002 states that Sweden does not fulfil the necessary criteria for adopting the euro. (For the convergence reports from 2004 and 2006: see “Related Acts”).

Under Article 122(2) of the Treaty establishing the European Communities (EC Treaty), the Commission and the European Central Bank (ECB) are required to draw up, at least once every two years or at the request of a Member State with a derogation, reports on the progress made by Member States in performing their obligations to achieve Economic and Monetary Union (EMU). These two reports summarise the detailed assessment of economic convergence, the convergence criteria and the compatibility of Swedish legislation with the Treaties.

Setting the convergence criteria for 2002

Under the provisions of the EC Treaty, the reference values for the convergence criteria are fixed for the period in question:

Price movements: For the one-year period preceding the assessment, the average inflation rate in the three best-performing Member States (United Kingdom, France and Luxembourg) was 1.8%, giving with the addition of 1.5 percentage points a reference value of 3.3%.
Public finances: The reference values established by the Treaties are 3% of gross domestic product (GDP) for the budget deficit and 60% of GDP for the government debt ratio;
Exchange rate: The currency in question must have participated in the exchange-rate mechanism (ERM II) for two years without serious strain on the economy. In the absence of a central rate, the ECB report takes as the reference rate the average exchange rate for May 2000 (1 = SEK 8.241).
Long-term interest rate: For the period of one year before the assessment, the average long-term interest rate in the three best-performing Member States in terms of price stability was 5%, giving with the addition of two percentage points a reference value of 7.0%.

Detailed study of the convergence criteria

Price movements. During the reference period (from May 2001 to April 2002 for this report), the average inflation rate, as measured by the harmonised consumer price index (HCPI) was 2.9% in Sweden, within the reference value of 3.3%. Sweden has consistently complied with the reference value for inflation since December 1996. It thus continues to fulfil the price stability criterion.

Over a long period, the increase in the HCPI has been compatible with price stability. The rise in consumer prices followed a downward trend for most of the 1990s. This came after monetary policy was refocused on price stability, which became the main monetary policy target of the Riksbank (Central bank of Sweden). The increase in the HCPI in the spring of 2001 was due to factors such as the food scares associated with the BSE and foot-and-mouth epidemics and higher oil prices. In March 2002 the unemployment rate was 5.2%. The rapid increase in unit wage costs of 4.4% in 2001 added to the risk of inflation. The Commission report expected a slowdown in inflation in 2002 compared with 2001. The Riksbank anticipated average inflation of 2.3% in 2002 and 2.2% in 2003.

Public finances. During the reference year 2001, general government recorded a budget surplus equivalent to 4.8% of GDP, well within the reference value of a deficit of 3%. The surplus was 1.1% higher than the previous year.
The government debt ratio rose by 0.6% to 55.9% of GDP, in line with the reference value of 60%. In spite of the budget surpluses, the increase in the government debt ratio was essentially due to the reduction in holdings of government debt by social security funds.

After peaking at 77.7% in 1994, government debt has declined markedly. The budget deficit, which stood at 11.9% of GDP in 1993, has fallen steadily and Sweden has recorded budget surpluses since 1998. This has been due in part to economic growth but also to structural improvements making for a balanced budget policy. The ratio of total government expenditure to GDP declined from 73% at the beginning of the 1990s to 57.5% in 2001.

For 2002 a surplus of 1.7% is expected and the government debt ratio should decline to 52.6%. The government has devised a long-term budget strategy aimed at maintaining a budget surplus of some 2% until 2015 in order to cope with the budgetary pressures caused by demographic developments. In its convergence programme, the debt ratio was forecast to fall to 45.2% of GDP by 2004. Sweden continues, therefore, to fulfil the budgetary criterion.

Exchange rate. The Swedish krona has not participated in EMR II. Compared with May 2000, it remained at a low level during the reference period. It fell against the euro by some 18% between May 2000 and September 2001. The Riksbank intervened on several occasions on foreign exchange markets in support of the krona in order to remove any risk of imported inflation attributable to events on exchange markets. Following an improvement in Sweden’s economic prospects, the krona gained in value by some 8% against the euro. Since Sweden has not participated in ERM II, it does not fulfil the exchange-rate criterion.

Long-term interest rate During the reference period, the long-term interest rate in Sweden averaged 5.3%, below the reference value. Between 1994 and 1999 long-term interest rates headed downwards. Since then, they have begun to recover at the same rate as long-term interest rates in the euro area. Sweden has consistently fulfilled the criterion for convergence of long-term interest rates since December 1996.

