Joining the Euro: EU Convergence Report reviews Member States’ progress

What is the Convergence Report 2024?

The European Commission’s Convergence Report 2024 provides an assessment of the progress non-euro area Member States have made towards adopting the euro. It is the basis for the Commission proposal for a Council of the EU decision on the adoption of the euro by a Member State.

The Convergence Report of the European Commission is separate to, but published in parallel with, the Convergence Report of the ECB.

Convergence Reports are issued every two years, or when there is a specific request from a Member State to assess its readiness to join the euro area, e.g. Latvia in 2013.

All Member States, except Denmark, have legally committed to join the euro area. Denmark, which negotiated an opt-out arrangement in the Maastricht Treaty, is therefore not covered by the Report.

What are the convergence criteria?

Member States adopting the euro are required to have achieved a high level of sustainable economic convergence, which is examined in the Convergence Report by reference to the convergence criteria. These criteria (sometimes referred to as the ‘Maastricht criteria’) are set out in Art. 140(1) Treaty on the Functioning of the European Union (TFEU).

Sustainability is a key aspect of the assessment of the Maastricht criteria, which means that the progress made with convergence must be grounded on structural elements that guarantee its durability, rather than on temporary factors.

Illustrated in a simplified way, the criteria are as follows:

What is measured: How it is measured

• Convergence criteria

Price stability: Harmonised consumer price inflation

• A price performance that is sustainable and average inflation over one year before the examination not more than 1.5 percentage points above the rate of the three best-performing EU countries.

Sound public finances: Government deficit and debt

• Not under excessive deficit procedure at the time of examination.

Exchange rate stability: Exchange rate developments in ERM II

• Participation in the Exchange Rate Mechanism (ERM II) for at least two years without severe tensions.

Durability of convergence. Long-term interest rate

• Not more than two percentage points above the rate of the three best-performing EU countries in terms of price stability over one year before the examination.

The Treaty also prescribes an examination of the compatibility of a Member State’s national legislation with the Treaty and with the Statutes of the ESCB and ECB. The legal compatibility concerns mainly three areas: central bank independence, the prohibition of monetary financing and the integration of the national central bank in the European System of Central Banks (ESCB).

In addition, the Treaty also calls for an examination of other factors relevant to economic integration and convergence. These additional factors include the integration of labour, product and financial markets and the development in the balance of payments. The assessment of additional factors is seen as an important indication of whether the integration of a Member State into the euro area would proceed smoothly.

What does meeting the convergence criteria mean?

Meeting these criteria indicates that a country’s economy has reached a reasonable degree of convergence with that of the eurozone. It reflects the country’s ability to maintain economic stability and integrate into the eurozone’s economic framework.

The economic entry conditions are designed to ensure that a Member State’s economy is sufficiently prepared for adoption of the single currency and can integrate smoothly into the monetary regime of the euro area without risk of disruption for the Member State or the euro area as a whole.

Meeting these criteria does not automatically result in eurozone membership. The decision requires approval from the EU Council, based on a proposal from the European Commission after the European Parliament and the ECB have given their opinions.

What is the process for adopting the euro once the Member State meets all the necessary criteria?

Based on a positive assessment in the Convergence Report, the Commission submits a proposal to the Council which – having consulted the European Parliament, and after discussion in the Eurogroup and among the Heads of State or Government – decides whether the country fulfils the necessary conditions and may adopt the euro.

If the decision is favourable, the ECOFIN Council takes the necessary legal steps and – based on a Commission proposal, having consulted the ECB – adopts the conversion rate at which the national currency will be replaced by the euro, which thereby becomes irrevocably fixed.

Are all non-euro area Member States obliged to join the euro?

In principle, all Member States that do not have an opt-out clause (i.e. Denmark) have legally committed to adopt the euro once they fulfil the necessary conditions. However, it is up to individual countries to calibrate their path towards the euro and no timetable is prescribed.

The Member States that joined the EU in 2004, 2007 and 2013, after the euro was launched, did not meet the conditions for entry to the euro area at the time of their accession. Therefore, their Treaties of Accession to the EU allow them time to make the necessary adjustments.

Does the Convergence Report guide countries in their steps towards the euro?

The Convergence Report assesses whether non-euro area EU Member States meet the necessary conditions for adopting the euro. It provides a detailed analysis and insights into the economic convergence of these countries and can suggest areas where further improvement is needed. However, it does not prescribe specific policy measures.

The Convergence Report is a crucial document for both the countries aspiring to join the eurozone and for the EU institutions. It ensures transparency and provides a clear assessment of the readiness of the countries. This helps in maintaining economic stability and coherence within the EU.

The report is also the basis for a possible Commission proposal to the Council to allow a Member State to adopt the euro.

What are the main findings of the Convergence Report?

