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The report covers Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden. It finds that the seven EU Member States have made progress towards fulfilling the criteria for adoption of the euro, although none of the countries fulfils all obligations. The report examines the degree of sustainable economic convergence achieved in these countries and assesses compliance with the statutory requirements to be met by national central banks to become an integral part of the Eurosystem.
When assessing the sustainability of convergence, the report also takes into account the EU’s enhanced economic governance framework (e.g. the Stability and Growth Pact and the macroeconomic imbalance procedure) and other relevant factors, such as the strength of the institutional environment.
Economic convergence: As regards compliance with the nominal convergence criteria, some progress has been made since the publication of the ECB’s 2016 Convergence Report.
The cross-country differences in inflation have declined further, showing progress towards the achievement of a high degree of price stability.
The report points to a visible improvement with regard to the fiscal criteria, with fiscal imbalances reduced in most of the countries examined.
None of the countries under review participates in the exchange rate mechanism (ERM II).
With regard to the convergence of long-term interest rates, five of the seven countries under review recorded long-term interest rates below the reference value of 3.2%.
Sustainable convergence is essential: Countries adopting the euro should be able to demonstrate the sustainability of their convergence process. A prerequisite for sustainable convergence is macroeconomic stability and, in particular, a sound fiscal policy. Most of the countries under review have made progress in addressing macroeconomic imbalances in their economy. Sustainable convergence also requires sound institutions. Countries must have well-functioning product and labour markets, which is essential to cope with macroeconomic shocks. Moreover, appropriate macroprudential policies need to be in place to prevent the build-up of macroeconomic imbalances, such as excessive asset price increases and credit boom-bust cycles. Finally, an appropriate framework for the supervision and resolution of financial institutions needs to be in place, especially in view of the establishment of banking union and the Single Supervisory Mechanism.
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