Conclusion regarding the convergence criteria Sweden fulfils the government finance, inflation rates and long-term interest rate criteria. Only the exchange-rate criterion is not fulfilled. Sweden has a derogation but there is no provision to exempt it from participation in the third stage of EMU (as in the case of Denmark and the United Kingdom). Sweden is, therefore, required to adopt the euro, and this means that it must fulfil the exchange-rate criterion.

Compatibility of national legislation with the EC Treaty

Legal convergence In accordance with Articles 108 and 109 of the Treaty, the report examines the compatibility of Swedish national legislation, including the statutes of the Riksbank, with the EC Treaty and the Statute of the European System of Central Banks (ESCB). Compatibility with the requirements of the Treaty entails:

independence of the national bank;
primacy of the objective of price stability;
legal integration of the Riksbank in the ESCB (statutes, tasks, instruments, organisation and financial provisions);
prohibition of public-sector financing by the Riksbank;
prohibition of privileged access by the public sector to financial institutions;
free movement of capital within the Union and with countries outside the Union;
compatibility of other legislative texts (issue of notes and coins, exchange-reserve management, exchange-rate policy, etc.).

Assessment of legal convergence in Sweden. The ECB’s convergence report for 2000 identified the following points as requiring adaptation:

the constitutional law;
the law governing the Riksbank;
the law governing exchange-rate policy.

No adjustment has thus far been made, however.

Independence of the Riksbank. The amendments that entered into force on 1 January 1999 resolved the main inconsistencies regarding the Riksbank’s independence. It is only the issue of profit allocation and parliamentary influence over this issue that are still posing problems. The Swedish parliament is currently examining the issue so that a decision can be taken. The ECB has recalled the need for these internal rules to be clarified.

Integration of the Riksbank with the ESCB. Swedish law does not, for the moment, provide for full integration of the Riksbank with the ESCB. This means that national legislation is not compatible with Treaty requirements. The problem concerns a number of provisions in the Riksbank’s statute and will require a further detailed updating of Swedish legislation before adoption of the single currency. The inconsistencies and imperfections concern in particular:

the requirement on the Riksbank to inform the government in advance of any major decision;
the Riksbank’s powers in the field of monetary policy;
the Riksbank’s monopoly over the issue of bank notes;
the imposition of minimum reserve requirements on financial institutions;
exchange-rate policy;
the rules governing access to public documents.

In line with its obligations as a Member State with a derogation, Sweden should, therefore, meet all of the requirements laid down in Article 109 of the Treaty.

Conclusion Swedish national legislation is not yet compatible with the requirements of the Treaty.

Background: Drawing up convergence reports every two years

The Member States which in 1998 were deemed not to have fulfilled the necessary conditions for adopting the single currency were termed “Member States with a derogation”. At the time, this applied to two Member States: Greece and Sweden.

Under Article 122(2) of the EC Treaty, the Commission and the European Central Bank (ECB) are required to draw up, at least once every two years or at the request of a Member State with a derogation, reports on the progress made by Member States in performing their obligations with a view to achieving EMU.

Sweden was evaluated in 2002 [PDF ] by the Commission. The Commission concluded that Sweden did not fulfil the necessary criteria for adopting the single currency and has continued to be called a “Member State with a derogation”. This convergence report dates from 22 May 2002 and subsequent reports were published in 2004 and 2006 (see “Related Acts”).

Referendum on adopting the euro in Sweden

Sweden held a referendum for adopting the euro on 14 September 2003. The result was that 56.1% voted against adopting the euro. The “yes” ballot received 41.8%, with 2.1% blank papers and 0.5% declared null and void according to the final result published by the Electoral Commission.

Related Acts

Report from the Commission: Report from the Commission: convergence report 2006 [COMM(2006) 762 final – Not published in the Official Journal].
The European Commission concludes in the convergence report of 2006 that Sweden’s status as a Member State with a derogation does not need to be modified.

