# EUR-Lex - 52014PC0324 - EN

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# 52014PC0324

**Proposal for a COUNCIL DECISION on the adoption by Lithuania of the euro on 1 January 2015 /* COM/2014/0324 final - 2014/0170 (NLE) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

On 3 May 1998 the Council decided that Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Austria and Finland fulfilled the necessary conditions for the adoption of the euro on 1
January 1999. Denmark and the United Kingdom made use of their opt-out clauses
and were not, therefore, assessed by the Council. Greece and Sweden were considered by the Council as Member States with a derogation. On 19 June 2000,
the Council decided that Greece fulfilled the necessary conditions to adopt the
euro on 1 January 2001. The countries which joined the European Union on 1 May
2004 (the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia) became Member States with a derogation in accordance
with Article 4 of the respective Act of Accession. On 11 July 2006, the Council
decided that Slovenia fulfilled the necessary conditions to adopt the euro on 1
January 2007. Bulgaria and Romania, who joined the European Union on 1 January
2007, became Member States with a derogation in accordance with Article 5 of
the respective Act of Accession. On 10 July 2007, the Council decided that Cyprus and Malta fulfilled the necessary conditions to adopt the euro on 1 January 2008. On 8 July
2008, the Council decided that Slovakia fulfilled the necessary conditions for
adopting the euro as of 1 January 2009. On 13 July 2010, the Council decided
that Estonia fulfilled the necessary conditions for adopting the euro as of 1
January 2011. Croatia joined the European Union on 1 July 2013 and became a Member State with a derogation in accordance with Article 5 of the Act of Accession. On 9
July 2013, the Council decided that Latvia fulfilled the necessary conditions
for adopting the euro as of 1 January 2014.

Articles 140(1) of the Treaty on the
Functioning of the European Union ('the Treaty') provides that at least once
every two years or at the request of a Member State with a derogation, the
Commission and the European Central Bank have to report to the Council on the
progress made in the fulfilment by Member States with a derogation of their
obligations regarding the achievement of economic and monetary union. Based on
its own report and that of the ECB, the Commission should submit to the Council
a proposal for a Council decision, in accordance to the procedure laid down in
Article 140(2) of the Treaty, to abrogate the derogation of the Member States
fulfilling the necessary conditions.

Both the Commission and the ECB Convergence
Reports were released on 4 June 2014. The reports include an examination of the
compatibility between Lithuania's national legislation, including the statutes
of its national central bank, with Articles 130 and 131 of the Treaty and the
Statute of the ESCB and of the ECB. The reports also examine the achievement of
a high degree of sustainable convergence by reference to the fulfilment of the
convergence criteria and take account of several other factors required under
the final sub-paragraph of Article 140(1) of the Treaty.

In its Convergence Report, the Commission
concludes that Lithuania fulfils the conditions for the adoption of the euro.

On the basis of its report and that of the
ECB, the Commission has adopted the attached proposal for a Council decision to
abrogate the derogation of Lithuania with effect from 1 January 2015.

2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENT

Discussions with Member States on economic
policy challenges in Member States are held under various headings on a regular
basis in the Economic and Financial Committee and ECOFIN/Eurogroup. These
include informal discussions on issues specifically relevant to the preparation
of eventual euro area entry (incl. exchange rate policies). Dialogue with
academics and other interested groups takes place in the context of
conferences/seminars and on an ad-hoc basis.

Economic developments in the euro area and
the Member States are assessed in the framework of the various procedures of
economic policy co-ordination and surveillance (notably under Art. 121 of the
Treaty), as well as in the context of the Commission’s regular monitoring and
analysis of country-specific and area-wide developments (incl. forecasts,
regular publication series, input to EFC and ECOFIN/Eurogroup). In accordance
with the proportionality principle and in line with past practice, no formal
impact assessment was developed.

3.           LEGAL ELEMENTS OF THE
PROPOSAL

3.1.        Legal basis

The legal basis for the present proposal is
Article 140(2) of the Treaty, which lays down the procedure for a Council
decision on euro adoption and for abrogation of the derogation in the concerned
Member States.

The Council shall act on a proposal from
the Commission, after consulting the European Parliament, after discussion in
the European Council and after having received a recommendation of a qualified
majority of those among its members representing Member States whose currency
is the euro.