Bulgaria

In light of its assessment on legal compatibility and on the fulfilment of the convergence criteria, and taking into account the additional factors relevant for economic integration and convergence, the Commission considers that Bulgaria does not fulfil the conditions for the adoption of the euro. In particular:

• Legislation in Bulgaria can be considered compatible with the compliance duty under Article 131 TFEU.
• Bulgaria does not fulfil the criterion on price stability.
• Bulgaria fulfils the criterion on public finances.
• Bulgaria fulfils the exchange rate criterion.
• Bulgaria fulfils the criterion on the convergence of long-term interest rates.

Czechia

In light of its assessment on legal compatibility and on the fulfilment of the convergence criteria, and taking into account the additional factors relevant for economic integration and convergence, the Commission considers that Czechia does not fulfil the conditions for the adoption of the euro. In particular:

• Legislation in Czechia is not fully compatible with the compliance duty under Article 131 TFEU.
• Czechia does not fulfil the criteria on price stability and on exchange rate.
• Czechia is expected to meet the criterion on public finances, as the Commission report under Article 126(3) of 19 June concludes that Czechia fulfils the deficit criterion of the Stability and Growth Pact.
• Czechia fulfils the criterion on the convergence of long-term interest rates.

Hungary

In light of its assessment on legal compatibility and on the fulfilment of the convergence criteria, and taking into account the additional factors relevant for economic integration and convergence, the Commission considers that Hungary does not fulfil the conditions for the adoption of the euro. In particular:

• Legislation in Hungary is not fully compatible with the compliance duty under Article 131 TFEU.
• Hungary does not fulfil the criterion on price stability.
• Hungary does not fulfil the criterion on public finances.
• Hungary does not fulfil the exchange rate criterion.
• Hungary does not fulfil the criterion on the convergence of long-term interest rates.

Poland

In light of its assessment on legal compatibility and on the fulfilment of the convergence criteria, and taking into account the additional factors relevant for economic integration and convergence, the Commission considers that Poland does not fulfil the conditions for the adoption of the euro. In particular:

• Legislation in Poland is not fully compatible with the compliance duty under Article 131 TFEU.
• Poland does not fulfil the criterion on price stability.
• Poland does not fulfil the criterion on public finances.
• Poland does not fulfil the exchange rate criterion.
• Poland does not fulfil the criterion on the convergence of long-term interest rates.

Romania

In light of its assessment on legal compatibility and on the fulfilment of the convergence criteria, and taking into account the additional factors relevant for economic integration and convergence, the Commission considers that Romania does not fulfil the conditions for the adoption of the euro. In particular:

• Legislation in Romania is not fully compatible with the compliance duty under Article 131 TFEU.
• Romania does not fulfil the criterion on price stability.
• Romania does not fulfil the criterion on public finances.
• Romania does not fulfil the exchange rate criterion.
• Romania does not fulfil the criterion on the convergence of long-term interest rates.

Sweden

In light of its assessment on legal compatibility and on the fulfilment of the convergence criteria, and taking into account the additional factors relevant for economic integration and convergence, including balance of payments developments and integration of product, labour and financial markets, the Commission considers that Sweden does not fulfil the conditions for the adoption of the euro. In particular:

• Legislation in Sweden is not fully compatible with the compliance duty under Article 131 TFEU.
• Sweden fulfils the criterion on price stability and on public finances.
• Sweden does not fulfil the exchange rate criterion.
• Sweden fulfils the criterion on the convergence of long-term interest rates.

How does the Convergence Report relate to the process to enter ERM II?

The Exchange Rate Mechanism (ERM II) was set up on 1 January 1999 as a successor to the original ERM to ensure that exchange rate fluctuations between the euro and other EU currencies do not disrupt economic stability within the single market, and to help non-euro area Member States prepare themselves for participation in the euro area. The convergence criterion on exchange rate stability requires participation in ERM II.

Participation in ERM II is voluntary although the exchange rate criterion for entry into the euro area specifies that a country must participate in the mechanism without severe tensions for at least two years before euro adoption. ERM II, the exchange rate of a non-euro area Member State is fixed against the euro and is only allowed to fluctuate within set limits. Entry into ERM II is decided upon request of a non-euro area Member State by mutual agreement of all ERM II participants (euro-area Member States, ECB, and the ministers and central bank governors of the non-euro area Member States participating in the mechanism, i.e. currently Denmark).

Bulgaria announced in July 2018, its intention to join ERM II and committed to implement a number of measures aimed at ensuring a smooth participation in ERM II (i.e. the so-called prior-commitments) before joining ERM II. The country joined ERM II in July 2020 after having fulfilled its prior commitments. It also committed to a range of additional measures (known as post-entry ERM II commitments) aimed at preserving economic and financial stability and achieving a high degree of sustainable economic convergence.

For more information

• Press release
• Convergence Report 2024
• ECB’s Convergence Report 2024
• Previous convergence reports
• The Euro area
• Economic and Monetary Union