Swedish legislation (the ‘Riksbank Act’) was amended in 2004 and 2006 but without taking the inconsistencies pointed out in the convergence report of 2004 into account. The Commission also notes that, on the subject of the independence of the Riksbank and its integration into the ESCB when the euro is adopted, Swedish legislation is inconsistent with Articles 108 and 109 of the Treaty and the statutes of the ESCB and the ECB. Moreover, it identified certain contradictions between Swedish law on exchange rate policy and Community provisions. The average inflation rate in Sweden remained below 1.5% until October 2006 so the country therefore fulfils the price stability criterion. The Commission also points out that Sweden fulfils the criterion of fiscal sustainability (government debt in 2005: 50.4 % of GDP). Sweden does not, however, play a part in ERM II and does not fulfil the exchange rate criterion, but does so in terms of long-term interest rate convergence (3.7%).

Report from the Commission: Report from the Commission convergence report 2004 [COMM(2004) 690 final – Not published in the Official Journal].
The Commission concluded that the status of Sweden as a Member State with a derogation did not need to be modified.

In its 2002 convergence report, the Commission had deemed that Sweden already fulfilled three convergence criteria (price stability, government financial position and interest rate convergence). With average inflation at 1.3%, Sweden continued to satisfy the criterion of price stability. This was also the case regarding criteria on government financial position (the budget surplus in public administration was at 0.3% of GDP in 2003 and government debt at 52% of GDP). Sweden also fulfilled the convergence criteria of long-term interest rates (4.7%). The Swedish krona is not part of ERM II and Sweden still did not fulfil the exchange rate criteria. Swedish legislation remained not fully compatible with Articles 108 and 109 of the Treaty with the statutes of ESCB and the ECB concerning the financial independence of the Riksbank and its inclusion in ESCB at the time of the euro’s adoption.

Copyright protection of the design for the common face of euro coins

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Copyright protection of the design for the common face of euro coins

Outline of the Community (European Union) legislation about Copyright protection of the design for the common face of euro coins

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

Economic and monetary affairs > Institutional and economic framework of the euro

Copyright protection of the design for the common face of euro coins

Document or Iniciative

Communication from the Commission on copyright protection of the common face design of the euro coins [COM(2001) 600 final – Official Journal C 318 of 13.11.2001].

Summary

The designs for the common face of euro coins are protected by copyright held by the European Community. The European Commission assigns the rights to Member States who adopt the euro and requires them to ensure that the copyright is respected in their territory.

The reproduction of all or part of the design of the common face of euro coins is allowed in very specific cases, such as reproduction in the form of photographs or films. Reproduction on medals or tokens, on the other hand, is prohibited, on the grounds that this might lead to these objects being mistaken for coins. For any other type of reproduction authorisation must be obtained from either the European Commission (in the case of Member States outside the euro area), or the designated authority in the Member State (for countries within the euro area).

Member States are asked to inform the Commission of the measures they have taken to enforce copyright in their territory, to ensure effective coordination. In the event of unauthorised reproduction, the Member State must take appropriate steps to stop it and to withdraw the reproduction from circulation. The Commission or the Member States of the euro area may prosecute the person responsible under national law.

Exchange rate mechanism between the euro and participating national currencies

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Exchange rate mechanism between the euro and participating national currencies

Outline of the Community (European Union) legislation about Exchange rate mechanism between the euro and participating national currencies

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 > Institutional and economic framework of the euro

Exchange rate mechanism (ERM II) between the euro and participating national currencies

Document or Iniciative

Agreement of 16 March 2006 between the European Central Bank (ECB) and the national central banks (NCBs) of the Member States outside the euro area laying down the operating procedures for an exchange rate mechanism in stage three of Economic and Monetary Union (EMU) [See amending acts].

Summary

The single market must not be endangered by real exchange rate misalignments or by excessive nominal exchange rate fluctuations between the euro and the other European Union (EU) currencies, as these would disrupt trade flows between the Member States. This Agreement aims to ensure a stable economic environment by establishing an exchange rate mechanism (ERM II) between the euro and the participating national currencies. Participation in ERM II is optional for the non-euro area Member States, but those Member States with a derogation can be expected to join. ERM II ensures that participating Member States orient their policies to stability and convergence, helping them in their efforts to adopt the euro.

Determining a central rate and intervention bands

A central rate is determined between the euro and each participating non-euro area currency, with a standard fluctuation band of 15 % above and below that rate. All parties to the mutual agreement on the central rates, including the European Central Bank (ECB), have the right to initiate a confidential procedure to reconsider the rates.

Decisions are taken by common accord by the ministers of the euro area Member States, the ECB and the ministers and central bank governors of the non-euro area Member States participating in the new mechanism, in accordance with a common procedure involving the Commission and following consultation of the Economic and Financial Committee.