3.2.        Subsidiarity and
proportionality

The proposal falls under the exclusive
competence of the Union. The subsidiarity principle therefore does not apply.

The present initiative does not go beyond
what is necessary to achieve its objective and, therefore, complies with the
proportionality principle.

3.3.        Choice of the legal
instrument

The Decision instrument is the only
appropriate legal instrument according to Article 140(2) of the Treaty.

4.           BUDGETARY IMPLICATION

The proposal has no implications for the
budget of the Union.

2014/0170 (NLE)

Proposal for a

COUNCIL DECISION

on the adoption by Lithuania of the euro on 1 January 2015

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 140(2) thereof,

Having regard to the proposal from the
European Commission,

Having regard to the report from the
European Commission[1],

Having regard to the report from the
European Central Bank[2],

Having regard to the opinion of the
European Parliament,

Having regard to the discussion in the
European Council,

Having regard to the recommendation of the
members of the Council representing Member States whose currency is the euro,

Whereas:

(1)       The third stage of
economic and monetary union ('EMU') started on 1 January 1999. The Council,
meeting in Brussels on 3 May 1998 in the composition of Heads of State or
Government, decided that Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland fulfilled the necessary
conditions for adopting the euro on 1 January 1999[3].

(2)       By Decision 2000/427/EC[4] the Council decided
that Greece fulfilled the necessary conditions for adopting the euro on 1
January 2001. By Decision 2006/495/EC[5]
the Council decided that Slovenia fulfilled the necessary conditions for
adopting the euro on 1 January 2007. By Decisions 2007/503/EC[6] and 2007/504/EC[7] the Council decided
that Cyprus and Malta fulfilled the necessary conditions for adopting the euro
on 1 January 2008. By decision 2008/608/EC[8]
the Council decided that Slovakia fulfilled the necessary conditions for
adopting the euro. By decision 2010/416/EU[9]
the Council decided that Estonia fulfilled the necessary conditions for
adopting the euro. By decision 2013/387/EU[10]
the Council decided that Latvia fulfilled the necessary conditions for adopting
the euro.

(3)       In
accordance with paragraph 1 of the Protocol on certain provisions relating to
the United Kingdom of Great Britain and Northern Ireland annexed to the Treaty
establishing the European Community ('EC Treaty'), the United Kingdom notified the Council that it did not intend to move to the third stage of
EMU on 1 January 1999. This
notification has not been changed. In accordance with paragraph 1 of the
Protocol on certain provisions relating to Denmark annexed to the EC Treaty and
the Decision taken by the Heads of State or Government in Edinburgh in December
1992, Denmark has notified the Council that it will not participate in the
third stage of EMU. Denmark has not requested that the procedure referred to in
Article 140(2) of the Treaty on the Functioning of the European Union ('the
Treaty') be initiated.

(4)       By
virtue of Decision 98/317/EC Sweden has a derogation as defined in Article 139(1)
of the Treaty. In accordance with Article 4 of the 2003
Act of Accession[11],
the Czech Republic, Lithuania, Hungary and Poland have a derogation as defined
in Article 139(1) of the Treaty. In accordance with Article 5 of the 2005
Act of Accession[12],
 Bulgaria and Romania have a derogation as defined in Article 139(1) of
the Treaty. In accordance with Article 5 of the Act of Accession[13], Croatia has a derogation as defined in Article 139(1) of the Treaty.

(5)       The
European Central Bank ('ECB') was
established on 1 July 1998. The European Monetary System has been replaced by an exchange rate mechanism, the setting-up of
which was agreed by a resolution
of the European Council on the establishment of an exchange-rate mechanism in
the third stage of economic and monetary union of 16 June 1997[14]. The procedures for an
exchange-rate mechanism in stage three of economic and monetary union (ERM II)
were laid down in the Agreement of 16 March 2006 between the European Central
Bank and the national central banks of the Member States outside the euro area
laying down the operating procedures for an exchange rate mechanism in stage
three of economic and monetary union.[15]

(6)       Article
140(2) of the Treaty lays down the
procedures for abrogation of the derogation of the Member States concerned. At least once every two
years, or at the request of a Member State with a derogation, the Commission
and the ECB shall report to the Council in accordance with the procedure laid
down in Article 140(1) of the Treaty.

