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When assessing the sustainability of convergence, the European Central Bank’s (ECB) Report also takes into account the EU’s enhanced economic governance framework (e.g. Stability and Growth Pact, macroeconomic imbalance procedure).
Economic convergence
The cross-country differences in inflation have decreased substantially, which shows the progress that has been made towards convergence in the recent past. Looking ahead, while inflation is expected to increase moderately in the coming years, there are concerns regarding the sustainability of inflation convergence over the longer term in several of the countries examined.
Some improvement can be also detected as regards the fiscal criteria.
None of the countries under review participates in the exchange rate mechanism (ERM II). In Sweden, Hungary, Poland and Romania, the exchange rate exhibited a relatively high degree of volatility over the two-year reference period.
With regard to the convergence of long-term interest rates, all seven countries under review recorded long-term interest rates below the reference value of 4%, as was already the case in 2014 report.
Fulfilment of the numerical convergence criteria at a point in time is, by itself, not a guarantee of smooth entry into EMU. Countries adopting the euro should be able to demonstrate the sustainability of their convergence processes.
Legal convergence
In none of the seven countries examined is the legal framework fully compatible with all the requirements for the adoption of the euro. Incompatibilities persist regarding central bank independence, in particular central banks’ institutional and financial independence, as well as personal independence. In addition, in all countries under review, with the exception of Croatia, there are incompatibilities as regards the prohibition of monetary financing and the legal integration of the respective central banks into the Eurosystem.