Convergence 2024: The Path to the Euro

The European Commission has published the Convergence Report 2024, in which it assesses the progress made by the six EU Member States that are not part of the euro area but have made a legal commitment to adopt the euro. These countries are: Bulgaria, Czech Republic, Hungary, Poland, Romania and Sweden.

The European Commission’s Convergence Report serves as the basis for the Commission’s proposal for an EU Council decision on the adoption of the euro by a Member State. This report is separate from the BCE  Convergence Report, but is published in parallel with it. Convergence Reports are published every two years or at the specific request of a Member State to assess its readiness for joining the euro area, as was the case, for example, with Latvia in 2013. All EU Member States, with the exception of Denmark, are legally committed to adopting the euro. Denmark negotiated an opt-out agreement in the Maastricht Treaty, which allows it to keep its national currency and not join the euro unless it decides otherwise in the future through a referendum or parliamentary decision.

Eurozone membership is an open and rules-based process. It is based on the convergence criteria, also known as the ‘Maastricht criteria’, laid down in Article 140(1) of the Treaty on the Functioning of the European Union (TFEU). The convergence criteria include price stability, sound public finances, exchange rate stability and convergence of long-term interest rates.

According to the latest Eurobarometer survey, a polling tool used by the European Commission to collect data and public opinion on various EU-related topics, a majority of citizens (59%) in the non-euro area Member States believe that the common currency has had a positive impact on the Member States that already use it. Furthermore, 53% believe that the introduction of the euro would have positive consequences for their country, while 56% think it would be beneficial for their personal situation.

Overall, 58% of respondents support the introduction of the euro in their country. Support is particularly pronounced in Romania (77%) and Hungary (76%), followed by Sweden (55%), the Czech Republic (49%), Bulgaria (49%) and Poland (47%). In the Czech Republic in particular, favour is on the rise, up 6 points on last year. Bulgaria is the country where the largest share of citizens (71%) think the euro will be introduced within five years. Although 64% of Bulgarians fear that the introduction of the euro will increase prices, 44% believe it would have positive consequences for their country.

The report indicates that the Member States surveyed have not achieved consistent results in harmonising their economic indicators with those required for eurozone membership. Sweden meets the price stability criterion, while both Bulgaria and Sweden meet the public finances criterion, and the Czech Republic is also expected to meet it in the future. In addition, Bulgaria, the Czech Republic and Sweden fulfil the long-term interest rate criterion. However, these countries still need to make changes to their national monetary legislation in order to meet all the requirements of Economic and Monetary Union.

The report also notes that Bulgarian legislation can be considered compatible with EU law, subject to the conditions and interpretations set out in the Convergence Report. As regards the exchange rate mechanism (ERM II), only Bulgaria fulfils the exchange rate criterion, which requires at least two years of participation without severe currency tensions before joining the euro area.

The Commission also examined other factors mentioned in the Treaty that have to be taken into account when assessing the sustainability of convergence. The analysis showed that non-euro area Member States are generally well integrated economically and financially into the EU. However, some of them exhibit macroeconomic vulnerabilities and face challenges related to their economic environment and institutional framework, which may pose a risk to the sustainability of the convergence process.

The convergence assessment presented in this report has been influenced by several major economic upheavals and political developments over the past two years, such as Russia’s war of aggression against Ukraine. This conflict disrupted the global energy market and supply chains, driving energy prices to record levels in 2022. The EU economy has shown remarkable resilience, reducing its dependence on Russian fossil fuels and limiting the negative impact on economic activity.

In 2023, the EU economy slowed down due to declining household purchasing power, unfavourable global economic conditions and difficulties in accessing finance. However, falling energy prices and restrictive monetary policies led to a significant reduction in inflation.

The Convergence Report 2024 shows significant but uneven progress among the six Member States surveyed. Although some have met several accession criteria, economic and institutional challenges persist that need to be addressed to ensure sustainable convergence.

Sources: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_3449

Image generated by AI

Graphic source: https://storyset.com/