(7)       National
legislation in the Member States including the statutes of national central
banks, is to be adapted as necessary with a view to ensuring compatibility with
Articles 130 and 131 of the Treaty
and the Statute of the European System of Central Banks
and of the European Central Bank ('Statute of the ESCB and
of the ECB'). The reports of the Commission and the ECB provide a detailed
assessment of the compatibility of the legislation of Lithuania with Articles 130 and 131 of the Treaty and the Statute of the ESCB and of the
ECB.

(8)       In
accordance with Article 1 of the Protocol No 13 on the convergence criteria
referred to in Article 140 of the Treaty, the criterion on price stability
referred to in the first indent of Article 140(1) of the Treaty means that a
Member State has a price performance that is sustainable and an average rate of
inflation, observed over a period of one year before the examination, that does not exceed by more than one
and a half percentage points that of, at most, the three best performing Member
States in terms of price stability. For the purpose of the criterion on price
stability, inflation is measured by the harmonised indices of consumer prices
(HICPs) defined in Council Regulation (EC) No 2494/95[16]. In order to assess
the price stability criterion a Member State's inflation is measured by the
percentage change in the arithmetic average of 12 monthly indices relative to
the arithmetic average of 12 monthly indices of the previous period. A
reference value calculated as the simple arithmetic average of the inflation
rates of the three best-performing Member States in terms of price stability
plus 1.5 percentage points was considered in the reports of the Commission
and the ECB. In the one-year period ending in April 2014, the inflation reference value was calculated to be 1.7 percent, with
Latvia, Portugal and Ireland as the three best-performing Member States in terms of price stability, with inflation rates of, respectively 0.1
percent, 0.3 percent and 0.3 percent. It is warranted
to exclude from the best performers Member States whose inflation rates could
not be seen as a meaningful benchmark for other Member States. Such outliers
were in the past identified in the 2004, 2010 and 2013 Convergence Reports. At
the current juncture, it is warranted to exclude Greece, Bulgaria and Cyprus from the best performers[17].
They are replaced by Latvia, Portugal and Ireland, the Member States with the next-lowest average inflation rates, for the calculation of the reference
value.

(9)       In accordance with Article
2 of the Protocol No 13, the criterion on the government budgetary position
referred to in the second indent of Article 140(1) of the Treaty shall mean
that at the time of the examination the Member State is not the subject of a Council
decision under Article 126(6) of the Treaty that an excessive deficit exists.

(10)     In accordance with Article 3 of the Protocol No 13, the criterion on participation in the
exchange-rate mechanism of the European Monetary System referred to in the
third indent of Article 140(1) of the Treaty means that a Member State has
respected the normal fluctuation margins provided for by the
exchange-rate mechanism (ERM) of the European Monetary System without severe
tensions for at least the last two years before the examination. In particular,
the Member State must not have devalued its currency's bilateral central rate
against the euro on its own initiative for the same period. Since 1 January
1999 the ERM II provides the framework for assessing the fulfillment of the
exchange rate criterion. In assessing the fulfillment of this criterion in
their reports, the Commission and the ECB have examined the two-year period
ending on 15 May 2014.

(11)     In accordance with Article 4 of the Protocol No 13, the criterion on the convergence of
interest rates referred to in the fourth indent of Article 140(1) of the Treaty
means that, observed over a period
of one year before the examination, a Member State has had an average nominal
long-term interest rate that does not exceed by more than two percentage points
that of, at most, the three best performing Member States in terms of price
stability. For the purpose of the
criteria on the convergence of interest rates, comparable interest rates on
10-year benchmark government bonds were used. In order to assess the
fulfillment of the interest-rate criterion a reference value calculated as the
simple arithmetic average of the nominal long-term interest rates of the three
best performing Member States in terms of price stability plus two percentage
points was considered in the reports of the Commission and the ECB. The
reference value is based on the long-term interest rates in Latvia (3.3 percent), Ireland (3.5 percent) and Portugal (5.9 percent) and in the one year period
ending in April 2014 was 6.2 percent.

(12)     In
accordance with Article 5 of the Protocol No 13, the data used in the current
assessment of the fulfillment of the convergence criteria will be provided by
the Commission. For the preparation of this proposal the Commission provided
data. Budgetary data were provided
by the Commission after reporting by the Member States by 1 April 2014 in
accordance with Council Regulation (EC) No 479/2009[18].

