REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL CONVERGENCE REPORT 2014 (prepared in accordance with Article 140(1) of the Treaty on the Functioning of the European Union)
Date: 2014-06-04
Institutions: European Commission
Subjects: Bulgaria, Croatia, Czechia, Euro Group (euro area), Hungary, Lithuania, Poland, Romania, Sweden, economic convergence, euro, monetary union













EUR-Lex - 52014DC0326 - EN











|



52014DC0326

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL CONVERGENCE REPORT 2014 (prepared in accordance with Article 140(1) of the Treaty on the Functioning of the European Union) /* COM/2014/0326 final */










1.                      
PURPOSE OF THE REPORT

Article 140(1) of the Treaty on the Functioning
of the European Union (hereafter TFEU) requires the Commission and the European
Central Bank (ECB) to report to the Council, at least once every two years, or
at the request of a Member State with a derogation[1], on
the progress made by the Member States in fulfilling their obligations
regarding the achievement of economic and monetary union. The latest Commission
and ECB Convergence Reports relating to all Member States with a derogation
were adopted in May 2012[2].

The 2014 Convergence Report covers the
following eight Member States with a derogation: Bulgaria, the Czech Republic,  Croatia, Lithuania, Hungary, Poland, Romania and Sweden[3]. A
more detailed assessment of the state of convergence in these Member States is
provided in a Technical Annex to this Report (SWD(2014) 177). At the time of
the Convergence Report in 2012, Member States had shown uneven progress with
convergence, as many of them were undergoing significant adjustments of
previously accumulated macroeconomic imbalances, against the background of the
economic and financial crisis. The present examination takes place in a still
difficult external environment, though with a generally stronger recovery in Member
States with a derogation and lower risk perception by financial markets. 
The content of the reports prepared by the
Commission and the ECB is governed by Article 140(1) of the TFEU. This Article
requires the reports to include an examination of the compatibility of national
legislation, including the statutes of the national central bank, with Articles
130 and 131 of the TFEU and the Statute of the European System of Central Banks
and of the European Central Bank (hereafter ESCB/ECB Statute). The reports must
also examine whether a high degree of sustainable convergence has been achieved
in the Member State concerned by reference to the fulfilment of the convergence
criteria (price stability, public finances, exchange rate stability, long-term
interest rates), and by taking account of other factors mentioned in the final
sub-paragraph of Article 140(1) of the TFEU. The four convergence criteria are
developed in a Protocol annexed to the Treaties (Protocol No 13 on the
convergence criteria).
The economic and financial crisis along with
the recent euro-area sovereign debt crisis, has exposed gaps in the economic
governance system of the Economic and Monetary Union (EMU) and showed that its
existing instruments need to be used more comprehensively. With the aim of
ensuring a sustainable functioning of EMU, an overall strengthening of economic
governance in the Union has been undertaken since then. The assessment of
convergence is thus aligned with the broader "European Semester"
approach which takes an integrated and upstream look at the economic policy
challenges facing the EMU in ensuring fiscal sustainability, competitiveness,
financial market stability and economic growth. The key innovations in the area
of governance reform, reinforcing the assessment of each Member States'
convergence process and its sustainability, include inter alia the
strengthening of the excessive deficit procedure by the 2011 reform of the
Stability and Growth Pact and new instruments in the area of surveillance of
macroeconomic imbalances. In particular, this report takes into account the
assessment of the 2014 Convergence Programmes and the findings under the Alert
Mechanism Report of the Macroeconomic Imbalances Procedure[4].
Convergence criteria
The examination of the compatibility of
national legislation, including the statutes of the national central bank, with
Article 130 and with the compliance duty under Article 131 of the TFEU
encompasses an assessment of observance of the prohibition of monetary
financing (Article 123) and the prohibition of privileged access (Article 124);
consistency with the ESCB's objectives (Article 127(1)) and tasks (Article
127(2)) and other aspects relating to the integration of the national central
bank into the ESCB at the moment of the euro adoption.
The price stability criterion is defined
in the first indent of Article 140(1) of the TFEU: “the achievement of a
high degree of price stability […] will be apparent from a rate of inflation
which is close to that of, at most, the three best performing Member States in
terms of price stability”.
Article 1 of the Protocol on the convergence
criteria further stipulates that “the criterion on price stability […] shall
mean 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 1.5 percentage points that of,
at most, the three best-performing Member States in terms of price stability.
Inflation shall be measured by means of the consumer price index on a
comparable basis, taking into account differences in national definitions”[5]. The
requirement of sustainability implies that the satisfactory inflation
performance must essentially be attributable to the behaviour of input costs
and other factors influencing price developments in a structural manner, rather
than the influence of temporary factors. Therefore, the convergence examination
includes an assessment of the factors that have an impact on the inflation
outlook and is complemented by a reference to the most recent Commission
services' forecast of inflation[6].
Related to this, the report also assesses whether the country is likely to meet
the reference value in the months ahead. 
The inflation reference value was calculated to
be 1.7% in April 2014, with Latvia, Portugal and Ireland as the three 'best-performing
Member States'[7].
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[8].
Such outliers were in the past identified in the 2004, 2010 and 2013 Convergence
Reports[9].
At the current juncture, it is warranted to identify Greece, Bulgaria and Cyprus as outliers, as their inflation rates deviated by a wide margin from the euro
area average and including them would unduly affect the reference value and
thus the fairness of the criterion[10].
In case of Greece and Cyprus, negative inflation mainly reflected the severe adjustment
needs and exceptional situation of the economy. In case of Bulgaria, it was due to an unusually strong combination of disinflationary factors, inter
alia, a good harvest, administrative energy price reductions and declining
import prices. Against this background, Latvia, Portugal and Ireland, the Member States with the next-lowest average inflation rates, are used for the
calculation of the reference value.
The convergence criterion dealing with
public finances is defined in the second indent of Article 140(1) of the
TFEU as “the sustainability of the government financial position: this will
be apparent from having achieved a government budgetary position without a
deficit that is excessive as determined in accordance with Article 126(6)”.
Furthermore, Article 2 of the Protocol on the convergence criteria states that
this criterion means that “at the time of the examination the Member State is not the subject of a Council decision under Article 126(6) of the said
Treaty that an excessive deficit exists”. As part of an overall
strengthening of economic governance in EMU, the secondary legislation related
to public finances was enhanced in 2011, including the new regulations amending
the Stability and Growth Pact[11].

