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Convergence report 2018

SUMMARY OF:

Report from the Commission to the European Parliament and the Council — Convergence Report 2018

Article 140 of the Treaty on the Functioning of the European Union (TFEU)

Protocol (No 13) TFEU on the convergence criteria

WHAT IS THE AIM OF THE REPORT, OF ARTICLE 140 TFEU AND OF PROTOCOL (NO 13) TFEU?

The report:

analyses the progress which Bulgaria, Czechia, Croatia, Hungary, Poland, Romania and Sweden are making towards economic and monetary union;
focuses on the compatibility of national legislation with the TFEU, assesses economic performance against 4 convergence criteria and takes account of balance of payments developments and market integration;
is accompanied by an independent report by the European Central Bank (ECB).

Under Article 140(1) TFEU, the European Commission and the ECB must report to the Council at least once every 2 years on the progress countries are making towards meeting the criteria for adopting the euro. A convergence report is prepared at least once every 2 years or at the request of one of the EU countries concerned.

The convergence criteria are set out in detail in Protocol No 13 of the TFEU.

KEY POINTS

The analysis examines whether:

the countries’ legislation, including the statutes of their national central bank, are compatible with Articles 130 and 131 TFEU and with the statute of the European System of Central Banks and of the ECB;
the countries meet the convergence criteria of
- a high degree of price stability: measured by an average annual rate of inflation that does not exceed by more than 1.5 percentage points those of the 3 best-performing EU countries
- sustainable government finances: determined by the absence of an excessive deficit procedure against the country concerned
- participation in the exchange rate mechanism (ERM II*): evidenced by maintaining exchange rates against the euro within specified margins for at least 2 years without severe tensions
- convergence of long-term interest rates: achieved by maintaining average long-term interest rates for a year which do not exceed by more than 2 percentage points those of the 3 best-performing EU economies.

The report concludes that, of the 7 countries, only Croatia has the necessary compatible legislation in place.

In relation to the convergence criteria, the report’s main conclusions are:

Bulgaria meets the price stability, public finances and long-term interest rates criteria, but not the exchange rate criterion;
Czechia meets the public finances and long-term interest rates criteria, but not the price stability and exchange rate criteria;
Croatia meets the price stability, public finances and long-term interest rates criteria, but not the exchange rate criterion;
Hungary meets the public finances and long-term interest rates criteria, but not the price stability and exchange rate criteria;
Poland meets the price stability and public finances criteria, but not the exchange rate and long-term interest rate criteria;
Romania meets the public finances criterion, but none of the other 3 criteria;
Sweden meets the price stability, public finances and long-term interest rates criteria, but not the criterion related to the exchange rate.

The report also shows that the 7 countries are generally well-integrated economically and financially in the EU, even if some still have macroeconomic weaknesses or face challenges related to their business environment and institutional framework.

Long-term interest rate convergence is checked relative to the 3 best-performing EU economies in terms of price stability.

BACKGROUND

For more information, see:

Convergence reports (European Commission).

KEY TERMS

ERM II: the system that manages exchange rates between the euro and national currencies in the EU to help the single market operate smoothly.

MAIN DOCUMENTS

Report from the Commission to the European Parliament and the Council — Convergence Report 2018 (prepared in accordance with Article 140(1) of the Treaty on the Functioning of the European Union) (COM(2018) 370 final, 23.5.2018)

Consolidated version of the Treaty on the Functioning of the European Union — Part Three — Union Policies and Internal Actions — Title VIII — Economic and Monetary Policy — Chapter 5 — Transitional Provisions — Article 140 (ex Articles 121(1), 122(2), second sentence, and 123(5) TEC) (OJ C 202, 7.6.2016, pp. 108-110)

Consolidated version of the Treaty on the Functioning of the European Union — Protocol (No 13) on the convergence criteria (OJ C 202, 7.6.2016, pp. 281-282)

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