Proposal for a Council Decision in accordance with Article 122(2) of the Treaty on the adoption by Slovenia of the single currency on 1 January 2007
Date: 2006-05-16
Institutions: European Commission
Subjects: Economic and Monetary Union, Slovenia, economic convergence, euro, exchange rate

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.5.2006 
COM(2006) 225 final 

2006/0077 (CNS) 

Proposal for a 

COUNCIL DECISION 

in accordance with Article 122(2) of the Treaty 
on the adoption by Slovenia of the single currency on 1 January 2007 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

Commission proposal for a Council decision in accordance with Article 122(2) 

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 single currency 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.  On  1  May  2004,  the  Czech  Republic,  Estonia,  Cyprus,  Latvia, 
Lithuania,  Hungary,  Malta,  Poland,  Slovenia  and  Slovakia  joined  the  European  Union.  In 
accordance with Article 4 of the Act of Accession, these countries are Member States with a 
derogation. 

Article 122(2) lays down the procedures for the abrogation of derogations. These procedures 
are  to  be  initiated  at  least  once  every  two  years  or  at  the  request  of  a  Member  State  with  a 
derogation.  According  to  these  procedures  the  Commission  and  the  European  Central  Bank 
have to report to the Council in accordance with Article 121(1) 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  can  submit  to  the  Council  a  proposal  for  a  Council  decision  to  abrogate  the 
derogation of the Member States fulfilling the necessary conditions. 

Since  the  last  reports  on  the  fulfilment  of  the  conditions  to  adopt  the  single  currency  were 
presented in October 2004, the Member States with a derogation are due for re-examination in 
2006. In early 2006, the Commission and the ECB agreed to prepare a comprehensive report 
in  October  2006,  assessing  progress  with  convergence  for  all  Member  States  with  a 
derogation. On 2 March, Slovenia submitted a request for an earlier convergence assessment, 
in  order  to  have  sufficient  time  for  the  final  preparations  to  introduce  the  euro  on 
1 January 2007 in case the derogation were to be abrogated. As a response to this request, the 
Commission and the ECB prepared convergence reports for Slovenia. 

The  Commission  convergence  report  on  Slovenia  was  adopted  by  the  College  on  16  May 
2006. The ECB has adopted its report on 15 May. The reports include an examination of the 
compatibility between each Member State’s national legislation, including the statutes of its 
national central bank, and Articles 108 and 109 of the Treaty and the Statue of the ESCB. The 
reports  also  examine  the  achievement  of  a  high  degree  of  sustainable  convergence  by 
reference to the fulfilment by each Member State of the convergence criteria and take account 
of several other factors mentioned in the final sub-paragraph of Article 121(1). 

In  its  convergence  report,  the  Commission  concludes  that  a  high  degree  of  sustainable 
convergence has been achieved in Slovenia. 

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  Slovenia  with  effect  from 
1 January 2007. 

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2006/0077 (CNS) 

Proposal for a 

COUNCIL DECISION 

in accordance with Article 122(2) of the Treaty 
on the adoption by Slovenia of the single currency on 1 January 2007 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 122, paragraph 2 thereof, 

Having regard to the proposal from the Commission, 

Having regard to the report from the Commission1, 

Having regard to the report from the European Central Bank2, 

Having regard to the opinion of the European Parliament, 

Having regard to the discussion of the Council, meeting in the composition of Heads of State 
or Government, 

Whereas: 

(1) 

(2) 

(3) 

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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 single currency in 1 January 1999.3 

The  Council  decided  on  19  June  2000  that  Greece  fulfilled  the  necessary  conditions 
for adopting the single currency on 1 January 2001.4 

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,  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 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 

COM (….) 

Council Decision 1998/317/EC of 3 May 1998 (OJ L 139, 11.5.1998, p.30). 
Council Decision 2000/427/EC of 19 June 2000 (OJ L 167 of 7.7.2000, p.19). 

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(4) 

(5) 

(6) 

(7) 

(8) 

third  stage  of  EMU.  Denmark  has  not  requested  that  the  procedure  referred  to  in 
Article 122(2) of the Treaty be initiated. 

By virtue of Decision 1998/317/EC Sweden has a derogation as defined in Article 122 
of  the  Treaty.  In  accordance  with  Article  4  of  the  Act  of  Accession5,  the  Czech 
Republic,  Estonia,  Cyprus,  Latvia,  Lithuania,  Hungary,  Malta,  Poland,  Slovenia  and 
Slovakia have a derogation as defined in Article 122 of the Treaty. 

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  1997.6  The  procedures  for  an  exchange-rate  mechanism  in  stage  three  of 
economic  and  monetary  union  (ERM  II)  were  laid  down  in  the  Agreement  of 
1 September  1998  between  the  ECB  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.7 

Article 122(2) of the Treaty lays down the procedures for abrogation of the derogation 
of  the  Member  States  concerned.  According  to  that  Article  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 
121(1)  of  the  Treaty.  On  2  March  2006,  Slovenia  submitted  a  formal  request  for  a 
convergence assessment.  

National  legislation  in  the  Member  States  including  the  statutes  of  national  central 
banks  shall  as  necessary  be  adapted  with  a  view  to  ensuring  compatibility  with 
Articles  108  and  109  of  the  Treaty  and  the  Statute  of  the  ESCB.  The  reports  of  the 
Commission  and  the  ECB  provide  a  detailed  assessment  of  the  compatibility  of  the 
legislation of Slovenia with Articles 108 and 109 of the Treaty and the Statute of the 
ESCB.  