The TFEU refers to the exchange rate
criterion in the third indent of Article 140(1) as “the observance of
the normal fluctuation margins provided for by the exchange-rate mechanism of
the European Monetary System, for at least two years, without devaluing against
the euro”.
Article 3 of the Protocol on the convergence
criteria stipulates: “The criterion on participation in the exchange rate
mechanism of the European Monetary System (…) shall mean that a Member State
has respected the normal fluctuation margins provided for by the exchange-rate
mechanism of the European Monetary System without severe tensions for at least the
last two years before the examination. In particular, the Member State shall not have devalued its currency’s bilateral central rate against the euro on its own
initiative for the same period”[12].
The relevant two-year period for assessing
exchange rate stability in this report is 16 May 2012 to 15 May 2014. In its
assessment of the exchange rate stability criterion, the Commission takes into
account developments in auxiliary indicators such as foreign reserve
developments and short-term interest rates, as well as the role of policy
measures, including foreign exchange interventions, and international financial
assistance wherever relevant, in maintaining exchange rate stability. 
The fourth indent of Article 140(1) of the TFEU
requires “the durability of convergence achieved by the Member State with a derogation and of its participation in the exchange rate mechanism being
reflected in the long-term interest rate levels”. Article 4 of the
Protocol on the convergence criteria further stipulates that “the criterion
on the convergence of interest rates (…) shall mean 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 2 percentage
points that of, at most, the three best-performing Member States in terms of
price stability. Interest rates shall be measured on the basis of long-term
government bonds or comparable securities, taking into account differences in
national definitions”. 
The interest rate reference value was
calculated to be 6.2% in April 2014[13].

Article 140(1) of the TFEU also requires an
examination of other factors relevant to economic integration and convergence.
These additional factors include financial and product market integration, the
development of the balance of payments on current account and the development
of unit labour costs and other price indices. The latter are covered within the
assessment of price stability. The additional factors are important indicators
that the integration of a Member State into the euro area would proceed without
difficulties and broadens the view on sustainability of convergence.

2.                      
BULGARIA

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account additional relevant factors, the Commission considers that Bulgaria does not fulfil the conditions for the adoption of the euro.
Legislation in Bulgaria – in particular the Law on the Bulgarian National Bank – is not
fully compatible with the compliance duty under Article 131 of the TFEU.
Incompatibilities and imperfections exist in the fields of central bank
independence, the prohibition of monetary financing and central bank
integration into the ESCB at the time of euro adoption with regard to the tasks
laid down in Article 127(2) of the TFEU and Article 3 of the ESCB/ECB Statute.
Bulgaria
fulfils the criterion on price stability. In Bulgaria, 12-month average inflation was above the reference value at the last convergence
assessment in 2012. The average inflation rate in Bulgaria during the 12 months
to April 2014 was -0.8%, well below the reference value of 1.7%. It is
projected to remain well below the reference value in the months ahead.
Annual HICP inflation declined from its peak in
September 2012, turning negative in the second half of 2013 and the first
months of 2014. The fall in inflation has been broad-based, but largely driven
by declining import prices, decreases in administratively set energy prices and
a good agricultural harvest. In April 2014, annual HICP inflation stood at -1.3%.
Inflation is expected to pick up slowly in the
second half of 2014, with the fading of base effects from favourable energy and
food price developments. Accordingly, the Commission services' 2014 Spring
Forecast projects annual average inflation at ‑0.8% in 2014 and 1.2% in
2015. The relatively low price level in Bulgaria (47% of the euro-area average
in 2012) suggests significant potential for further price level convergence in
the long term.
Bulgaria fulfils
the criterion on public finances. Bulgaria is not the subject of a Council Decision on the existence of an excessive deficit.
The general government deficit fell from 2.0% of GDP in 2011 to 0.8% in 2012,
supported by higher revenues-to-GDP. The deficit-to-GDP ratio was 1.5% in 2013
and according to the Commission services' 2014 Spring Forecast, it is projected
to increase to 1.9% of GDP in 2014 and to decrease slightly to 1.8% in 2015,
under a no-policy-change assumption, supported by the economic recovery. The
gross public debt ratio remained low at 18.9% of GDP in 2013 and it is
projected to increase to 23.1% of GDP in 2014 and to abate to 22.7% of GDP in
2015.
Bulgaria does
not fulfil the exchange rate criterion. The Bulgarian
lev is not participating in ERM II. The BNB pursues its primary objective of
price stability through an exchange rate anchor in the context of a Currency
Board Arrangement (CBA). Bulgaria introduced its CBA on 1 July 1997, pegging
the Bulgarian lev to the German mark and later the euro. Additional indicators,
such as developments in foreign exchange reserves and short-term interest
rates, suggest that investors' risk perception towards Bulgaria has remained favourable. A sizeable official reserves buffer continues to underpin
the resilience of the CBA. During the two-year assessment period, the Bulgarian
lev remained fully stable vis-à-vis the euro, in line with the operation of the
CBA. 
Bulgaria fulfils
the criterion on the convergence of long-term interest rates. The average
long-term interest rate in Bulgaria in the year to April 2014 was 3.5%, well
below the reference value of 6.2%. It was also below the reference value at the
time of the last convergence assessment in 2012. It declined from above 5% in
early 2012 to around 3.5% by mid-2013. Yield spreads vis-à-vis the euro-area
long-term benchmark bonds[14]
declined significantly in the second half of 2012, as Bulgarian bond yields
fell with the calming of financial market tensions in the region. The spread
against the German benchmark bond widened slightly to some 200 basis points in early
2014.
Additional factors have also been examined, including balance of payments developments
and integration of labour, product and financial markets. Bulgaria's external balance recorded a significant surplus in 2013. The trade balance
deteriorated slightly from 2011 to 2013, but this was more than offset by
improvements in the income account and current transfers. The Bulgarian economy
is well integrated to the euro area through trade and investment linkages. On
the basis of selected indicators relating to the business environment, Bulgaria performs worse than most euro-area Member States. Bulgaria's financial sector is
well integrated with the EU financial sector, in particular through a high
level of foreign ownership in its banking system. In the context of the
Macroeconomic Imbalance Procedure, Bulgaria was subject to an in-depth review,
which found that Bulgaria continues to experience macroeconomic imbalances, which
require monitoring and policy action.