Under the Agreement, intervention is, in principle, effected in euro and the participating currencies. The ECB and the NCB or NCBs concerned inform each other about all foreign exchange intervention. This involves either intervention at the margins or coordinated intramarginal intervention:

Intervention at the margins. Intervention at the margins is, in principle, automatic and unlimited. However, the ECB and the participating non-euro area NCBs may suspend automatic intervention if it conflicts with the primary objective of maintaining price stability;
Coordinated intramarginal intervention. The ECB and the participating non-euro area NCBs may agree to carry out coordinated intramarginal intervention.

Prior agreement of the NCB issuing the intervention currency other than the euro is obtained when another central bank of the European System of Central Banks (ESCB) uses the currency concerned in amounts exceeding mutually agreed limits.

A non-euro area NCB immediately notifies the ECB when it has used the euro in amounts exceeding the agreed limits.

A bank intending to carry out transactions other than intervention which involve at least one non-euro area currency or the euro and which exceed agreed limits must give prior notification to the central bank(s) concerned.

Interventions: providing very short-term financing

For the purpose of intervention in euro and in the participating non-euro area currencies, the ECB and the NCBs concerned open very short-term credit facilities for each other. These are for financing intervention at the margins and intramarginal intervention:

Financing of intervention at the margins. The very short-term financing facility is in principle automatically available and unlimited in amount for financing intervention in participating currencies at the margins. The ECB and the participating non-euro area NCBs may suspend automatic financing if it conflicts with maintaining price stability;
Financing of intramarginal intervention. The very short-term financing facility may be made available for intramarginal intervention with the agreement of the central bank issuing the intervention currency. However, the amount of such financing must not exceed the ceiling laid down in Annex II to the Agreement and the debtor central bank must make appropriate use of its foreign reserve holdings prior to drawing on the facility.

The initial maturity for a very short-term financing operation is three months. It may be automatically extended once for a maximum of three months, but the total amount of resulting indebtedness may at no time exceed the debtor central bank’s ceiling as laid down in Annex II. Any debt exceeding that amount may be renewed for three months subject to the agreement of the creditor central bank. Any debt already renewed automatically for three months may be renewed a second time for a further three months subject to the agreement of the creditor central bank. Operations take the form of spot sales and purchases of participating currencies, giving rise to corresponding claims and liabilities.

Closer cooperation

At the initiative of a participating non-euro area Member State, exchange rate policy cooperation may be strengthened. Formally agreed fluctuation bands narrower than the standard one and backed up in principle by automatic intervention and financing may be set at the request of the Member State concerned.

Monitoring the functioning of the system

The General Council of the ECB monitors the functioning of ERM II and ensures the coordination of monetary and exchange rate policy and the administration of the intervention and financing mechanisms specified in the Agreement.

The Agreement provides for closer cooperation between the participating non-euro area NCBs and the ECB regarding exchange rates. Non-euro area NCBs not participating in ERM II cooperate with the ECB and the participating non-euro area NCBs in the consultations and/or other exchanges of information.

Amendments to the Agreement

This Agreement must be amended each time a new national central bank becomes party to the Agreement on the ERM II. It is also amended each time that a national central bank ceases to be party to the Agreement, specifically when the Member State adopts the euro as single currency.

The Agreement has therefore been amended to take into account Slovenia, Cyprus and Malta, Slovakia and Estonia joining the euro area, and also the entry of Romania and Bulgaria into the EU.

REFERENCES

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
Agreement of 16 March 2006	1.4.2006	–	OJ C 73 of 25.3.2006

Amending act(s)	Entry into force	Deadline for transposition in the Member States	Official Journal
Agreement of 21 December 2006	1.1.2007	–	OJ C 14 of 20.1.2007
Agreement of 14 December 2007	1.1.2008	–	OJ C 319 of 29.12.2007
Agreement of 8 December 2008	1.1.2009	–	OJ C 16 of 22.1.2009
Agreement of 13 December 2010	1.1.2011	–	OJ C 5 of 8.1.2011

Progress towards convergence in the Member States

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Progress towards convergence in the Member States

Outline of the Community (European Union) legislation about Progress towards convergence in the Member States

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 > Institutional and economic framework of the euro

Progress towards convergence in the Member States

Document or Iniciative

Report from the Commission: Convergence report 2004 [COM(2004) 690 – Not published in the Official Journal].