According to Article 1 of the Protocol on the convergence criteria referred to in Article 
121  of  the  Treaty  establishing  the  European  Community,  the  criterion  on  price 
stability  referred  to  in  the  first  indent  of  Article  121  (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  will  be  measured  by  the  harmonised  indices  of  consumer 
prices (HICPs) defined in Council Regulation (EC) No 2494/95.8 In order to assess the 
price  stability  criterion  a  Member  State's  inflation  has  been  measured  by  the 
percentage  change  in  the  arithmetic  average  of  12  monthly  indices  relative  to  the 

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OJ L 236, 23.9.2003, p. 33. 
OJ C 236, 2.8.1997, p. 5. 
OJ C 345, 13.11.1998, p.6 as amended by the Agreement of 14 September 2000 (OJ C 362, 16.12.2000, 
p. 11). 
Council Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonised indices of consumer 
prices  (OJ  L  257,  27.10.1995,  p.  1)  as  amended  by  Regulation  (EC)  No  1882/2003  of  the  European 
Parliament and the Council No 1882/2003 (OJ L 284, 31.10.2003, p. 1). 

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arithmetic average of 12 monthly indices of the previous period. In the one year period 
ending  in  March  2006,  the  three  best-performing  Member  States  in  terms  of  price 
stability  were  Sweden,  Finland  and  Poland,  with  inflation  rates  of,  respectively  0.9 
percent,  1.0  percent  and  1.5  percent.  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.  On  this  basis,  the  reference  value  in  the  one  year  period 
ending in March 2006 was 2.6 percent. 

(9) 

According to Article 2 of the Protocol on the convergence criteria referred to in Article 
121  of  the  Treaty  establishing  the  European  Community,  the  criterion  on  the 
government budgetary position referred to in the second indent of Article 121(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  104(6)  of  the  Treaty  that  an  excessive 
deficit exists. 

(10)  According to Article 3 of the Protocol on the convergence criteria referred to in Article 
121 of the Treaty establishing the European Community, the criterion on participation 
in the exchange-rate mechanism of the European Monetary System referred to in the 
third indent of Article 121(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  any  other  Member  State's  currency  on  its 
own  initiative  for  the  same  period.  Since  1  January  1999  the  ERM  II  provides  the 
framework for assessing the fulfilment of the exchange rate criterion. In assessing the 
fulfilment  of  this  criterion  in  their  reports,  the  Commission  and  the  ECB  have 
examined the two-year period ending in April 2006. 

(11)  According to Article 4 of the Protocol on the convergence criteria referred to in Article 
121  of  the  Treaty  establishing  the  European  Community,  the  criterion  on  the 
convergence of interest rates referred to in the fourth indent of Article 121(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  fulfilment  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. On 
this  basis,  the  reference  value  in  the  one  year  period  ending  in  March  2006  was  5.9 
percent. 

(12) 

In accordance with Article 5 of the Protocol on the convergence criteria referred to in 
Article 121 of the Treaty establishing the European Community, the data used in the 
current assessment of the fulfilment 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 2006 in accordance with Council Regulation (EC) No 3605/93 of 22 

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November 1993 on the application of the Protocol on the excessive deficit procedure 
annexed to the Treaty establishing the European Community.9 

(13)  On  the  basis  of  reports  presented  by  the  Commission  and  the  ECB  on  the  progress 
made  in  the  fulfilment  by  Slovenia  of  its  obligations  regarding  the  achievement  of 
economic and monetary union, the Commission concludes that: 

In Slovenia, national legislation, including the Statute of the national central bank, is 
compatible with Articles 108 and 109 of the Treaty and the Statute of the ESCB. 

Regarding  the  fulfilment  by  Slovenia  of  the  convergence  criteria  mentioned  in  the 
four indents of Article 122 (1) of the Treaty: 

– 

– 

– 

– 

the average inflation rate in Slovenia in the year ending March 2006 stood at 
2.3 percent, which is below the reference value and is likely to continue to do 
so in the months ahead; 

Slovenia  is  not  the  subject  of  a  Council  Decision  on  the  existence  of  an 
excessive government deficit; 

Slovenia  has  been  a  member  of  ERM  II  since  28  June  2004;  in  the  two-year 
period  ending  April  2006  the  Slovenian  tolar  (SIT)  has  not  been  subject  to 
severe  tensions  and  Slovenia  has  not  devalued,  on  its  own  initiative,  the  SIT 
bilateral central rate against the euro; 

in the year ending March 2006 the long-term interest rate in Slovenia was, on 
average, 3.8 percent which is below the reference value. 

Slovenia has achieved a high degree of sustainable convergence by reference to these 
criteria. 

Consequently, Slovenia fulfils the necessary conditions for the adoption of the single 
currency. 

(14)  The  Council,  acting  by  qualified  majority  on  a  proposal  by  the  Commission,  shall 
decide which Member States with a derogation fulfil the necessary conditions for the 
adoption  of  the  single  currency  and  abrogate  the  derogations  of  the  Member  States 
concerned. 

HAS ADOPTED THIS DECISION:  

Article 1 

Slovenia  fulfils  the  necessary  conditions  for  the  adoption  of  the  single  currency.  The 
derogation in favour of Slovenia referred to in Article 4 of the Act of Accession is abrogated 
with effect from 1 January 2007. 

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OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Council Regulation (EC) No 2103/2005 (OJ 
L 337, 22.12.2005, p. 1). 

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This Decision is addressed to the Member States. 

Article 2 

Article 3 

This Decision shall be published in the Official Journal of the European Union. 

Done at  

For the Council 
The President 

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