3.                      
THE CZECH REPUBLIC

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account the additional relevant factors, the Commission considers that the
  Czech Republic does not fulfil the conditions for the adoption of the euro. 
Legislation in the Czech Republic – in particular the Czech National Council Act No. 6/1993
Coll. on the Czech National Bank (the ČNB Law) – is not fully
compatible with the compliance duty under Article 131 of the TFEU.
Incompatibilities concern the independence of the central bank and central bank
integration in the ESCB at the time of euro adoption with regard to the
ČNB's objectives and the ESCB tasks laid down in Article 127(2) of the
TFEU and Article 3 of the ESCB/ECB Statute. In addition, the ČNB Law also
contains imperfections relating to the prohibition of monetary financing and
the ESCB tasks. 
The Czech Republic fulfils the criterion on price stability. In the Czech Republic, 12-month average inflation was below the reference value at the time of the
last convergence assessment in 2012. The average inflation rate in the Czech Republic during the 12 months to April 2014 was 0.9%, below the reference value of 1.7%.
It is projected to fall well below the reference value in the months ahead. 
Annual HICP inflation in the Czech Republic increased above the euro-area inflation in 2012, largely due to an increase
in the lower VAT rate while higher energy and food prices in global commodity
markets were also passed through into consumer prices. Inflation moderated
significantly throughout 2013 as pressures stemming from energy prices
gradually eased off and growth in prices of services became subdued. Lack of
demand pressures, reflecting the economic downturn, also contributed to the
moderate price growth. Annual HICP inflation hovered close to 0.3% in early
2014.
Inflation is projected to pick up in the second
half of 2014 on account of the significant weakening of the koruna in late
2013. Stronger domestic demand is then expected to stoke up inflation in 2015.
On this basis, the Commission services' Spring 2014 Forecast projects annual
HICP inflation to average 0.8% in 2014 and 1.8% in 2015. The price level in the
  Czech Republic (about 71% of the euro-area average in 2012) suggests
potential for price level convergence in the long term. 
If the Council decides to abrogate its
excessive deficit procedure, the Czech Republic will fulfil the criterion on
public finances. The Czech Republic is at present
the subject of a Council Decision on the existence of an excessive deficit
(Council Decision of 2 December 2009)[15].
The Council recommended the Czech Republic to correct the excessive deficit by
2013. The general government deficit in the Czech Republic declined to 1.5% of
GDP in 2013. According to the Commission services' 2014 Spring Forecast, which
is based on a no-policy-change assumption, the deficit-to-GDP ratio will amount
to 1.9% in 2014 and 2.4% in 2015, while general government debt is expected to remain
broadly stable at 45.8% of GDP in 2015. 
In view of these developments and the Commission
services' 2014 Spring Forecast, the Commission considers that the excessive
deficit has been corrected with a credible and sustainable reduction of the
budget deficit below 3% of GDP. The Commission is therefore recommending that
the Council abrogate the decision on the existence of an excessive deficit for
the Czech Republic.
The Czech Republic does not fulfil the exchange rate criterion. The Czech
koruna is not participating in ERM II. The Czech Republic operates a floating
exchange rate regime, allowing for foreign exchange market interventions by the
central bank. From early 2010 until late 2013, the exchange rate of the Czech
koruna against the euro remained broadly stable, predominantly trading between
24 and 26 CZK/EUR. On 7 November 2013, the ČNB announced that it would
intervene on the foreign exchange market to weaken the koruna, so that its
exchange rate against the euro was above 27 CZK/EUR. As a result, the koruna
swiftly weakened from below 26 CZK/EUR to above 27 CZK/EUR and then continued
to trade close to 27.4 CZK/EUR in early 2014. During the two years before this
assessment, the koruna depreciated against the euro by almost 11%.
The Czech Republic fulfils the criterion on the convergence of long-term interest
rates. The Czech 12-month average interest rate was below the reference
value at the time of the last convergence assessment in 2012. The average
long-term interest rate in the Czech Republic in the year to April 2014 was 2.2%,
well below the reference value of 6.2%. Following a protracted downward trend,
long-term interest rates in the Czech Republic declined from above 5% in
mid-2009 to below to below 2 % in late 2012. At the same time, the spread
against the German long-term benchmark bond narrowed to below 100 basis points.
Long-term spreads remained broadly stable in 2013, oscillating around 50 basis
points, as yields increased somewhat in both the Czech Republic and Germany. The spread against the German benchmark bond widened to about 70 basis points in early
2014. 
Additional factors have also been examined, including balance of payments developments
and integration of labour, product and financial markets. The external balance
of the Czech Republic gradually improved from a deficit of above 3% of GDP in
2010 to a surplus of 0.5% of GDP in 2013, mainly as a result of the increased
trade surplus. The Czech economy is highly integrated into the euro area
through trade and investment linkages. On the basis of selected indicators
relating to the business environment, the Czech Republic performs worse than
most euro-area Member States. The Czech financial sector is highly integrated
into the EU financial sector, in particular through a high degree of foreign
ownership of financial intermediaries. In the context of the Macroeconomic Imbalance
Procedure, the Czech Republic has not been subject to an in-depth review.