Summary

This report, dated 20 October 2004, analyses the progress made towards convergence in the ten countries which became Member States of the European Union (EU) on 1 May 2004 (the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, Slovakia) and Sweden (a Member State since 1995). Progress towards convergence is assessed by reference to:

compatibility of legislation;
price stability;
the government budgetary position;
exchange rate stability;
long-term interest rates.

Assessing progress towards convergence

For all of those countries, the Commission finds that, regrettably, the laws governing their national banks are not compatible with Article 109 of the Treaty establishing the European Communities (EC Treaty) or with the Statute of the European System of Central Banks (ESCB) and the European Central Bank (ECB) as regards the integration of their central bank into the ESCB upon adoption of the euro. The situation regarding progress towards convergence in the Member States is as follows:

The Czech Republic. The average rate of inflation remained around 1.8% in the twelve months to August 2004, thereby fulfilling the criterion on price stability. However, the Czech Republic is the subject of a decision on the existence of an excessive deficit (Council Decision of 5 July 2004). With a general government deficit of 12.6% of GDP and government debt at 37.8% of GDP in 2003, the Czech Republic does not fulfil the criterion on the government budgetary position. The average long-term interest rate in the Czech Republic was 4.7%, which fulfils the criterion on the convergence of long-term interest rates. The Czech koruna is not participating in the exchange rate mechanism (ERM II). The Commission concludes that there should be no change in the status of the Czech Republic as a “Member State with a derogation”.

Estonia. With an average inflation rate of 2%, Estonia fulfils the criterion on price stability. Estonia also fulfils the criterion on the government budgetary position (the general government surplus was 3.1% of GDP in 2003, and government debt was 5.3% of GDP) and meets the criterion on the convergence of long-term interest rates. Estonia has been participating in ERM II since 28 June 2004. The Commission concludes that there should be no change in the status of Estonia as a “Member State with a derogation”.

Cyprus. With an average inflation rate of 2.1%, Cyprus fulfils the criterion on price stability. Cyprus is the subject of a decision on the existence of an excessive deficit (Council Decision of 5 July 2004). With a budget deficit of 6.4% of GDP in 2003 and government debt at 70.9% of GDP, Cyprus does not fulfil the criterion on the government budgetary position. However, it fulfils the criterion on the convergence of long-term interest rates (5.2%). The Cyprus pound is not participating in ERM II. The Commission concludes that there should be no change in the status of Cyprus as a “Member State with a derogation”.

Latvia. Latvia has an average inflation rate of 4.9% and hence does not fulfil the criterion on price stability. It fulfils the criterion on the government budgetary position (general government deficit was 1.5% of GDP in 2003; government debt was 14.4% of GDP). The interest rate in the year to August 2004 was 5%. Latvia therefore fulfils the criterion on the convergence of long-term interest rates. The Latvian lats is not participating in ERM II. Latvia does not fulfil the exchange rate criterion. The Commission concludes that there should be no change in the status of Latvia as a “Member State with a derogation”.

Lithuania. Prices are stable, as the rate of inflation remained around -0.2%. The general government deficit was 1.9% of GDP in 2003, and government debt was 21.4% of GDP. Lithuania therefore fulfils the criterion on the government budgetary position. The interest rate was 4.7%, which means that Lithuania fulfils the criterion on the convergence of long-term interest rates. Lithuania has been participating in ERM II since 28 June 2004, but did not fulfil the exchange rate criterion at the time of drafting of this report (ERM II participation has been less than two years). The Commission concludes that there should be no change in the status of Lithuania as a “Member State with a derogation”.

Hungary. The average rate of inflation was 6.5%. Hungary does not fulfil the criterion on price stability. The country is the subject of a decision on the existence of an excessive deficit (Council Decision of 5 July 2004): the general government deficit was 6.2% of GDP in 2003, while government debt was 59.1% of GDP. Hungary does not fulfil the criterion on the government budgetary position. The average long-term interest rate was 8.1% in 2004, which means that Hungary does not fulfil the criterion on the convergence of long-term interest rates. The Hungarian forint is not participating in ERM II and Hungary does not fulfil the exchange rate criterion. The Commission concludes that there should be no change in the status of Hungary as a “Member State with a derogation”.

Malta. The average rate of inflation was 2.6%. Malta does not fulfil the criterion on price stability. The country is the subject of a decision on the existence of an excessive deficit (Council Decision of 5 July 2004): the general government deficit was 9.7% of GDP in 2003, while government debt was 71.1% of GDP. Malta fulfils the criterion on the convergence of long-term interest rates (an average of 4.7% in 2004). The Maltese lira is not participating in ERM II. Malta does not fulfil the exchange rate criterion. The Commission concludes that there should be no change in the status of Malta as a “Member State with a derogation”.

