2007/503/EC: Council Decision 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
Date: 2007-07-10
Institutions: Council of the European Union
Subjects: Cyprus, Economic and Monetary Union, European Monetary System, convergence criteria, economic convergence, euro

18.7.2007

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Official Journal of the European Union

L 186/29

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COUNCIL

COUNCIL DECISION

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

(2007/503/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community, and in particular Article 122(2) thereof,

establishing the European

Having regard to the proposal from the Commission,

Having regard to the report from the Commission (1),

Having regard to the report from the European Central Bank (2),

Having regard to the Opinion of the European Parliament (3),

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

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,
the
Netherlands, Austria, Portugal and Finland fulfilled the
necessary conditions for adopting the single currency
on 1 January 1999 (4).

Luxembourg,

Ireland,

France,

Italy,

(2)

(3)

(4)

The Council decided on 19 June 2000 that Greece
fulfilled the necessary conditions for adopting the single
currency on 1 January 2001 (5). The Council decided on
11 July 2006 that Slovenia fulfilled the necessary
conditions
on
1 January 2007 (6).

adopting

currency

single

the

for

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
1992,
Denmark has notified the Council that it will not par-
ticipate in the third stage of EMU. Denmark has not
the procedure referred to in Article
requested that
122(2) of the Treaty be initiated.

in December

Edinburgh

in

By virtue of Decision 98/317/EC, Sweden has a dero-
the Treaty.
gation as defined in Article 122 of
In
accordance with Article 4 of
the 2003 Act of
Accession (7),
the Czech Republic, Estonia, Cyprus,
Latvia, Lithuania, Hungary, Malta, Poland and Slovakia
have a derogation as defined in Article 122 of
the
Treaty. In accordance with Article 5 of the 2005 Act
of Accession (8), Bulgaria and Romania have a derogation
as defined in Article 122 of the Treaty.

(1) Report adopted on 16 May 2007.
(2) Report adopted on 16 May 2007.
(3) Opinion delivered on 20 June 2007 (not yet published in the

Official Journal).

(4) Decision 98/317/EC (OJ L 139, 11.5.1998, p. 30).

(5) Decision 2000/427/EC (OJ L 167, 7.7.2000, p. 19).
(6) Decision 2006/495/EC (OJ L 195, 15.7.2006, p. 25).
(7) OJ L 236, 23.9.2003, p. 33.
(8) OJ L 157, 21.6.2005, p. 203.

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Official Journal of the European Union

18.7.2007

(5)

(6)

(7)

(8)

rate mechanism in the

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 of 16 June 1997 on the establishment of an
exchange
third stage of
economic and monetary union (1). The procedures for
an exchange
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 (2).

rate mechanism in stage

the derogation of

Article 122(2) of the Treaty lays down the procedures for
the Member States
abrogation of
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 are to
report to the Council in accordance with the procedure
the Treaty. On
laid down in Article 121(1) of
13 February 2007, Cyprus submitted a formal request
for a convergence assessment.

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 108 and 109 of the Treaty and the Statute of
the European System of Central Banks and of
the
European Central Bank (hereinafter referred to as ‘the
Statute of the ESCB’). The reports of the Commission
the
and the ECB provide a detailed assessment of
compatibility of the legislation of Cyprus 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, 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 is measured by the harmonised
indices of consumer prices (HICPs) defined in Council
Regulation (EC) No 2494/95 (3). In order to assess the
price stability criterion, a Member State's inflation is
measured by the percentage change in the arithmetic

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

average of 12 monthly indices relative to the arithmetic
average of 12 monthly indices of the previous period. In
the one-year period ending in March 2007, the three best
performing Member States in terms of price stability
were Finland, Poland and Sweden, with inflation rates
of, respectively 1,3 %, 1,5 % and 1,6 %. 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 2007 was 3,0 %.

(9)

the Protocol on the
According to Article 2 of
convergence criteria,
the criterion on the government
budgetary position referred to in the second indent of
Article 121(1) of the Treaty means 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

respected the normal

the Protocol on the
the criterion on participation in
convergence criteria,
the
European
rate mechanism of
exchange
Monetary System referred to in the third indent of
the Treaty means that a Member
Article 121(1) of
State has
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 has provided the
framework for assessing the fulfilment of the exchange
rate criterion. In assessing the fulfilment of this criterion
the Commission and the ECB have
in their reports,
examined the two-year period ending 26 April 2007.

(11) According to Article 4 of

the Protocol on the
convergence criteria, 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 2007 was 6,4 %.

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Official Journal of the European Union

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(12)

the Protocol on the
In accordance with Article 5 of
convergence criteria,
the statistical data used in the
current assessment of the fulfilment of the convergence
criteria are to be provided by the Commission. The
Commission has provided the necessary data for the
preparation of
this Decision. The Commission has
provided it on the basis of reports submitted by the
Member States before 1 April 2007 in accordance with
Council Regulation (EC) No 3605/93 of 22 November
1993 on the application of the Protocol on the excessive
deficit procedure annexed to the Treaty establishing the
European Community (1).

— in the year ending March 2007,

the long-term
interest rate in Cyprus was on average 4,2 %, which
is below the reference value.

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

sustainable

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

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

and monetary

union,

(14) According to Article 122(2) of the Treaty the Council,
from the
acting by qualified majority on a proposal
is to decide which Member States with a
Commission,
derogation fulfil
the
adoption of the single currency and abrogate the dero-
gations of the Member States concerned,

the necessary

conditions

for

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

legislation,

HAS ADOPTED THIS DECISION:

Article 1

Regarding the fulfilment by Cyprus of the convergence
criteria mentioned in the four indents of Article 121(1)
of the Treaty:

Cyprus fulfils the necessary conditions for the adoption of the
single currency. The derogation in favour of Cyprus referred to
in Article 4 of the 2003 Act of Accession shall be abrogated
with effect from 1 January 2008.

— the average inflation rate in Cyprus in the year ending
March 2007 stood at 2,0 %, which is below the
reference value, and is likely to remain below the
reference value in the months ahead,

This Decision is addressed to the Member States.

Article 2

Article 3

— Cyprus is not the subject of a Council Decision on
the existence of an excessive government deficit,

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

— Cyprus has been a member of ERM II since 2 May
2005; in the two-year period ending 26 April 2007,
the Cypriot pound (CYP) has not been subject to
severe tensions and Cyprus has not devalued, on its
own initiative, the CYP bilateral central rate against
the euro,

Done at Brussels, 10 July 2007.

For the Council
The President

F. TEIXEIRA DOS SANTOS

(1) OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regu-

lation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1).