4.                      
CROATIA

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account the additional relevant factors, the Commission considers that Croatia does not fulfil the conditions for the adoption of the euro.
Legislation in Croatia is fully compatible with the compliance duty under Article 131 of the TFEU.
Croatia fulfils
the criterion on price stability. In Croatia, the average inflation rate during the 12 months to April 2014 was 1.1%, below the
reference value of 1.7%. It is expected to remain below the reference value in
the months ahead.
Annual HICP inflation has slowed down
significantly during the past 1½ years from above 4% in the second half of 2012
to around zero in spring 2014. The decline in inflation has reflected lower
energy and food prices on global commodity markets, the fading of the impact of
earlier increases in administered prices, and disinflationary effects from the
protracted recession. In April 2014, annual inflation stood at -0.1%.
Inflation is projected to remain subdued
throughout 2014, in the context of weak domestic demand, unfavourable labour
market developments and high deleveraging needs of the private and the public
sector. The Commission services' 2014 Spring Forecast projects annual HICP inflation
to average 0.8% in 2014 and 1.2% in 2015. The price level in Croatia (about 69% of the euro-area average in 2012) suggests potential for further price
level convergence in the long-run.
Croatia does
not fulfil the criterion on public finances. Croatia is at present the subject of a Council
Decision on the existence of an excessive deficit (Council Decision of 28
January 2014), which the Council recommended to correct by 2016. The general
government deficit-to-GDP ratio reached 4.9% in 2013, slightly down from 5% in
2012. The Commission services' 2014 Spring Forecast projects the deficit to decline
to 3.8% of GDP in 2014 and 3.1% of GDP in 2015. The general government
debt-to-GDP ratio is projected to increase throughout the forecast horizon,
from 67.1% in 2013 to 69.2% in 2015.
Croatia does
not fulfil the exchange rate criterion. The Croatian kuna is not
participating in ERM II. Croatia operates a tightly-managed floating exchange
rate regime, allowing for foreign exchange market intervention by the central
bank. During the past two years, the kuna has remained broadly stable against
the euro, its anchor currency, fluctuating between 7.4 and 7.7 HRK/EUR. The
marginal depreciation of the kuna against the euro in recent years has
reflected poor domestic economic developments and unfavourable external
conditions, while intra-year volatility has been related to the seasonality of
tourism revenues. 
Croatia
fulfils the criterion on the convergence of long-term interest rates. The average long-term interest rate in Croatia, as reflected by the
secondary market yield on a single benchmark bond with a residual maturity of
about 6 years, was 4.8% in the year to April 2014, below the reference value of
6.2%. It declined from close to 7% in mid-2012 to around 4.6% in autumn 2013,
before increasing slightly in early 2014. In the absence of a kuna-denominated
sovereign bond with longer maturity, yield developments should be interpreted
with great caution. The yield spread against the German benchmark bond with
6-year maturity stood at around 370 basis points in April 2014.
Additional factors have also been examined, including balance of payments developments
and integration of labour, product and financial markets. Croatia’s external balance improved considerably in recent years, turning into a surplus of
1.2% of GDP in 2013, mainly on account of import compression. The Croatian
economy is integrated into the euro area through trade and investment linkages,
although links to global supply chains have remained weak. On the basis of
selected indicators relating to the business environment, Croatia performs worse than most euro-area Member States. The financial sector is highly
integrated into the euro area through foreign ownership of domestic banks. Croatia was subject to an in-depth review in the context of the Macroeconomic Imbalance
Procedure, which concluded that the country is experiencing excessive macroeconomic
imbalances, which require specific monitoring and strong policy action. In
particular, policy action is required in view of the vulnerabilities arising
from sizeable external liabilities, declining export performance, highly
leveraged firms and fast-increasing general government debt.

5.                      
LITHUANIA

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account the additional relevant factors, the Commission considers that Lithuania fulfils the conditions for the adoption of the euro.
Legislation in Lithuania is fully compatible
with the compliance duty under Article 131 of the
TFEU. 
Lithuania
fulfils the criterion on price stability. In Lithuania, 12-month average inflation was above the reference value at the last convergence
assessment in 2012. The average inflation rate in Lithuania during the 12
months to April 2014 was 0.6%, well below the reference value of 1.7%. It is
projected to remain below the reference value in the months ahead. 
After a peak of annual HICP inflation at 10% in
2008, the economic recession and significant nominal wage adjustment led to
moderating inflation in 2009 and 2010. Inflation accelerated again to 4.1% on
average in 2011 on the back of higher commodity prices and economic recovery.
It has thereafter broadly followed a declining trend, induced by lower
inflation of energy and processed food prices, which was also supported by
continuing wage restraint in the economy. Inflation moderated to 3.2% in 2012
and 1.2% in 2013.
Annual HICP inflation is expected to be 1.0% on
average in 2014 according to the Commission services' 2014 Spring Forecast, reflecting
mainly favourable food and energy price developments. It is projected to pick
up in 2015 to 1.8%, in the context of improving domestic demand. The relatively
low price level in Lithuania (around 63% of the euro-area average in 2012)
suggests potential for further price level convergence in the long term.
Sustainable convergence implies that the
respect of the reference value is the result of underlying fundamentals rather
than temporary factors. An analysis of underlying fundamentals and the fact
that the reference value has been met by a comfortable margin support a
positive assessment on the fulfilment of the price stability criterion.
Longer-term inflation prospects will hinge in
particular on wages growing in line with productivity. As Lithuania is still a catching-up economy, wages are expected to grow faster than in most
advanced euro-area members. However, risks to price stability from catching-up
related price adjustment are limited by the recently demonstrated flexibility
of the labour market and wage-setting mechanisms which should ensure that
labour costs are aligned with productivity. They are also contained by the
country's significant progress in implementing the EU services directive and
low market entry costs, which keep competitive pressures high, as witnessed by
recent new entries in the retail market. A shortage of well-qualified labour in
the medium term could drive up wages relative to productivity. Addressing the
remaining bottlenecks will be important in limiting any tightening of the
labour market. Diversification of supplies and more competitive markets would
also support favourable price developments in the energy sector. 
Lithuania fulfils
the criterion on public finances. Lithuania is not the subject of a Council
Decision on the existence of an excessive deficit. The general government
deficit declined from 5.5% of GDP in 2011 to 3.2% in 2012, mainly due to
expenditure restraint. The deficit-to-GDP ratio was 2.1% in 2013 and according
to the Commission services' 2014 Spring Forecast it is projected to remain at 2.1%
of GDP in 2014 and decline to 1.6% in 2015, under a no-policy-change assumption.
The general government debt is expected to increase from 39.4% of GDP in 2013
to 41.4% of GDP in 2015.
Lithuania has put in
place a number of fiscal governance measures, which should support the
longer-term commitment to sound public finances. In March 2012, Lithuania signed the Treaty on Stability, Coordination and Governance in EMU (TSCG), and
the respective ratification law was approved by Parliament in September 2012.
This implies an additional commitment to conduct stability-oriented and
sustainable fiscal policies. A draft legislative package including a
constitutional law on the sustainability of general government sector finances
in accordance with the Fiscal Compact has been approved by the government
mid-April and will be voted by Parliament. The National Audit Office would be
charged with the functions of an independent Fiscal Council. The transposition
of the TSCG into national law would furthermore support existing legislation,
in particular the Law on Fiscal Discipline, adopted in 2007 and applied since
2013. It is based on provisions of the Stability and Growth Pact, links an
expenditure ceiling to revenues and sets as an objective a balanced budget in
the medium term as well as long-term sustainability. However, it lacks a
binding medium-term expenditure framework. 
In addition, amendments of the National Budget
Law to implement Council Directive 2011/85/EU on requirements for budgetary
frameworks of the Member States targeting a balanced or surplus position over
the cycle came into full force for the 2014 budget planning and execution
process. These amendments increase the government's accountability for the
implementation of the multiannual fiscal targets; however, the effect of the new
law remains to be assessed. 
Lithuania
fulfils the exchange rate criterion. Lithuania entered ERM II on 28 June 2004 and has been participating in the mechanism for
almost ten years at the time of the adoption of this report. Upon ERM II entry,
the authorities unilaterally committed to maintain the prevailing currency board
within the mechanism. The currency board remains well supported by foreign
exchange reserves. Short-term interest differentials vis-à-vis the euro area
have narrowed to very low levels. During the two-year assessment period, the
litas did not deviate from the central rate, and it did not experience
tensions. 
Lithuania fulfils
the criterion on the convergence of long-term interest rates. The average
long-term interest rate in the year to April 2014 was 3.6%, well below the
reference value of 6.2%. The average long-term interest rate in Lithuania had been below the reference value at the time of the last convergence assessment
in 2012 (5.2%). It gradually declined further to below 4% in 2013, reflecting
improved investor sentiment towards the country supported by increased
sovereign credit ratings as well as a relatively low domestic inflation. Although
the long-term litas-denominated government bond market is relatively shallow,
the government issued debt securities with original maturity of up to 10 years
in 2012 and 2013.  
Additional factors have also been examined, including balance of payments developments
and the integration of labour, product and financial markets. After recording a
substantial surplus in 2009, Lithuania's external balance (i.e. the combined
current and capital account) deteriorated somewhat in 2010, reaching a deficit
of 1.2% of GDP in 2011, but it posted surpluses again in 2012 and 2013. The
income account moved to surplus in 2009, reflecting mainly loan-loss provisions
made by foreign-owned banks, and returned to a deficit from 2010 onwards, when
foreign-owned banks regained profitability. Current transfers and the capital
account have consistently recorded significant surpluses, reflecting positive
net inflows from EU funds and migrant remittances. Net FDI inflows recovered
after a collapse in 2009 and peaked at 3.2% of GDP in 2011, however, they
subsided to 0.7% in 2012 and recovered only somewhat in 2013. A significant
decline in the real-effective exchange rate in 2009-2011, in particular when
deflated by ULC, gave a strong boost to Lithuania's cost competitiveness, and
Lithuania substantially improved its export performance. Following a moderate
upward trend, the ULC-deflated REER appreciated by about 6% and HICP-deflated by
about 3% between mid-2012 and April 2014. 
The Lithuanian economy is well integrated into
the euro area through both trade and investment linkages. The labour market has
demonstrated substantial flexibility, although structural unemployment is high.
On the basis of selected indicators relating to the business environment, Lithuania performs broadly in line with the average of euro-area Member States. Lithuania’s financial sector is well integrated into the EU financial system as confirmed
by the high share of foreign-owned banks. Financial supervision has been
strengthened substantially in the recent years. Cooperation with home
supervisors has been further enhanced.

