Proposal for a COUNCIL DECISION on the adoption by Latvia of the euro on 1 January 2014
Date: 2013-06-05
Institutions: European Commission
Subjects: Euro Group (euro area), Latvia, euro, monetary union

EUROPEAN 
COMMISSION 

Brussels, 5.6.2013  
COM(2013) 345 final 

2013/0190 (NLE) 

Proposal for a 

COUNCIL DECISION 

on the adoption by Latvia of the euro on 1 January 2014 

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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  will  join  the 
European  Union  on  1  July  2013  and  will  become  a  Member  State  with  a  derogation  in 
accordance with Article 5 of the Act of Accession. 

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 can 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. 

The previous Commission and ECB regular Convergence Reports were adopted in May 2012. 
On 5 March 2013, Latvia submitted a request for a new convergence assessment with a view 
to  introduce  the  euro  on  1 January 2014  in  case  the  derogation  were  to  be  abrogated.  As  a 
response  to  this  request,  the  Commission  and  the  ECB  prepared  Convergence  Reports  for 
Latvia.  

The Commission Convergence Report 2013 on Latvia was adopted by the College on 5 June 
2013.  The  ECB  adopted  its  report  on  3  June.  The  reports  include  an  examination  of  the 
compatibility  between  Latvia'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 Latvia 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  Latvia  with  effect  from 
1 January 2014. 

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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,  the  Commission  proposes  not  to 
develop a formal impact assessment. 

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. 

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2013/0190 (NLE) 

Proposal for a 

COUNCIL DECISION 

on the adoption by Latvia of the euro on 1 January 2014 

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 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 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) 

(2) 

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 19993. 
By  Decision  2000/427/EC4  the  Council  decided  that  Greece  fulfilled  the  necessary 
conditions  for  adopting  the  euro  on  1  January  2001.  By  Decision  2006/495/EC5  the 
Council decided that Slovenia fulfilled the necessary conditions for adopting the euro 
on  1  January  2007.  By  Decisions  2007/503/EC6  and  2007/504/EC7  the  Council 
decided that Cyprus and Malta fulfilled the necessary conditions for adopting the euro 
on  1  January  2008.  By  decision  2008/608/EC8  the  Council  decided  that  Slovakia 
fulfilled the necessary conditions for adopting the euro. By decision 2010/416/EU9 the 
Council decided that Estonia 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 

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4 
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Decision 1998/317/EC (OJ L 139, 11.5.1998, p. 30). 
OJ L 167 of 7.7.2000, p. 19. 
OJ L 195 of 15.7.2006, p. 25. 
OJ L 186 of 18.7.2007, p. 29. 
OJ L 186 of 18.7.2007, p. 32. 
OJ L 195, 24.7.2008, p. 24. 
OJ L 196, 28.7.2010, p. 24. 

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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. 

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 Accession10, the Czech 
Republic,  Latvia,  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 
Accession11, Bulgaria and Romania have a derogation as defined in Article 139(1) of 
the  Treaty.  In  accordance  with  Article  5  of  the  Act  of  Accession12,  Croatia  has  a 
derogation as defined in Article 139(1) 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  199713.  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 union14. 

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. 
On 5 March 2013, Latvia 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 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 Latvia with Articles 130 and 131 of the Treaty and 
the Statute of the ESCB and of the ECB.  

According to 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 

OJ L 236, 23.9.2003, p. 33. 
OJ L 157, 21.6.2005, p. 203. 
OJ L 112, 24.4.2012, p. 21. 
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). 

(4) 

(5) 

(6) 

(7) 

(8) 

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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 
prices15.  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  2013,  the  inflation  reference  value  was  calculated  to  be  2.7 
percent, with Sweden, Latvia and Ireland as the three best-performing Member States 
in terms of price stability, with inflation rates of, respectively 0.8 percent, 1.3 percent 
and 1.6 percent. It is warranted to exclude from the best performers countries 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 and 2010 Convergence Reports. 
At the current juncture, it is warranted to exclude Greece from the best performers, as 
its  inflation  rate  and  profile  deviate  by  a  wide  margin  from  the  euro  area  average, 
mainly reflecting the severe adjustment needs and exceptional situation of the Greek 
economy,  and  including  it  would  unduly  affect  the  reference  value  and  thus  the 
fairness of the criterion16. 

(9) 

According  to  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)  According  to  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 16 May 2013. 

(11)  According  to  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 

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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) and by Regulation (EC) No 596/2009 of the 
European Parliament and the Council. 
In April 2013, the 12-month average inflation rate of Greece was 0.4% and that of the euro area 2.2%, 
with the gap between the two forecast to increase further in the months ahead. 

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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 April 2013 was 5.5 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 2013 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 Community17. 

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

(a) 

in  Latvia,  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 Latvia of the convergence criteria mentioned in the 
four indents of Article 140(1) of the Treaty: 

– 

– 

– 

– 

the average inflation rate in Latvia in the year ending in April 2013 stood 
at 1.3 percent, which is well below the reference value, and it is likely to 
remain below the reference value in the months ahead, 

the budget deficit in Latvia has seen a credible and sustainable reduction 
to  below  3  percent  of  GDP  by  the  end  of  2012;  By  Decision 
2013/…/EU18  the  Council,  acting  on  a  recommendation  from  the 
Commission,  abrogated  Decision  2009/591/EC  on  the  existence  of  an 
excessive deficit in Latvia, 

Latvia has been a member of ERM II since 2 May 2005; upon ERM II 
entry,  the  authorities  unilaterally  committed  to  keep  the  lats  within  the 
±1%  fluctuation  margin  around  the  central  rate.  During  the  two  years 
preceding this assessment, the lats exchange rate did not deviate from its 
central rate by more than ±1% and it did not experience tensions, 

in the year ending April 2013, the long-term interest rate in Latvia was, 
on average, 3.8 percent which is 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,  Latvia  fulfils  the 
necessary conditions for the adoption of the euro, 

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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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HAS ADOPTED THIS DECISION:  

Article 1 

Latvia fulfils the necessary conditions for the adoption of the euro. The derogation in favour 
of Latvia referred to in Article 4 of the 2003 Act of Accession is abrogated with effect from 
1 January 2014. 

This Decision is addressed to the Member States. 

Article 2 

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

Done at Brussels,  

Article 3 

For the Council 
The President 

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