ECB publishes Convergence Report 2014

04 June 2014

The ECB has published its Convergence Report 2014 which assesses the progress made by eight Member States in fulfilling their obligations regarding the achievement of Economic and Monetary Union (EMU), finding that Lithuania is ready to adopt the euro on 1 January 2015.

The report deals with Bulgaria, the Czech Republic, Croatia (assessed for the first time), Lithuania, Hungary, Poland, Romania and Sweden. It examines whether a high degree of sustainable convergence has been achieved in these countries (economic convergence) and gauges compliance with the statutory requirements to be fulfilled by national central banks to become an integral part of the Eurosystem (legal convergence). When assessing the sustainability of convergence, the report also takes due account of both the new enhanced economic governance framework of the EU and the strength of the institutional environment in each country, including in the area of statistics.

In this report, Lithuania has been assessed in somewhat more depth than the other countries under review. This is because the Lithuanian authorities have expressed their country’s intention to adopt the euro as of 1 January 2015.

The Convergence Report 2014 shows the following results:

• Price stability - over the 12-month reference period from May 2013 to April 2014, inflation was subdued in the EU, mainly as a result of low contributions from energy and food prices as well as the ongoing weakness in economic activity in most countries.
• Government budgetary position - as regards fiscal criteria, among the countries under review the Czech Republic, Croatia and Poland are, at the time of this report, subject to a decision of the Council of the EU on the existence of an excessive deficit.
• Exchange rate - among the countries looked at in this report, Lithuania is currently the only country participating in the exchange rate mechanism (ERM II). The Lithuanian litas was in ERM II for more than two years before the convergence examination, and its central rate was not devalued in the period under review.
• Long-term interest rate - over the 12-month reference period from May 2013 to April 2014, the reference value for long-term interest rates was 6.2 per cent. This value was calculated by adding 2 percentage points to the unweighted arithmetic average of the long-term interest rates of the three best performing Member States in terms of price stability, namely Latvia (3.3 per cent), Ireland (3.5 per cent) and Portugal (5.8 per cent).

Press release

Vice-President of the European Commission Olli Rehn commented: "The countries we have looked at have made uneven progress towards the goal of convergence. I encourage all of them to pursue policies that will help them to achieve a higher degree of sustainable convergence with the euro area.

At the same time, I am pleased to announce our conclusion that Lithuania is ready to adopt the euro on 1 January 2015. The Commission is now making a proposal to the Council to this effect. I expect this conclusion to be discussed by the relevant EU institutions over the coming weeks, so that a final decision can be taken by the Council, probably in the second half of July. Furthermore, once Lithuania becomes a member of the euro area, it will also become a member of the Banking Union and thus subject to the Single Supervisory Mechanism and Single Resolution Mechanism.

Euro adoption will be a major, hard-earned and well-deserved achievement for Lithuania and its people. But it should be seen as a starting line rather than a finishing line. It will be essential to continue with sound economic policies in order to ensure a smooth successful performance within the euro area – and realise the full benefits of monetary union and minimise risks in the future."

Full statement

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