ZAGREB, May 23, 2018 – Croatia fulfils all the criteria but one to join the euro area and that is the exchange rate criterion as it is not a member of the Exchange Rate Mechanism (ERM II), which it is required to be for at least two years, the European Commission’s Convergence Report 2018, released on Wednesday, notes.
The 2018 Convergence Report covers seven member states that have a legal obligation to introduce the euro currency – Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden. Every two years the EC reports on progress made in fulfilling their obligations regarding accession to the euro area.
All member states with the exception of Great Britain and Denmark are legally committed to adopting the euro.
Croatia and Bulgaria fulfil all the criteria except one – membership of the ERM II – a sort of waiting room to enter the euro area.
All seven countries fulfil the criterion on public finances. That means that their deficit is below 3% of GDP and their public debt below 60% of GDP or if an excessive deficit exists, it has to be on a downward path. Croatia, Bulgaria, the Czech Republic, Hungary and Sweden fulfil the long-term interest rate criterion while Croatia, Bulgaria, Poland and Sweden meet the price stability criterion. Both criteria are the so-called convergence or Maastricht criteria.
Apart from the formal criteria to enter the euro area, the Commission also analyses the compatibility of candidate countries’ legislation with the Economic and Monetary Union. Of the seven countries only Croatia is fully compatible.
“Non-euro area member states are generally well integrated economically and financially in the EU. However, some of them still experience macroeconomic vulnerabilities and/or face challenges related to their business environment and institutional framework which may pose risks as to the sustainability of the convergence process,” the Commission said in a press release.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said that real economic convergence is as important as nominal convergence to prosper inside the euro area. “None of the seven member states assessed currently meet all of the legal conditions to join. At the same time, one of the key lessons of the past two decades is that for countries to prosper inside the euro area, real economic convergence is as important as nominal convergence. That is why it is important that countries wishing to join the euro work hard to boost productivity, increase investment, improve the employment situation and tackle inequalities,” Moscovici said.