6.                      
HUNGARY

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account the additional relevant factors, the Commission considers that Hungary does not fulfil the conditions for the adoption of the euro. 
Legislation in Hungary - in particular the Act on the Magyar Nemzeti Bank (MNB) - is
not fully compatible with the compliance duty under Article 131 of the
TFEU. Incompatibilities notably concern the independence of the MNB, the
prohibition of monetary financing and central bank integration into the ESCB at
the time of euro adoption with regard to the ESCB tasks laid down in Article
127(2) of the TFEU and Article 3 of the ESCB/ECB Statute. In addition, the Law
on the MNB also contains an incompatibility and further imperfections relating
to MNB integration into the ESCB. 
Hungary
fulfils the criterion on price stability. In Hungary, 12-month average inflation was above the reference value at the last convergence
assessment in 2012. The average inflation rate in Hungary during the 12 months
to April 2014 was 1.0%, below the reference value of 1.7%. It is projected to
remain below the reference value in the months ahead. 
Annual inflation peaked in September 2012
before falling sharply in January 2013, with the fading of the effect of
earlier indirect tax hikes and the start of a series of utility price
reductions. A decline in market energy and food prices also supported
disinflation, as did weak domestic demand and historically low inflation
expectations. On the other hand, excise duty increases and some other government
measures had a substantial upward effect on prices. In April 2014, annual HICP
inflation stood at -0.2%.
Inflation is projected to increase to 1.0% in
2014 and to 2.8% in 2015 according to the Commission services' 2014 Spring
Forecast, mainly due to the fading-away of utility price cuts, less favourable
commodity price developments and the gradual closing of the output gap. The
relatively low price level in Hungary (about 59% of the euro-area average in
2012) suggests potential for further price level convergence in the long term.
Hungary fulfils
the criterion on public finances. Hungary is not the subject of a Council Decision on the existence of an excessive deficit.
The general government balance, after recording a surplus of 4.3% of GDP in
2011 due to a significant one-off operation, turned into a deficit of 2.1% of
GDP in 2012. The deficit-to-GDP ratio reached 2.2% in 2013 and according to the
Commission services' 2014 Spring Forecast, it will amount to 2.9% in 2014 and
to 2.8% in 2015 under a no-policy-change assumption. General government debt is
projected to increase marginally from 79.2% of GDP in 2013 to 79.5% of GDP in
2015. 
Hungary does
not fulfil the exchange rate criterion. The Hungarian forint is not
participating in ERM II. Hungary operates a floating exchange rate regime,
allowing for foreign exchange market interventions by the central bank. The
forint exchange rate against the euro has been volatile in recent years. The
forint was broadly stable against the euro in the second half of 2012, but
depreciated by about 6% in early 2013. Supported by increased investor interest
in EU financial assets and improvements in the macroeconomic situation, the
forint strengthened in May and remained in the range of 290-300 HUF/EUR for the
rest of 2013, except for a few days ahead of the Fed's September meeting and in
late December. The forint has remained at levels over 300 HUF/EUR in the first
months of 2014, with temporary pressures linked mainly to expectations about US monetary policy, the continuation of the domestic monetary easing, as well as the political
crisis in Ukraine.
Hungary fulfils
the criterion on the convergence of long-term interest rates. The average
long-term interest rate in the year to April 2014 was 5.8%, below the reference
value of 6.2%. It was above the reference value at the time of the last
convergence assessment of Hungary in 2012. The monthly average long-term
interest rate declined from its peak of 9.5% in early 2012 to close to 5% by
May 2013. Long-term interest rates rose during the summer of 2013 and in early
2014, but have fluctuated generally in a close range to their annual average.
Long-term spreads vis-à-vis the German benchmark bond stood at some 410 basis
points in April 2014. 
Additional factors have also been examined, including balance of payments developments
and integration of labour, product and financial markets. Hungary's external surplus has gradually increased each year since 2009. Since 2011, the
improvement has mainly reflected higher goods trade surpluses and better
absorption of EU funds. Net FDI inflows remain relatively small. The balance-of-payments
assistance granted to Hungary by the EU and the IMF in autumn 2008 expired in
late 2010. Although Hungary asked for precautionary balance of payments assistance
in November 2011, as the country's financial market situation had stabilised, this
request was withdrawn in January 2014. The Hungarian economy is highly
integrated to the euro area through trade and investment linkages. On the basis
of selected indicators relating to the business environment, Hungary performs worse than most euro-area Member States. Hungary's financial sector is
well integrated into the EU financial system. In the context of the
Macroeconomic Imbalance Procedure, Hungary was subject to an in-depth review,
which found that Hungary continues to experience macroeconomic imbalances, which
require monitoring and decisive policy action.

