IV. Convergence criteria

Countries wishing to adopt the euro as their currency must achieve a high degree of “sustainable convergence”. The degree of convergence is assessed on the basis of several criteria in the Maastricht Treaty, which require a country to have:

• a high degree of price stability

• sound public finances

• a stable exchange rate

• low and stable long-term interest rates.

The criteria are designed to ensure that only countries with stability oriented economic policies and a track record in price stability are admitted to Stage Three of EMU. The Treaty also requires the central bank of the respective country to be independent.

In May 1998 an EU summit meeting in Brussels confirmed that 11 of the then 15 EU Member States – Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland – had met the criteria for the adoption of the single currency. On 1 January 1999 these countries adopted the euro as their common currency. Greece joined this group of countries on 1 January 2001 after fulfilling the criteria. Other Member States have since complied with the convergence criteria and also joined the euro area – Slovenia on 1 January 2007, Cyprus and Malta on 1 January 2008 and Slovakia on 1 January 2009. One Member State, Sweden, did not fulfill all the conditions. Moreover, Denmark and the United Kingdom are “Member States with a special status”. In protocols annexed to the Treaty establishing the European Community, the two countries were granted the right to choose whether or not to participate in Stage Three of EMU, i.e. to adopt the euro. They both made use of this so-called “opt-out clause” by notifying the EU Council that they do not intend for the time being to move to Stage Three, i.e. they do not yet wish to become part of the euro area.

Sweden, as well as 8 of the 12 countries that have joined since 2004, count as members with a “derogation” since they have not yet met all the requirements to adopt the euro. Having a derogation means that a Member State is exempt from some, but not all, of the provisions which normally apply from the beginning of Stage Three of EMU. It includes all provisions which transfer responsibility for monetary policy to the Governing Council of the ECB.

Like Sweden, the other Member States of the EU which have not yet adopted the euro have no “opt-out” clauses, such as those negotiated by the United Kingdom and Denmark.

This implies that, by joining the EU, the new Member States commit themselves to ultimately adopting the euro when they fulfill the convergence criteria.The ECB and the European Commission prepare reports every other year – or at the request of a Member State with a derogation – on progress made towards fulfilling the convergence criteria. These convergence reports also take account of other factors that might influence the integration of the country into the euro area economy. The reports provide the basis for the EU Council’s decision on whether to allow a new country to become part of the euro area.