Transcript Slide 1

From EU to euro area
enlargement
Ad van Riet
Head of EU Countries Division
European Central Bank
October 2005
The views expressed in this presentation do not necessarily reflect those of the ECB.
Outline
• The 2004 EU enlargement:
General background information
• The road to the euro
- ERM II
- Recent developments
- Main challenges
2
The 2004 enlargement: Population
EU-15 = 458 million
New MS = 74 million
UK
Sweden
Slovakia
Denmark
Poland
Euro Area
311 mln
Hungary
Czech
Republic
3
The 2004 enlargement: GDP
EU-15 = EUR 9798 bn
Denmark
New MS = EUR 475 bn
Sweden
UK
Slovakia
Poland
Euro Area =
EUR 7614
bn
Hungary
Czech
Republic
4
The 2004 enlargement: GDP per capita levels
GDP per capita in PPP terms
(% of euro area average)
90
1993
2004
80
70
New MS weighted average 2004 = 53.1
60
50
40
30
20
10
0
Cyprus Slovenia
Slovenia
Cyprus
Czech
Czech
Rep.
Rep.
Malta
Malta
Hungary Estonia
Hungary
Estonia Slovakia
Slovakia Lthuania
Lithuania Poland
Poland
Latvia
Latvia
5
The 2004 enlargement: real GDP growth
Real GDP growth in the EU and the new Member States, %
Euro area
EU25
EU10
5
5
4
4
3
3
2
2
1
1
0
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005*
* European Commission Spring 2005 forecast
6
The 2004 enlargement: price levels
Comparative price levels of final consumption by households
(% of the euro area average)
100
90
1995
2003
80
70
New MS weighted average 2003 = 54.8
60
New MS weighted average 2003 = 54.8
50
40
30
20
10
0
Malta
Cyprus
Estonia
Slovenia
Latvia
Lithuania
Slovakia
Hungary
Czech
Republic
Poland
* For Malta 1999 and 2003 data
7
The 2004 enlargement: HICP inflation
HICP inflation in the EU and the new Member States, %
Euro area
EU25
EU10
16
16
12
12
8
8
4
4
0
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005*
* European Commission Spring 2005 forecast
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The road to the euro
(as stipulated in the EC Treaty)
Time
t
May 2004
Pre-ERM II phase
Accession to
the EU
Time
t + (min.) 2 years
ERM II membership
(at least 2 years)
Entry into ERM II
ERM II membership
Technical preparations
Adoption
of the
euro
Assessment of convergence,
formal decision on entry and
conversion rate
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ERM II
• ERM II membership voluntary but expected
• Case-by-case assessment based on equal treatment
• Fixed but adjustable exchange rates, standard
fluctuation band ±15%
• Central parity and fluctuation bands mutually agreed
• Both the ECB and the Member State concerned can
trigger a review of the central parity
• Central role of the euro / ECB
10
ERM II (cont’d)
• Entry is not subject to legal criteria, but
–
major policy adjustments (e.g. price liberalisation and
fiscal policy) to be undertaken prior to entry
–
need to follow credible fiscal consolidation path
• Length of participation
–
Minimum two-years prior to examination of
convergence
–
No restrictions on length of participation beyond
minimum period
–
Should be assessed on the basis of what is most
helpful to accompany the convergence process
11
ECB Convergence Report 2004
Common framework for analysis
• Treaty provisions (the convergence criteria) as
regards price, fiscal, exchange rate, long-term
interest rate developments and other factors
• A range of backward and forward-looking
economic indicators considered useful for
examining the sustainability of convergence
• Applied on a country-by-country basis
• Equal treatment principle (across countries and
time)
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ECB Convergence Report 2004
Reference values I
• The criterion on price stability
– Average inflation rate of 3 best performers (FI,
DK and SE; 0.9%) + 1.5 percentage points = 2.4%
– Price developments in Lithuania have been
judged to be an outlier
• The criterion on the government budgetary position
– The ratio of the government deficit to GDP
should not exceed 3%
– The ratio of government debt to GDP should not
exceed 60%
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ECB Convergence Report 2004
Reference values II
• The exchange rate criterion
– ECB examines whether a Member State has
participated in ERM II for at least two years prior
to the examination without severe tensions, in
particular, without devaluing its currency against
the euro. Focus is put on the exchange rate being
close to the central rate, while also taking into
account factors that may have lead to an
appreciation
• The long-term interest rate criterion
– Average of long-term interest rates in FI, DK and
SE (4.4%) + 2 percentage points = 6.4%
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ECB Convergence Report 2004 – price stability
Five countries complied with the reference value
HICP inflation
(annual average percentage change, Sept. 2003 – Aug. 2004)
9
8.4
8
8
6.5
7
7
6
6
4.9
5
4
9
5
4.1
4
Reference value 2.4
3
2
1.3
1.8
2.0
2.1
2.5
2.6
3
2
1
1
0
0
-0.2
Slovakia
Hungary
Latvia
Slovenia
Malta
Poland
Cyprus
Estonia
Czech
Republic
-1
Sweden
Lithuania
-1
15
Price stability – recent developments
HICP inflation
(annual average percentage change, Sept. 2003 – Aug. 2004 and Sept. 2004 – Aug. 2005)
Slovakia
Hungary
Latvia
Slovenia
Malta
Sept. 2004-Aug. 2005
Poland
Sept.2003-Aug.2004
Cyprus
Estonia
Czech Republic
Sweden
Lithuania
-1
0
1
2
3
4
5
6
7
8
9
16
ECB Convergence Report 2004 – government balances
in 2003
Five countries complied with the reference value
General government surplus (+) or deficit (-)
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
-10
-11
-12
-13
-14
% of GDP, Eurostat data
3.1
0.3
-1.5
Reference value = - 3.0 %
-2.0
-1.9
-3.7
-3.9
-6.4
-6.2
-9.7
-12.6
Sweden
Estonia
Latvia
Slovenia Lithuania Slovakia
Czech
Malta
Cyprus Hungary Poland
Rep.
