Proposal for a Council Decision in accordance with Article 122(2) of the Treaty on the adoption by Slovakia of the single currency on 1 January 2009
Date: 2008-05-07
Institutions: European Commission
Subjects: Economic and Monetary Union, European Monetary System, Slovakia, euro

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COMMISSION OF THE EUROPEAN COMMUNITIES 

CORRIGENDUM : new acronym 

Brussels, 9.6.2008 
COM(2008) 249 final/2 

2008/0092 (CNS) 

Proposal for a 

COUNCIL DECISION 

in accordance with Article 122(2) of the Treaty 
on the adoption by Slovakia of the single currency on 1 January 2009 

(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. 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.  

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. 

The  latest  Commission  and  ECB  regular  Convergence  Reports  were  adopted  in  December 
2006.  Denmark  and  the  United  Kingdom  have  not  expressed  their  wish  to  adopt  the  single 
currency.  Therefore,  the  2008  convergence  assessment  covers  the  following  ten  Member 
States with a derogation: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, 
Poland, Romania, Slovakia and Sweden. Having joined the EU on 1 January 2007, Bulgaria 
and Romania are examined for the first time. In parallel, on 4 April 2008 Slovakia submitted a 
request for an assessment of the fulfilment of the necessary conditions to adopt the euro on 
1 January 2009.  

The Commission Convergence Report 2008 was adopted by the College on 7 May 2008. The 
ECB  adopted  its  report  on  6  May.  The  reports  include  an  examination  of  the  compatibility 
between  the  national  legislation,  including  the  statute  of  each  national  central  bank,  and 
Articles 108 and 109 of the Treaty and the Statute of the ESCB and 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 mentioned in 
the final sub-paragraph of Article 121(1). 

In  its  Convergence  Report,  the  Commission  concludes  that  amongst  the  assessed  Member 
States  only  Slovakia  fulfils  the  conditions  for  the  adoption  of  the  euro,  assuming  that  the 
Council  will  follow  the  Commission's  recommendation  for  the  abrogation  of  the  excessive 
deficit procedure. 

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  Slovakia  with  effect  from 
1 January 2009. 

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2008/0092 (CNS) 

Proposal for a 

COUNCIL DECISION 

in accordance with Article 122(2) of the Treaty 
on the adoption by Slovakia of the single currency on 1 January 2009 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 122(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) 

The  third  stage  of  economic  and  monetary  union  (hereinafter  referred  to  as  '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 ón 1 January 19993. 
By  Decision  2000/427/EC4  Council  decided  that  Greece  fulfilled  the  necessary 
conditions  for  adopting  the  single  currency  on  1  January  2001.  By  Decision 
2006/495/EC5  Council  decided  that  Slovenia  fulfilled  the  necessary  conditions  for 
adopting  the  single  currency  on  1  January  2007.  By  Decisions  2007/503/EC6  and 
2007/504/EC7  Council  decided  that  Cyprus  and  Malta  fulfilled  the  necessary 
conditions for adopting the single currency on 1 January 2008. 

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Report adopted on 7 May 2008 - COM(2008) 248. 
Report adopted on 6 May 2008.  
Decision 1998/317/EC (OJ L 139, 11.5.1998, p. 30). 
OJ L 167, 7.7.2000, p. 19. 
OJ L 195, 15.7.2006, p. 25. 
OJ L 186, 18.7.2007, p. 29. 
OJ L 186, 18.7.2007, p. 32 

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(3) 

(4) 

(5) 

(6) 

(7) 

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 
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 98/317/EC Sweden has a derogation as defined in Article 122 of 
the  Treaty.  In  accordance  with  Article  4  of  the  2003  Act  of  Accession8,  the  Czech 
Republic, Estonia, Latvia, Lithuania, Hungary, Poland and Slovakia have a derogation 
as defined in Article 122 of the Treaty. In accordance with Article 5 of the 2005 Act of 
Accession9, Bulgaria and Romania have a derogation as defined in Article 122 of the 
Treaty. 

The  European  Central  Bank  (hereinafter  referred  to  as  '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 199710. 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.11 

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.  The  latest  Commission  and  ECB  regular  Convergence  Reports 
were  adopted  in  May  2008.  Slovakia  submitted  a  formal  request  for  a  convergence 
assessment on 4 April 2008.  

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 European system of central 
banks (hereinafter referred to as 'Statute of the ESCB'. The reports of the Commission 
and  the  ECB  provide  a  detailed  assessment  of  the  compatibility  of  the  legislation  of 
Slovakia with Articles 108 and 109 of the Treaty and the Statute of the ESCB.  

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OJ L 236, 23.9.2003, p. 33. 
OJ L 157, 21.6.2005, p. 203. 
OJ C 236, 2.8.1997, p. 5. 
OJ C 73, 25.3.2006, p. 21. Agreement as amended by the Agreement of 14 December 2007 (OJ C 319, 
29.12.2007, p. 7). 

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(8) 

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  of  23  October  1995 
concerning  harmonised  indices  of  consumer  prices12.  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  arithmetic 
average of 12 monthly indices of the previous period. In the one-year period ending in 
March 2008, the three best-performing Member States in terms of price stability were 
Malta, the Netherlands and Denmark, with inflation rates of, respectively 1.5 percent, 
1.7  percent  and  2.0  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 2008 was 3.2 percent. 

(9) 

According to Article 2 of the Protocol on the convergence criteria referred to in Article 
121 of the Treaty, 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, 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 
on 18 April 2008. 

(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 

12 

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). 

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(12) 

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  2008  was  6.5 
percent. 

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 2008 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 Community13. 

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

(a) 

In  Slovakia,  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/ECB. 

(b)  Regarding the fulfilment by Slovakia of the convergence criteria mentioned in 

the four indents of Article 121 (1) of the Treaty: 

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– 

– 

– 

(c) 

the average inflation rate in Slovakia in the year ending March 2008 stood at 
2.2 percent, which is well below the reference value, and it is likely to remain 
below the reference value in the months ahead, albeit with a narrowing margin; 

the budget deficit in Slovakia has seen a credible and sustainable reduction to 
below  3  percent  of  GDP;  the  Commission  therefore  recommends  to  the 
Council  to  abrogate  the  decision  on  the  existence  of  an  excessive  deficit  for 
Slovakia;  

Slovakia has been a member of ERM II since 28 November 2005; in the two-
year  period  ending  18  April  2008,  the  Slovak  koruna  (SKK)  has  not  been 
subject to severe tensions and Slovakia has not devalued, on its own initiative, 
the SKK bilateral central rate against the euro; 

in the year ending March 2008, the long-term interest rate in Slovakia was, on 
average, 4.5 percent which is below the reference value. 

In the light of the assessment on legal compatibility and on the fulfilment of the 
convergence  criteria  as  well  as  the  additional  factors,  and  provided  that  the 
decision on the existence  of an excessive deficit is abrogated by  the Council, 
Slovakia fulfils the necessary conditions for the adoption of the euro.  

13 

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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(14)  The  Council,  acting  on  a  recommendation  from  the  Commission,  abrogated  the 
Council  decision  on  the  existence  of  an  excessive  deficit  in  Slovakia  on  [3  June 
2008]14. 

(15)  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:  

Slovakia  fulfils  the  necessary  conditions  for  the  adoption  of  the  single  currency.  The 
derogation  in  favour  of  Slovakia referred  to  in  Article  4  of  the  2003  Act  of  Accession  is 
abrogated with effect from 1 January 2009. 

Article 1 

This Decision is addressed to the Member States. 

Article 2 

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

Article 3 

Done at  

For the Council 
The President 

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OJ L , , p. . 

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