7.                      
POLAND

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account the additional relevant factors, the Commission considers that Poland does not fulfil the conditions for the adoption of the euro. 
Legislation in Poland - in particular the Act on the Narodowy Bank Polski (NBP) and the
Constitution of the Republic of Poland - is not fully compatible
with the compliance duty under Article 131 of the TFEU. Incompatibilities
concern the independence of the central bank, the prohibition of monetary
financing and central bank integration into the ESCB at the time of euro
adoption. In addition, the Act on the NBP also contains some imperfections
relating to central bank independence and the NBP integration into the ESCB at
the time of euro adoption.
Poland
fulfils the criterion on price stability. In Poland, 12-month average inflation was above the reference value at the time of the last
convergence assessment in 2012. The average inflation rate in Poland during the 12 months to April 2014 was 0.6%, well below the reference value of 1.7%.
It is expected to remain below the reference value in the months ahead. 
Annual HICP inflation declined rapidly from
above 4% in the first half of 2012 to below 1% in the second quarter of 2013,
due to favourable commodity price developments as well as an abrupt decrease in
the prices of telecommunication services. It remained below 1% during the
second half of 2013 and in early 2014, to a large extent reflecting low
inflationary pressures in global markets and a relatively stable exchange rate.
Inflation is expected to increase only
gradually to 1.1% in 2014 and 1.9% in 2015 according to the Commission
services' 2014 Spring Forecast, as the output gap is estimated to remain
negative. The relatively low price level in Poland (close to 56% of the
euro-area average in 2012) suggests potential for further price level
convergence in the long term.
Poland does
not fulfil the criterion on public finances. Poland is at present the subject of a Council Decision on the existence of an excessive
deficit (Council Decision of 7 July 2009)[16].
The Council recommended Poland to correct the excessive deficit by 2012. On 21
June 2013, the Council concluded that Poland had taken effective action but
adverse economic events with major implications on public finances had
occurred, and issued revised recommendation under Article 126(7) TFEU, in which
it recommended that Poland should put an end to the excessive deficit situation
by 2014. The Council established the deadline of 1 October 2013 for Poland to take effective action. On 10 December 2013, the Council established in accordance
with Article 126(8) TFEU that Poland had not taken effective action. It adopted
a new recommendation under Art.126 (7) TFEU, according to which Poland should bring an end to the excessive deficit situation by 2015 in a credible and
sustainable manner.
According to the Commission services' 2014
Spring Forecast the general government budget balance is projected to increase
from a deficit of 4.3% of GDP in 2013 to a surplus of 5.7% of GDP in 2014,
largely due to a large, one-off asset transfer from the second pension pillar.
In 2015, the general government budget balance is expected to turn negative
again, posting a deficit of 2.9% of GDP under ESA95. The general government
debt-to-GDP ratio is forecast to fall from 57% in 2013 to 49.2% in 2014, mainly
as a result of the transfer of pension fund assets, before increasing to 50% in
2015.
Poland does
not fulfil the exchange rate criterion. The Polish zloty is not
participating in ERM II. Poland operates a floating exchange rates regime,
allowing for foreign exchange market interventions by the central bank. Following
a sharp depreciation in the second half of 2011 – which induced foreign
exchange market interventions by the NBP – the zloty's exchange rate against
the euro partially recovered in early 2012. The zloty thereafter broadly
stabilised and predominantly traded in the range of 4.1-4.3 PLN/EUR until early
2014. Compared to April 2012, the exchange rate of the zloty against the euro
was thus basically unchanged in April 2014.
Poland fulfils
the criterion on the convergence of long-term interest rates. The Polish
12-month average long-term interest rate was exactly at the reference value at
the time of the last convergence assessment in 2012. The average long-term
interest rate in the year to April 2014 was 4.2%, well below the reference
value of 6.2%. Long-term interest rates declined from above 6% in early 2011 to
below 4% by end-2012, reflecting improved investor sentiment towards the
country as well as a substantial fall in domestic inflation. Long-term interest
rates increased again during the second half of 2013 as risk appetite in global
financial markets dwindled. As a result, long-term interest rate spreads
vis-à-vis the German benchmark bond hovered around 270 basis points in early
2014.
Additional factors have also been examined, including balance of payments developments
and integration of labour, product and financial markets. Poland’s external balance improved considerably in recent years, turning into a surplus of 1%
of GDP in 2013, driven by a strengthening trade balance. The Polish economy is
well integrated into the euro area through both trade and investment linkages.
On the basis of selected indicators relating to the business environment, Poland performs worse than most euro-area Member States. Poland's financial sector is well
integrated into the EU financial system as confirmed by the substantial share
of foreign-owned banks. In the context of the Macroeconomic Imbalance
Procedure, Poland has not been subject to an in-depth review.