Poland. Poland had an average inflation rate of 2.5% and does not fulfil the criterion on price stability. The country is the subject of a decision on the existence of an excessive deficit (Council Decision of 5 July 2004): the general government deficit was 3.9% of GDP in 2003, while government debt was 45.4% of GDP. The average long-term interest rate was 6.9%, which means that the criterion on the convergence of long-term interest rates has not been met. The Polish zloty is not participating in ERM II. Poland does not fulfil the exchange rate criterion. The Commission concludes that there should be no change in the status of Poland as a “Member State with a derogation”.

Slovenia. With a rate of inflation of around 4.1%, Slovenia does not fulfil the criterion on price stability. The general government deficit was 2% of GDP in 2003, and government debt was 29.4% of GDP. Slovenia therefore fulfils the criterion on the government budgetary position. The interest rate was 5.2%, which means that the criterion on the convergence of long-term interest rates has been met. The country has been participating in ERM II since 28 June 2004, but did not fulfil the exchange rate criterion at the time of drafting of this report (ERM II participation has been less than two years). The Commission concludes that there should be no change in the status of Slovenia as a “Member State with a derogation”.

Slovakia. With a rate of inflation of around 8.4%, Slovakia does not fulfil the criterion on price stability. The country is the subject of a decision on the existence of an excessive deficit (Council Decision of 5 July 2004): the general government deficit was 3.7% of GDP in 2003, while government debt was 42.6% of GDP. Slovakia does not fulfil the criterion on the government budgetary position. The interest rate was 5.1%, so Slovakia fulfils the criterion on the convergence of long-term interest rates. The Slovak koruna is not participating in ERM II and Slovakia does not fulfil the exchange rate criterion. The Commission concludes that that there should be no change in the status of Slovakia as a “Member State with a derogation”.

Sweden. In the 2002 convergence report, the Commission assessment was that Sweden already fulfilled three of the convergence criteria (on price stability, the government budgetary position and the convergence of interest rates). With an average inflation rate of 1.3%, Sweden continues to fulfil the criterion on price stability. It also fulfils the criterion on the government budgetary position (the general government surplus was 0.3% of GDP in 2003 and government debt was 52% of GDP). Sweden fulfils the criterion on the convergence of long-term interest rates (4.7%). The Swedish krona is not participating in ERM II, and Sweden still does not fulfil the exchange rate criterion. Swedish legislation continues not to be fully compatible with Articles 108 and 109 of the Treaty or with the ESCB/ECB Statute as regards the financial independence of Sweden’s central bank and its integration into the ESCB upon adoption of the euro. The Commission concludes that there should be no change in the status of Sweden as a “Member State with a derogation”.

Background

In accordance with Article 122(2) of the Treaty, the Commission and the European Central Bank (ECB) are required to report to the Council at least once every two years, or at the request of a Member State with a derogation, on the progress made by the Member States in fulfilling their obligations for achieving economic and monetary union.

Related Acts

Report from the Commission of 5 December 2006: Convergence report 2006 [COM(2006) 762 – Not published in the Official Journal].

The European Commission’s review of the progress made by Member States not participating in the single currency towards meeting the convergence criteria for the introduction of the euro.

Report from the Commission of 16 May 2006: Convergence report 2006 on Slovenia [COM(2006) 224 – Not published in the Official Journal].

On the basis of the convergence criteria, the European Commission considers that Slovenia has achieved a high degree of sustainable convergence. The report was prepared in response to a request submitted by Slovenia on 2 March 2006. Slovenia will introduce the euro on 1 January 2007, the Council of the European Union having adopted a decision to that effect on 11 July 2006.

Report from the Commission of 16 May 2006: Convergence report 2006 on Lithuania [COM(2006) 223 – Not published in the Official Journal].

In this report, the European Commission concludes that there should be no change in the status of Lithuania as a “Member State with a derogation”. The European Commission is of the opinion that Lithuania has made significant progress towards achieving a high degree of sustainable convergence. Lithuania meets the convergence criteria on public finances, exchange rate stability and long-term interest rates, but does not, as yet, meet the criterion on price stability. The report was prepared in response to a request submitted by Lithuania on 16 March 2006.