Dr. Michael S.: Will the Maastricht criteria be obsolete after the COVID-19 pandemic?

The simple answer is no, but whether the convergence criteria are optimal from an economic point of view is a controversial question. According to EU law, however, they continue to apply to all new EU members, but in order: The “Maastricht criteria” were introduced as criteria for entry into the Economic and Monetary Union (EMU) and therefore as a condition for the introduction of the euro, and they still apply. The correct name is “convergence criteria.” They were first laid down in the Maastricht Treaty (which entered into force on November 1, 1993) and have been repeatedly included in subsequent amendments to the EU Treaties. Currently, the convergence criteria are set out in Articles 126 and 140 and Protocol 13 of the Treaty on the Functioning of the European Union (TFEU).

Convergence criteria: Price stability, public finances, nominal long-term interest rates and exchange rates

The convergence criteria cover price stability (inflation rate no higher than 1.5% of that of the three most price-stable EU countries), public finances (new debt 3% of GDP and total debt 60% of GDP), nominal long-term interest rates (no more than 2 percentage points over those of the most price-stable countries), and exchange rates (no devaluation two years before entry into the EMU and participation in the Exchange Rate Mechanism [ERM II]).

The convergence criteria were applied for the first time when selecting those countries that were to start the EMU on January 1, 1999. Eleven EU member states were selected by the European Council on May 2, 1998, and the euro was introduced as the official currency in 12 EU member states on January 1, 2002, after Greece joined the EMU in 2001. Since then, a total of 19 EU member states have adopted the euro.

Convergence Report of the EU and ECB

According to Article 140 of the TFEU, the European Commission and the European Central Bank (ECB) publish a “Convergence Report” every two years describing the progress made by non-euro area member states towards achieving the criteria necessary for a country to adopt the euro.  To be eligible to join the EU, a country has to comply with all provisions of the EU treaties. This also applies to participation in the EMU and the introduction of the euro. Only those countries who do not meet the convergence criteria or who negotiated an opt-out or special provision in the Maastricht Treaty (the United Kingdom, Protocol 15, and Denmark, Protocol 16) are not (yet) required to adopt the euro. Brexit has now solved this problem for the United Kingdom, at any rate.

On January 1, 2023: Bulgaria and Croatia could adopt the euro

According to the latest Convergence Reports published in 2020, Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania, and Sweden have derogations, i.e. they do not (or only partially) fulfill the convergence criteria. On July 10, 2020, Bulgaria and Croatia joined ERM II by fixing their exchange rates of lev (1.95583) and kuna (7.53450) to 1 euro. If these exchange rates do not fluctuate by more than +/-15% for two years (in the euro “waiting area”), these two countries could adopt the euro on January 1, 2023.

Stability and Growth Pact (SGP)

After a country becomes an EU member state and adopts the euro, other fiscal stability rules apply, first and foremost the Stability and Growth Pact (SGP), which has already been subject to two reforms. The SGP aims to ensure the stability of government budgets. With the declaration issued on March 23, 2020, the EU’s finance ministers activated the escape clause of the SGP in view of the massive additional burden on government budgets due to COVID-19, allowing governments to exploit any leeway available in the budget rules optimally and flexibly during the coronavirus crisis, based on the motto “whatever it takes.”

Fritz Breuss, Professor at the Institute for International Economics