8.                      
ROMANIA

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account the additional relevant factors, the Commission considers that Romania does not fulfil the conditions for the adoption of the euro.
Legislation in Romania – in particular Law No. 312 on the Statute of the Bank of Romania (the BNR Law) – is not fully compatible with the compliance duty under
Article 131 of the TFEU. Incompatibilities concern the independence of the
central bank, the prohibition of monetary financing and central bank
integration into the ESCB at the time of euro adoption. In addition, the BNR
Law contains imperfections relating to central bank independence and to central
bank integration in the ESCB at the time of euro adoption with regard to the
BNR's objectives and the ESCB tasks laid down in Article 127(2) of the TFEU and
Article 3 of the ESCB/ECB.
Romania does
not fulfil the criterion on price stability. In Romania, 12-month average inflation was above the reference value at the last convergence
assessment in 2012. The average inflation rate in Romania during the 12 months
to April 2014 was 2.1%, above the reference value of 1.7%. It is projected to remain
above the reference value in the months ahead.
Romania has recorded
volatile and elevated inflation rates in recent years. Annual inflation peaked
at 8.5% in May 2011 following an increase in the standard VAT rate in mid-2010
and a rise in food prices. It fell significantly during the second half of 2011
and in early 2012, supported by a good harvest and lower energy commodity
prices but picked up again in the second half of 2012 and beginning of 2013 due
to rising food and energy prices. Annual average inflation moderated to just
above 3% in 2012 and 2013.
Inflation is expected to be lower in 2014,
supported by lower food prices and to pick up in 2015 as domestic demand is set
to recover. The Commission services' 2014 Spring Forecast projects annual HICP
inflation to average 2.5% in 2014 and 3.3% in 2015. The relatively low price
level in Romania (around 54% of the euro-area average in 2012) suggests
significant potential for further price level convergence in the long term.
Romania
fulfils the criterion on public finances. Romania is not the subject of a Council Decision on the existence of an excessive deficit.
The general government deficit declined from 5.5% of GDP in 2011 to 3.0% in
2012, mainly due to expenditure restraint but also involving revenue measures.
The deficit-to-GDP ratio turned out at 2.3% in 2013 and according to the
Commission services' 2014 Spring Forecast, it is projected to decrease further
to 2.2% of GDP in 2014 and to 1.9% in 2015, under a no-policy-change
assumption. The general government debt is expected to increase from 38.4% of
GDP in 2013 to 40.1% of GDP in 2015. 
Romania does
not fulfil the exchange rate criterion. The
Romanian leu is not participating in ERM II. Romania operates a floating
exchange rate regime, allowing for foreign exchange market interventions by the
central bank. After a strong depreciation during the global financial crisis in
late 2008 and early 2009, the leu broadly stabilised from 2009 until late 2011,
supported by the EU-IMF financial assistance programme. The leu's exchange rate
against the euro came under depreciation pressures during temporary bouts of
global risk aversion, especially in mid-2012. It firmed somewhat in late 2012
and in early 2013, as foreign interest in RON-denominated assets increased. The
leu's exchange rate against the euro temporarily depreciated in mid-2013 and
early 2014, reflecting heightened global risk aversion which induced operations
by the BNR in the interbank as well as in the foreign exchange market. During
the two years before this assessment, the leu depreciated against the euro by 1.9%.

Romania fulfils
the criterion on the convergence of long-term interest rates. Average long-term interest rates in Romania were above the
reference value at the last convergence assessment in 2012. The average
long-term interest rate in Romania in the year to April 2014 was 5.3%, below
the reference value of 6.2%. Long-term interest rates in Romania remained at just above 7% for most of the period 2010-2011, before falling in 2012.
They declined to around 5.5% by the end of 2012 and floated around 5.3% for
most of 2013, reflecting improved investor sentiment towards the country. As a
result, long-term interest rate spreads vis-à-vis the German benchmark bond
declined from above 500 basis points in late 2012 to about 380 basis points in
April 2014.
Additional factors have also been examined, including balance of payments developments
and the integration of labour, product and financial markets. Romania's external balance (i.e. the combined current and capital account) improved
markedly during the global crisis. Romania's external deficit narrowed to 3% of
GDP in 2012 and the external balance shifted into surplus in 2013. The
narrowing of the external shortfall reflected, in particular, a lower merchandise
trade deficit. Romania has been a recipient of international financial
assistance since 2009. The first two-year joint EU-IMF financial assistance
programme was followed by a further two joint EU-IMF programmes, granted in
2011 and 2013. Unlike the first programme, both subsequent programmes have been
treated as precautionary, and no funding has been requested so far. External
financing pressures eased further in 2012-2013 amid an improvement in the
external balance and recovery in global risk appetite. The Romanian economy is
well integrated into the euro area through both trade and investment linkages.
On the basis of selected indicators relating to the business environment, Romania performs worse than most euro-area Member States. Romania's financial sector is
well integrated into the EU financial system as confirmed by the substantial
share of foreign-owned banks. In the context of the Macroeconomic Imbalance
Procedure, Romania has not been subject to an in-depth review.