17
Government balances in 2005
General government surplus (+) or deficit (-)
0.9
0.8
1
% of GDP, European Commission Spring 2005 forecast
0
-1
-2
-1.6
-2.2
-3
-2.4
-2.9
-4
Reference value = -3.0%
-3.8
-3.9
-3.9
-5
Estonia
Sweden
Latvia
Slovenia Lithuania Cyprus Slovakia Hungary
Malta
-4.4
-4.5
Poland
Czech
Rep.
18
ECB Convergence Report 2004 – government debt in 2003
Nine countries complied with the reference value
General government gross debt
% of GDP, Eurostat data
80
70.9
59.1
Reference value = 60.0%
60
45.4
42.6
40
71.1
52.0
37.8
29.4
21.4
14.4
20
5.3
0
Estonia
Latvia
Lithuania Slovakia Slovenia
Czech
Poland
Sweden Hungary Cyprus
Malta
Rep.
19
Government debt in 2005
General government gross debt
% of GDP, European Commission Spring 2005 forecast
80
60
76.4
69.1
57.8
Reference value = 60.0%
44.2
46.8
50.3
36.4
40
30.2
21.2
14.0
20
4.3
0
Estonia
Latvia
Lithuania Slovenia
Czech
Slovakia
Poland
Sweden Hungary Cyprus
Malta
Rep.
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Exchange rate criterion
• At the time of the ECB Convergence Report 2004, in
October 2004, no country participated in ERM II for the
full two-year reference period
• 3 countries joined ERM II in June 2004, 3 in May 2005,
4 new Member States are still outside ERM II
Participation in ERM II
with effect from
Czech Republic
No
Estonia
Yes
28 June 2004
Cyprus
Yes
2 May 2005
Latvia
Yes
2 May 2005
Lithuania
Yes
28 June 2004
Hungary
No
Malta
Yes
Poland
No
Slovenia
Yes
Slovakia
No
Sweden
No
2 May 2005
28 June 2004
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Exchange rate developments in new ERM II countries
•
A rise in a chart denotes an appreciation of the currency against the euro
22
ECB Convergence Report 2004 – long term interest rates
Eight countries complied with the reference value
Long-term interest rates
(in percentages, annual average, Sept. 2003 – Aug. 2004)
9
8.1
8
8
Reference value 6.4
6.9
7
6
5
9
4.7
4.7
4.7
4.7
5.0
5.1
5.2
7
6
5.2
5
Hungary
0
Poland
0
Slovenia
1
Cyprus
1
Slovakia
2
Latvia
2
Sweden
3
Malta
3
Lithuania
4
Czech
Republic
4
N.B. No comparable long-term interest rate available for Estonia
23
Long term interest rates – recent developments
Long-term interest rates
(in percentages, annual average, Sept. 2003 – Aug. 2004 and Sept. 2004 – Aug. 2005)
Hungary
Poland
Slovenia
Cyprus
Sept. 2004-Aug. 2005
Slovakia
Sept.2003-Aug.2004
Latvia
Czech Republic
Lithuania
Malta
Sweden
0
2
4
6
8
N.B. No comparable long-term interest rate available for Estonia
24
ECB Convergence Report 2004 – legal assessment
Conclusions on the legal assessment
• All of the examined countries are well advanced in
adapting their NCB statutes and other legislation to
bring them in line with the Treaty and the ESCB
statute
• Most, while fulfilling the basic requirements for NCB
independence, still have legal provisions requiring
further adaptation to safeguard effective
independence of their NCBs
• As yet, none fulfil all of the legislative requirements
for integration into the Eurosystem
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ECB Convergence Report 2004 - Main challenges identified
• Need to complete disinflation process in a few
countries and to preserve it in others
• Fiscal policy still not providing sufficient support
for price stability in a number of countries –
need for more ambitious fiscal consolidation
• Need to participate in ERM II for at least two
years without severe tensions
• Need to fulfil all legal requirements
• Next regular convergence examination in 2006
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Thank you for your attention!
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