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EMU figures

European Central Bank (Photo: EU Commission)

The European Central Bank has decided that the target for inflation in the countries that have adopted the Euro (the Eurozone) must be between 0 and 2%. Between 1968 and 1998, German inflation was below 2% in only six years.

The criterion for membership of the EMU on total national debt is of a maximum of 60%. This was based on the average debt/GDP ratios for the potential member countries when the EMU was being negotiated in 1991. It is possible to join the Euro if the debt is being brought down at an acceptable pace.

The 3% of GDP ceiling for maximum permissible annual budget deficits for Eurozone members (fixed in a Protocol (on the excessive deficit procedure), and in Art 121 ITEC) is strengthened by the provisions of the Stability and Growth Pact, which are even thougher.

For normal financial years, there should be no deficits at all unless there are especially recessionary conditions. These occurred in Germany in 2002, which led Commission President Romano Prodi to refer to the 3% budget deficit ceiling as "stupid", as it prevented governments from increasing public spending to counter recession.

The 3% budget deficit ceiling is being broken by both France and Germany in 2003. They therefore risk being fined.  

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