(13)     On the
basis of reports presented by the Commission and the ECB on the progress made
in the fulfillment by Lithuania of its obligations regarding the achievement of
economic and monetary union, it is concluded that:

(a)     in Lithuania, national legislation,
including the Statute of the national central bank, is compatible with Articles
130 and 131 of the Treaty and the Statute of the ESCB and of the ECB;

(b)     regarding the fulfillment by Lithuania of the convergence criteria mentioned in the four indents of Article 140(1)
of the Treaty:

– 
the average inflation rate in Lithuania in the year ending in April 2014 stood at 0.6 percent, which is well below
the reference value, and it is likely to remain below the reference value in
the months ahead,

– 
Lithuania is not the
subject of a Council decision on the existence of an excessive deficit, with a
budget deficit of 2.1 percent of GDP in 2013,

– 
Lithuania has been a
member of ERM II since 28 June 2004; upon ERM II entry, the authorities
unilaterally commited to maintain the prevailing Currency Board within the
mechanism. During the two years preceding this assessment, the litas exchange
rate did not deviate from its central rate and it did not experience tensions,

– 
in the year ending April 2014, the long-term
interest rate in Lithuania was, on average, 3.6 percent which is well below the
reference value;

(c)     in the light of the assessment on
legal compatibility and on the fulfilment of the convergence criteria as well
as the additional factors, Lithuania fulfils the necessary conditions for the
adoption of the euro,

HAS ADOPTED THIS DECISION:

Article 1

Lithuania fulfils
the necessary conditions for the adoption of the euro. The derogation in favour
of Lithuania referred to in Article 4 of the 2003 Act of Accession is abrogated
with effect from 1 January 2015.

Article 2

This
Decision is addressed to the Member States.

Done at Brussels,

For
the Council

The
President

[1]               OJ [..], p. [..].

[2]               OJ [..], p. [..].

[3]               Council Decision 1998/317/EC of 3 May 1998 in
accordance with Article 109j(4) of the Treaty (OJ L 139, 11.5.1998, p. 30).

[4]               Council Decision 2000/427/EC of 19 June 2000 in
accordance with Article 122(2) of the Treaty on the adoption by Greece of the
single currency on 1 January 2001 (OJ L 167, 7.7.2000, p. 19).

[5]               Council Decision 2006/495/EC of 11 July 2006 in
accordance with Article 122(2) of the Treaty on the adoption by Slovenia of the
single currency on 1 January 2007 (OJ L 195, 15.7.2006, p. 25).

[6]               Council Decision 2007/503/EC of 10 July 2007 in
accordance with Article 122(2) of the Treaty on the adoption by Cyprus of the
single currency on 1 January 2008 (OJ L 186, 18.7.2007, p. 29).

[7]               Council Decision 2007/504/EC of 10 July 2007 in
accordance with Article 122(2) of the Treaty on the adoption by Malta of the
single currency on 1 January 2008 (OJ L 186, 18.7.2007,
p. 32).

[8]               Council Decision 2008/608/EC of 8 July 2008 in
accordance with Article 122(2) of the Treaty on the adoption by Slovakia of the
single currency on 1 January 2009 (OJ L 195, 24.7.2008, p. 24).

[9]               Council Decision 2010/416/EU of 13 July 2010 in
accordance with Article 140(2) of the Treaty on the adoption by Estonia of the
euro on 1 January 2011 (OJ L 196, 28.7.2010, p. 24).

[10]             Council Decision 2013/387/EU of 9 July 2013 on the
adoption by Latvia of the euro on 1 January 2014 (OJ L 195, 18.7.2013, p. 24).

[11]             OJ L 236, 23.9.2003, p. 33.

[12]             OJ L 157, 21.6.2005, p. 203.

[13]             OJ L 112, 24.4.2012, p. 21.

[14]             OJ C 236, 2.8.1997, p. 5.

[15]             OJ C 73, 25.3.2006, p. 21.

[16]             Council Regulation (EC) No 2494/95 of 23 October 1995
concerning harmonised indices of consumer prices (OJ L
257, 27.10.1995).

[17]             In April 2014, the 12-month average inflation rate of Greece, Bulgaria and Cyprus were respectively -1.2%, -0.8% and -0.4% and that of the euro area 1.0%.

[18]             Council Regulation (EC) No 479/2009 of 25 May 2009 on
the application of the Protocol on the excessive deficit procedure annexed to
the Treaty establishing the European Community (OJ L 145,
10.6.2009, p. 1).