Convergence criteria
Convergence means 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 the treaties:
- 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 laid down that the annual inflation in all EU member states must be between zero and 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 of its movement 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