The European Commission has published the 2020 convergence report in which it provides its assessment of the progress non-euro area Member States have made towards adopting the euro.
The report covers the seven non-euro area Member States that are legally committed to adopting the euro: Bulgaria, Czechia, Croatia, Hungary, Poland, Romania and Sweden.
Convergence reports have to be issued every two years, independently of potentially ongoing euro-area accessions.
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “Today’s convergence report shows encouraging progress by some countries, although there are still several milestones to pass before they can join the euro area. As ever, the Commission is ready to support those Member States. One significant stepping-stone on this path is joining the ERM II, which Croatia and Bulgaria are currently preparing to do. We welcome the efforts of both countries towards it.”
Paolo Gentiloni Commissioner for Economy, said: “For the past few months, we have been focused on fighting economic divergence within the euro area and the broader single market, an effect of the uneven nature of the coronavirus recession. Today we take stock of convergence towards euro area membership for seven Member States. It’s a necessarily rigorous process because an enlarged euro area must also be a stronger euro area. It remains important that countries also work to ensure real convergence towards higher levels of productivity and prosperity – not least through the future-oriented reforms and investments we wish to support through Next Generation EU.”
Euro area accession is an open and rules-based process. The report is based on the convergence criteria, sometimes referred to as the ‘Maastricht criteria’, set out in article 140(1) of the Treaty on the Functioning of the European Union (TFEU). The convergence criteria include price stability, sound public finances, exchange rate stability and convergence in long-term interest rates. The compatibility of national legislation with the rules of the Economic and Monetary Union is also examined.
The report concludes that:
- Croatia and Sweden fulfil the price stability criterion.
- Bulgaria, Czechia, Croatia, Hungary, Poland and Sweden fulfil the criterion on public finances.
- Bulgaria, Czechia, Croatia, Hungary, Poland and Sweden fulfil the long-term interest rate criterion.
- None of the Member States fulfils the exchange rate criterion, as none of them is a member of the Exchange Rate Mechanism (ERM II): at least two years of participation in the mechanism without severe tensions is required before joining the euro area.
While Croatia and Sweden fulfil all of the economic convergence criteria, they do not meet the exchange rate criterion for the above reason.
In addition to the assessment of the formal conditions for joining the euro area, the report finds that national legislation in each of the Member States, with the exception of Croatia, is not fully compatible with the rules of the Economic and Monetary Union.
The Commission also examined additional factors referred to in the Treaty that should be taken into account in the assessment of the sustainability of convergence. This analysis found that the non-euro area Member States are overall well integrated economically and financially in the EU. Nevertheless, some of them show macroeconomic vulnerabilities and/or face challenges related to their business environment and institutional framework.
The impact of the coronavirus pandemic on the results of the report has been limited, as most of the historical data used in the report refer to the period before the outbreak of the crisis, as prescribed by the methodology strictly defined in the Treaty. The Commission provided an initial assessment of the implications of the pandemic in its Spring 2020 Economic Forecast and its subsequent proposal for country-specific recommendations to all Member States, both of which feed into the forward-looking elements of this report.
The Convergence Report by the European Commission forms the basis for the Council of the EU’s decision on whether a Member State fulfils the conditions for joining the euro area.
The convergence report of the European Commission is separate to, but published in parallel with, the convergence report of the ECB.
Convergence reports are issued every two years, or when there is a specific request from a Member State to assess its readiness to join the euro area, e.g. Latvia in 2013.
All Member States, except Denmark, are legally committed to join the euro area. Denmark, which negotiated an opt-out arrangement in the Maastricht Treaty, is therefore not covered by the report.