convergence criteria

This is an article about European politics, Convergence criteria is also a mathematical term regarding series.Convergence criteria (also known as the Maastricht criteria) are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union (EMU) and adopt the euro. The four main criteria are based on Article 121(1) of the European Community Treaty. Those member countries who are to adopt the euro need to meet certain criteria which include: 1. Inflation rate: No more than 1.5 percentage points higher than the 3 best-performing member states of the EU (based on inflation).
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The criteria established in Article 121 (1) of the Treaty (and developed further in Protocol No 21) as a basis for the assessment of whether a country may adopt the euro. They relate to performance with regard to price stability, the government financial position, exchange rates and long-term interest rates. They also cover the compatibility of national legislation, including the statutes of national central banks, with both the Treaty and the Statute of the European System of Central Banks and of the European Central Bank.

To ensure that the sustainable convergence required for the achievement of economic and monetary union (EMU) comes about, the Treaty sets five convergence criteria which must be met by each Member State before it can take part in the third stage of EMU. The Commission and the European Central Bank (ECB) draw up reports to check whether the criteria are being met. The criteria are:

•the ratio of government deficit to gross domestic product must not exceed 3%;
•the ratio of government debt to gross domestic product must not exceed 60%;
•there must be a sustainable degree of price stability and an average inflation rate, observed over a period of one year before the examination, which does not exceed by more than one and a half percentage points that of the three best performing Member States in terms of price stability;
•there must be a long-term nominal interest rate which does not exceed by more than two percentage points that of the three best performing Member States in terms of price stability;
•the normal fluctuation margins provided for by the exchange-rate mechanism on the European Monetary system must have been respected without severe tensions for at least the last two years before the examination.

The convergence criteria, then, are meant to ensure that economic development within EMU is balanced and does not give rise to any tensions between the Member States. It must also be remembered that the criteria relating to government deficit and government debt must continue to be met after the start of the third stage of EMU (1 January 1999). A stability pact with this end in view was adopted at the Amsterdam European Council in June 1997.

See:

•Economic and monetary union
•Stability and Growth Pact