Convergence criteria

(Photo: EU Commission)

Convergence entails that countries move closer to one another.

To join the single currency (the Euro), EU member states are obliged to meet four criteria, fixed in a Protocol (on the excessive deficit procedure) and in Art 121 ITEC:

• Price stability: The inflation rate must not exceed the inflation rate of the three top-performing Member States by more than 1.5%. The European Central Bank has established that the annual inflation in all EU Member States must be less than 2%.
• Government finances: The annual budget deficit must be below 3% of GDP and overall public debt below 60% of GDP.
• Exchange rates: For two years the currency must be in a fixed relation with the Euro without a devaluation.
• Long-term interest rates: May not exceed the average interest rate of the three best performing Member States by more than 2%. The public debt criterion can be accepted at a higher debt level if the direction is satisfactory.

Once a country has joined the third stage of the Economic and Monetary Union, it is bound by the Stability and Growth Pact and the annual “structural deficit” may not exceed 0,5%. 

Links

See Economic and Monetary Union 

http://europa.eu.int/scadplus/leg/en/lvb/l25014.htm