9.                      
SWEDEN 

In the light of its assessment on legal
compatibility and on the fulfilment of the convergence criteria, and taking
into account the additional relevant factors, the Commission considers that Sweden does not fulfil the conditions for the adoption of the euro.
Legislation in Sweden - in particular the Sveriges Riksbank Act, the Instrument of
Government and the Law on the Exchange Rate Policy - is not fully compatible
with the compliance duty under Article 131 of the TFEU. Incompatibilities and
imperfections exist in the fields of independence of the central bank,
prohibition of monetary financing and central bank integration into the ESCB at
the time of euro adoption.
Sweden
fulfils the criterion on price stability. In Sweden, 12-month average inflation was below the reference value at the time of the last
convergence assessment in 2012. The average inflation rate in Sweden during the 12 months to April 2014 was 0.3%, well below the reference value of 1.7%.
It is projected to remain well below the reference value in the months ahead. 
In recent years, HICP inflation in Sweden fell from an average of 1.4% in 2011 to 0.9% in 2012, before declining further to
0.4% in 2013. The decline over the last two years was driven by the
strengthening of the krona and sluggish internal and external demand, and was
broad-based across various goods and services. In April 2014, annual HICP
inflation stood at 0.3%.
On the back of a gradual pick-up in growth,
inflation is likely to increase only moderately in the course of 2014. No
particular upward pressure is foreseen from any HICP component and wage
developments are projected to remain moderate. The Commission services' 2014
Spring Forecast projects annual average inflation at 0.5% in 2014 and 1.5% in
2015. The level of consumer prices in Sweden relative to the euro area
gradually increased since Sweden joined the EU in 1995, to 126% in 2012.
Sweden
fulfils the criterion on public finances. Sweden is not the subject of a Council Decision on the existence of an excessive deficit. The
general government balance turned into a deficit of 0.6% of GDP in 2012 which
widened to 1.1% in 2013. This mainly reflected lacklustre growth and a number
of government measures to support the economy. According to the Commission
services' 2014 Spring Forecast, the government deficit is projected to reach
1.8% of GDP in 2014, before declining to 0.8% in 2015 under a no-policy-change
assumption. The gross public debt ratio stood at 40.6% of GDP in 2013 and is
projected to increase further in 2014, reaching 41.6% of GDP, before falling
back to 40.4% in 2015. 
Sweden does
not fulfil the exchange rate criterion. The Swedish
krona is not participating in ERM II. Sweden operates a floating exchange rate
regime, allowing for foreign exchange market interventions by the central bank.
Following the strong depreciation of the krona against the euro at the onset of
the financial crisis in 2008, the krona appreciated by some 35% between March
2009 and August 2012, reaching a twelve-year high in August 2012. While this
appreciation was also a correction of the krona's previous weakening,
safe-haven flows in the context of the euro-area sovereign debt crisis
significantly contributed to it. During the two years before this assessment,
the krona depreciated against the euro by some 2%.
Sweden
fulfils the criterion on the convergence of long-term interest rates. The average long-term interest rate in Sweden in the year to April
2014 was 2.2%, well below the reference value of 6.2%. The Swedish 12-month
average interest rate had also been markedly below the reference value at the last
convergence assessment in 2012. Having declined from above 4% in 2008, it bottomed
out at some 1.6% between October 2012 and May 2013 and has been increasing since
then. Yield spreads vis-à-vis German long-term government bonds widened between
end-2012 and autumn 2013, as Swedish bond yields increased owing to a partial
reversal of safe-haven flows from the euro area. The spread against the German
benchmark bond stood at some 60 basis points in April 2014.
Additional factors have also been examined, including balance of payments developments
and integration of labour, product and financial markets. The surplus on Sweden's external balance has been on a declining trend since 2007, falling from above 9% of GDP in
2007 to 6.6% in 2013, which is partly explained by a structural decrease in Sweden's merchandise trade surplus. Sweden's economy is highly integrated into the euro
area through trade and investment linkages. On the basis of selected indicators
relating to the business environment, Sweden performs better than most euro-area
Member States. Sweden's financial sector is well integrated into the EU
financial sector, especially through inter-linkages in the Nordic-Baltic
financial cluster. In the context of the Macroeconomic Imbalance Procedure, Sweden was subject to an in-depth review in 2014, which found that Sweden continues to experience
macroeconomic imbalances, which require monitoring and policy action.
[1]     The Member States that have not yet fulfilled the necessary
conditions for the adoption of the euro are referred to as "Member States
with a derogation". Denmark and the United Kingdom negotiated opt-out
arrangements before the adoption of the Maastricht Treaty and do not
participate in the third stage of EMU.
[2]     In 2013, the Commission and ECB prepared Convergence Reports on
  Latvia, following the request of the national authorities. Latvia adopted the euro on 1 January 2014.
[3]     Denmark and the United Kingdom have not expressed an intention
to adopt the euro and are therefore not covered in the assessment. 
[4]     The Commission published its third Alert Mechanism Report (AMR)
in November 2013 and the conclusions of the corresponding in-depth reviews in
March 2014.
[5]     For the purpose of the criterion on price stability, inflation
is measured by the Harmonised Index of Consumer Prices (HICP) defined in
Council Regulation (EC) No 2494/95.
[6]     All forecasts for inflation and other variables in the current
report are from the Commission services' 2014 Spring Forecast. The Commission
services' forecasts are based on a set of common assumptions for external
variables and on a no-policy change assumption while taking into consideration
measures that are known in sufficient detail.
[7]     The cut-off date for the data used in this report is 15 May 2014.
[8]     The use of the term 'best performer in terms of price
stability' should be understood in the meaning of Article 140(1) of the TFEU and
is not intended to represent a general qualitative judgement about the economic
performance of a Member State.
[9]     Lithuania, Ireland and Greece, respectively.
[10]    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%.
[11]    A directive on minimum requirements for national budgetary
frameworks, two new regulations on macroeconomic surveillance and three
regulations amending the Stability and Growth Pact (SGP) entered into force on
13 December 2011 (one out of two new regulations on macroeconomic surveillance
and one out of three regulations amending the SGP include new enforcement
mechanisms for euro-area Member States). Besides the operationalisation of the
debt criterion in the Excessive Deficit Procedure, the amendments introduced a
number of important novelties in the Stability and Growth Pact, in particular
an expenditure benchmark to complement the assessment of progress towards the
country-specific medium-term budgetary objective.
[12]    In assessing compliance with the exchange rate criterion, the
Commission examines whether the exchange rate has remained close to the ERM II
central rate, while reasons for an appreciation may be taken into account, in
accordance with the Common Statement on Acceding Countries and ERM2 by the
Informal ECOFIN Council, Athens, 5 April 2003.
[13]    The reference value for April 2014 is calculated as the simple average
of the average long-term interest rates of Latvia (3.3%), Portugal (5.8%) and Ireland (3.5%), plus two percentage points. 
[14]    Countries' long-term interest spreads vis-à-vis the euro-area
long-term benchmark bonds (n.b. the German benchmark bond is used as a proxy
for the euro area) are computed using the monthly series "EMU convergence
criterion bond yields" published by Eurostat. The series is also published
by the ECB under the name "Harmonised long-term interest rate for
convergence assessment purposes".
[15]    Decision 2010/284/EU (OJ L 125, 21.5.2010, p. 36-37).
[16]    Decision 2009/589/EC (OJ L 202, 4.8.2009, p. 46).